Wednesday, May 25, 2011

Texas triangle - I-35, I-10, I-45 - to open CNG stations

Jeff Dillon looked at the numbers and made a decision.

With a fleet of more than 200 trucks operating out of his Chicago headquarters and a division with a contract to haul Owens-Corning roofing shingles out of the D/FW Metroplex, the percentages became very clear.

He could stick with $4 a gallon diesel to power his Peterbilt motor freight day cabs, or go with compressed natural gas at about $1.50 per gallon. With a $30,000 price tag to convert the engines to natural gas, the figures became very clear.

Mr. Dillon chose CNG because, after all, Texas has a huge share of the natural gas play that came with the development of horizontal drilling/fracturing techniques used by outfits like Pioneer Natural Resources, Bakken, and Chesapeake Energy.

Between the Eagle Ford fields in South Texas and the Permian Basin northwest of Odessa, Texas is poised to produce – and use - more of the clean burning, cheaper motor fuel than most markets.

About 10% of America's motor freight traffic moves along Interstate Highways 35, 45 and 10 in the triangle between Dallas, Ft. Worth, Austin, San Antonio and Houston, industry spokesmen say.

The first of a projected 12 CNG filling stations will open soon in the Metroplex to keep Dillon Transport's day cabs running on CNG, according to Lynn Lyon, manager of strategic projects for Pioneer Natural Resources at Irving, and a spokesperson for America's Natural Gas Alliance. She projects natural gas motor fuel prices in the Metroplex will settle at about $1.99 per gallon – less than half what truckers pay for diesel nationwide.

Other transportation fuel markets will soon open, according to industry press releases. The transportation industry and financial markets are eagerly awaiting a major government announcement regarding the use of CNG to fuel light freight delivery vehicles and passenger cars.

The Canadian government announced a 5-year, $500,000 research grant to the University of British Columbia to develop fuel injector prototypes for natural gas engines last October.

Through the reduction of particulate emissions, using natural gas will make the world greener. “Our goal is to develop a fuel injector that will make natural gas engines competitive with diesel engines...” said UBC researcher Steven Rogak. “Natural gas has the potential to reduce greenhosue gas emissions by more than 20 percent, compared to conventional engines. But until our society places a higher price on carbon emissions, it is esential that the cleaner engine technology can compete with the incumbent technology on cost and performance.”

Public bus fleets have long run on CNG, but the major barrier to using the fuel in transport and passenger vehicles has been the lack of the means of rapid refueling. That takes infrastructure in the form of compressors equal to the task.

Major operators of delivery fleets such as UPS and Schwan's are converting their fleets to the use of CNG with the cooperation of Freightliner.

Ford and GM both offer conversion packages for medium duty freight and delivery vehicles. In fact, Ford's line of F-250 and F-550 trucks are equipped with optional fittings for conversion to the alternative fuel.

ExxonMobil just become the largest natural gas producer in the country with the acquisition of XTO for $40 billion, according to security analyst Roger Nachman.

“I see 2011 and beyond as being the time in country when natural gas begins to take over and transition the country from oil-based to eventually natural gas,” he wrote.

A major financial player bought into Chesapeake Energy (CHK), run by Aubrey McClendon. Carl Icahn upped his stake in that company to a 5.8% share and recently acquired a position in Dynegy.

In a statement, the investment bank UBS wrote “CHK has terrific shale assets but has been criticized for too aggressively acquiring undeveloped acreage, and a perception of poor financial discipline has caused CHK to trade at a steep discount to NAV. CHK may be vulnerable to activists given 1) it is trading 69% below its 2008 high stock price, 2) insiders control just 1.2% of shares outstanding (CEO McClendon controlling 0.5%), 3) recent criticism for its compensation of its CEO, and 4) a staggered board with 4 of the 9 seats up for re-election in 2011.”

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