Natural Gas Truck Investing

Written By Jason Stutman

Posted June 5, 2013

Record levels of shale gas production in the United States have had a profound economic and infrastructural impact in the country. From the chemical industry to midstream companies, many are reaping the benefits and adapting to the higher rate of natural gas production.

Low prices and high supplies of fuel are obvious benefactors for the transportation industry. And now, trucking companies are getting serious with the idea of converting from diesel to natural gas.

While some have doubted the ability to transfer over, the likelihood of shale-fueled tractor fleets is becoming increasingly promising. In fact, Nevada based NevCal Trucking predicts that entire transportation fleets across the country will be fueled by natural gas within this decade.

And with natural gas about 25 percent cheaper than conventional diesel fuel, this doesn’t seem like that bad of an idea.

In addition to boasting cheaper prices, natural gas is looking far less volatile than diesel. Converting to natural gas would be a great way for companies to hedge against fluctuating diesel prices.

2013 diesel-prices

Of course, conversion to natural gas would pose major obstacles for long-range trucking fleets without a drastic change in infrastructure.

Conversion Costs

If trucking companies are serious about converting to natural gas, there are two specific points of infrastructure to focus on: trucks and fueling stations.

Trucks running on natural gas would require additional tanks to store either compressed (CNG) or liquefied (LNG) natural gas due to lower density properties. LNG is about 60 percent as dense as diesel, while CNG is only 25 percent as dense. In other words, natural gas takes up to four times the physical space as diesel fuel.

The cost of conversion per truck hovers around $30,000, with the addition of storage tanks accounting for most of the expense. The cost for natural gas-powered engines is actually quite similar to the cost of diesel-powered engines.

And while some might equate these infrastructural challenges to that of the electric car industry, this notion is largely misguided. Fueling stations for trucking fleets only need to be placed along key highways, while electric charging stations need to infiltrate a vast array of residential locations.

But for the time being, dreams of long-range transportation fleets powered by natural gas are going to remain just that.

Vice President Randy Mullet of Con-way Inc. (NYSE: CNW) cut straight to the point in March: “We can’t make the economics work… The upfront cost is too high.”

However, Con-way’s market cap is only so high, and the company only uses so much fuel. Larger companies are willing to make the capital expenditures worthwhile in the long-term.

To help out with the upfront costs, the White House recently proposed a 50 percent tax cut towards alternative fuel trucks. And though subsidies may increase incentive for conversion, it is the free market that will ultimately decide the fate of natural gas use in transportation.

Rising Demand

As more manufacturers begin to produce an increased number of storage tanks, the price of conversion is expected to decline. Industry representatives believe that it is “in the process of changing over” and expect to see increased production of tanks starting this year.

Companies including Walmart (NYSE: WMT) and UPS (NYSE: UPS) have already made investments in natural gas vehicles. Walmart is currently testing five CNG-powered trucks and would potentially save more than $250 million in fuel costs each year if it converted its entire fleet. 

Among these companies is Halliburton (NYSE: HAL), which recently added 100 CNG powered trucks as a pilot program for future fleet conversion. The company expects annual fuel savings of $5.1 thousand for each truck.

Ryder (NYSE: R) has already produced 300 natural gas powered trucks and plans to increase this number in order to penetrate the market. Currently, Ryder has only 2 natural gas fueling stations as compared to 400 diesel stations. However, the company is adding more stations along with an increase in maintenance capability.

With larger companies looking to lead the way, the development of natural gas infrastructure for trucking fleets is promising, to say the least. As long as natural gas prices remain low, expect to see natural gas-vested companies like Ryder benefit greatly as conversion efforts become increasingly more cost-effective.


If you liked this article, you may also enjoy:

Angel Publishing Investor Club Discord - Chat Now

Hydrogen Fuel Cells: The Downfall of Tesla?

Lithium has been the front-runner in the battery technology market for years, but that is all coming to an end. Elon Musk is against them, but Jeff Bezos is investing heavily in them. Hydrogen Fuel Cells will turn the battery market upside down and we've discovered a tiny company that is going to make it happen...

Sign up to receive your free report. After signing up, you'll begin receiving the Energy and Capital e-letter daily.