Natural Gas Will Soon Change the World [Honda Motor Co Ltd, Royal Dutch Shell plc (ADR)]

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May 9, 2014 11:55am NYSE:UNG

natural gasFifteen years ago all the cars, trucks, trains and ships in the world were powered by oil. Today, although we still rely on gasoline and diesel as our primary transportation fuels, we’re now experimenting with cheaper, cleaner, quieter


natural gas.

Moving away from petroleum and toward natural gas – which America has in abundance right under our feet – to power our cars, trucks, trains and ships would be transformative for American business and consumers, for the environment and for our national security.

Consider that we currently use more than four times as much crude oil (25% of the world’s daily output) as we produce (6%). We have to import the rest.

If we could reduce our appetite for crude oil by using natural gas, it would have a huge impact on our balance of trade.

One look at our energy supplies and usage puts this all in perspective.

 

View larger image

On the left of the graph above are all U.S. energy sources; the numbers are percentages of total supply. On the right are the uses to which our energy is directed; the numbers are percentages of total usage. Transportation is responsible for 27% of all the energy we use, and 71% of that transportation is powered by petroleum.

Right now, only 0.735% of natural gas is used as a transportation fuel in the U.S.

The biggest problem with converting to natural gas is that we lack the necessary refueling infrastructure. Without that, it simply won’t happen.

Let’s take a look at how this problem might be solved, and by whom.

Natural Gas for Trucking

Diesel fuel prices are well over $4 per gallon just about everywhere in the U.S. The average price this week for compressed natural gas is $2.18.

The economic advantages of natural gas are obvious.

Right now, Navistar International Corp(NYSE:NAV), Freightliner, Peterbilt and AB Volvo (ADR)(OTCMKTS:VOLVY) all manufacture 18-wheeler trucks that run on natural gas. As T. Boone Pickens has been saying for years, transforming our nation’s truck fleet to natural gas cuts our crude oil use by one-third.

The problem is the lack of fueling stations.

Royal Dutch Shell plc (ADR)(NYSE:RDS.A) is stepping up.

In Alberta, Canada, Shell is installing LNG refueling equipment at select Shell Flying J truck stops. It’s starting with three sites, and expanding from there.

In the U.S., Shell plans to install LNG refueling pumps at TravelCenters of America. Ultimately, Shell will have at least two LNG fueling stations at 100 existing TravelCenters of America and Petro Stopping Centers.

As you can see from Shell’s map below, these are all located at key points on U.S. interstate highways. Construction of these centers is underway and should take about a year.

 

When completed, the U.S. will have a coast-to-coast LNG-fueled transportation network. Elen Phillips, a Shell vice president, says the company is “leveraging our strength as an integrated company to produce, liquefy, distribute and commercialize natural gas in transport – and TravelCenters of America is the ideal partner to help us bring this vision to life.

“We see great potential for LNG as a fuel option among our range of quality fuels. [It’s] due to the sheer abundance and affordability of domestic natural gas in North America.”

Natural Gas for Ships and Trains

Most ships run on diesel fuel or the especially dirty “bunker fuel.” Both Europe and North America will require ships to reduce emissions beginning next year.

LNG is virtually free of particulates and sulfur, the two main pollutants targeted by the new regulations.

Norway is already using LNG-powered engines on ferries. On the Rhine River in the Netherlands, Shell has inland barges that run on LNG.

Germany and Singapore are also investing in LNG ship refueling hubs. Total SA (ADR)(NYSE:TOT) is following Shell’s lead and building LNG refueling infrastructure along European waterways.

Railroads are also facing stricter emission standards from federal regulators, with new rules set to take effect next year. But a conventional natural gas-powered engine isn’t quite powerful enough for trains so the industry is exploring an engine that uses a small amount of diesel, mixed with natural gas, to get the necessary power.

Matt Rose, CEO of Burlington Northern, said he’ll make a decision this year about whether to convert Burlington’s entire fleet of engines.

Natural Gas for Cars

Natural gas-powered cars are already available. For example, Honda Motor Co Ltd (ADR)(NYSE:HMC) makes a natural gas-powered version of its popular Civic model. But it costs roughly $5,000 more than a conventional model, and at the moment there aren’t nearly enough refueling stations.

You need a lot more filling stations for cars than you need for trucks. The U.S. has roughly 167,000 gasoline/diesel stations.

It would cost $8 billion to $12 billion to add compressed natural gas (CNG) refueling stations at just 10% of existing stations, according to a study by IHS-CERA, a business research organization. Adding CNG refueling costs an additional $300,000 to $3 million per station.

More work needs to be done. But a transformation away from petroleum and toward natural gas is possible – and it’s beginning to happen now. It would save the industry and consumers billions, and get us completely off Middle Eastern oil. From where I sit, that looks like a no-brainer.

What do you think? Comment below to share your views..

Good Investing,

by David Fessler, Energy & Infrastructure Strategist

Investment U provides cutting-edge research and strategic financial recommendations for all levels of investors through its morning publication Investment U Daily and its related publications.


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