- Fast fill Compressed Natural Gas (CNG) stations are selling CNG at a $0.5 - 1.0/DGE discount to Clean Energy Fuels' (NASDAQ:CLNE) Liquefied Natural Gas "LNG" stations.
- The rapidly expanding fast fill CNG network is being developed by a wide variety of players and CLNE's dominant position in the CNG industry is fast eroding.
- 84 CNG stations were opened in 2013 that can accommodate Class 8 trucks. CLNE only opened 2 out of these.
- CLNE looks extremely vulnerable having bet big on LNG, which appears to be the wrong horse.
Following my article: Clean Energy Fuels' LNG Strategy Is Crumbling, I received a barrage of comments, public and private, about how the article was manipulative and I was only trying to "spin" a story to help those that are short CLNE stock. I can only repeat once again that I am not short the stock and I take pride in writing articles that are based on verifiable, proper research. I don't make things up.
My day job is in the natural gas industry, but I am not directly involved in CNG projects, so to make sure that I get things right I have spoken to some friends in the industry who are on the "NGV frontline" and have been so for a considerable number of years.
My two favorite pieces of CLNE marketing information are without doubt the now infamous "Brian Powers video" and the recurring statements made by Jim Harger, CLNE's Chief Marketing Officer, where he claims CLNE's biggest competition is misinformation. Funny he should complain about misinformation as the Brian Powers video and Jim Harger's comments are prime examples of exactly this.
I will work my way through assertions from Brian Powers and Jim Harger below that are factually incorrect and misleading. I have also included some of the comments I received following publication of my initial CLNE article.
"The industry's not happy at five gallons per minute."
This comment from CLNE's Jim Harger relates to how quickly you can fuel a CNG truck. You have got to question why such a statement is made by a leading CLNE executive, when he has to know that this is far from the truth. Almost all public access CNG stations that have opened in the past 12-24 months, or that are currently being built, offer fast fill fueling at approximately 10 DGE/minute. I have included a selection of recent articles below that confirm this.
"A typical fast fill CNG station is going to cost more than $5 million and will use as much power as a small regional hospital"
This statement comes from Brian Powers and is not even close to describing the cost of a typical public access fast fill station. The industry average for a fast fill station with two-four fueling lanes is in the range of $1.5-2.5 million and uses significantly less power than a small regional hospital. Here is an article detailing a fast fill CNG station.
Yes, it is true that most fast fill CNG stations will not initially be able to fuel several hundred trucks every day, but then why would you want to supersize your CNG station if your initial demand is maybe no more than 10-20 Class 8 trucks and a dozen lighter vehicles per day? Most CNG stations are being designed and built with expansion in mind. This means that adequate gas supply is built in from day one and then additional compressors, cascade storage or fueling lanes can be added as CNG demand grows. By following this stepwise approach, developers can use cash flow from ongoing operations to pay for the expansion, and not go on a spending binge on day one.
"CNG tanks are heavier too: 'A 600-mile truck will have a weight penalty of at least 2,000 pounds,' Harger says, meaning less cargo and less revenue."
The funny thing about this statement is not only that it is wrong, but that Harger made the same statement at the end of July 2013, but then the weight penalty was at least 3,000 pounds and not 2,000 pounds, so even he admits there is an underlying trend in favor of CNG here.
Westport Innovations (NASDAQ:WPRT) presented at an industry conference in November 2013, and it said that the weight penalty for a 120 DGE CNG fuel system is 1,100 pounds, and not "at least 2,000 pounds," as alleged by CLNE. As WPRT manufactures LNG tanks, I reckon it knows what it is talking about.
The trucking industry obviously feels the 1,100 pound weight penalty for a CNG truck is worth it as they get cheaper fuel, less complex fuel systems, easier maintenance and far more fueling stations, because the Class 8 CNG trucking industry is thriving. Hexagon Composites (OTC:OTC:HXGCF) (HEX.OL) has a majority share of the market for large CNG tanks that go on Class 8 trucks, and they are struggling to keep up with demand. Hexagon's CEO commented that the estimated split between CNG and LNG going forward ranges from a majority to a significant majority of heavy duty trucks ending up with a CNG configuration.
"The price differential between LNG and CNG is only marginal"
A number of people commenting on the recent negative CLNE articles have used the following Fuel Price Report from CLNE's website as evidence CNG is only marginally cheaper as the LNG at the time of writing this article is priced at $2.90/DGE and the CNG is retailing at $2.76/DGE. If you are going to bring forward CNG and LNG pricing data it is far more correct to include nationwide date from all of the CNG fuel providers.
Here you will see that the average nationwide CNG price in October 2013 was reported as $2.33/DGE. However, the inclusion of CLNE's "expensive CNG" is going to skew the data considerably as CLNE currently operates approx. 23% of all public access CNG stations. If we back out the CLNE stations, then the average CNG price at non-CLNE public access stations is approx. $2.18 - 2.20/DGE and this is the average DGE price CLNE's LNG stations will have to compete against. For a truck that runs 100,000 miles a year and achieves 6 MPG, the average price differential amounts to $10,000 - 15,000/year in fuel savings alone for a CNG truck compared to one that runs on LNG.
"A Class 8 CNG truck can only be used for regional distribution and in areas with a flat terrain"
A rapidly expanding number of trucking companies seem to disagree. In my previous article I used some information from Saddle Creek and numerous commentators claimed that Saddle Creek is a regional trucking operator that only operates in a small part of the country, where its BTW is so flat that any kind of truck can get the job done.
It is almost as if Saddle Creek read those comments, because they have sent a CNG truck on a cross country trip. It claims it can run 600 miles using fast fill, will only be using publicly accessible CNG stations and the truck can handle the variety of terrain conditions on a cross-country trip. I wonder who I should believe; the people providing statements that can't be backed up or as-we-speak real life business cases?
"The majority of CLNE's LNG stations are in locations where fast fill CNG stations cannot be built due to lack of natural gas pipelines and other infrastructure"
This assertion has puzzled me for quite some time and my gut feeling told me it didn't smell right as the U.S. has one of the most extensive natural gas pipeline systems in the world. However, trusting your gut (and in my case past professional experience) can sometimes be a big mistake, so I decided to analyze the data.
By using CLNE's online Clean Energy Station Locator I identified a total of 112 ANGH LNG stations. Most of these have not yet opened, but I anyway looked at all the locations. Here is what I found:
- 85 of the ANGH stations are in locations where there already exists at least one public access CNG fast fill station for Class 8 or where one is being developed.
- 5 ANGH stations are in locations where there is already a private CNG station for Class 8 or where the public station can only accommodate medium duty vehicles. In other words; gas and utilities are available to support a public access fast fill station should market demand support such a station.
- 22 ANGH stations are in locations where there is no CNG station, or immediate plans to construct one that I can find. However, according to the National Pipeline Mapping System all of these sites have got natural gas transmission lines in the immediate vicinity.
What about access to power? Brian Powers did say, after all, that a fast fill CNG station would need as much power as a small regional hospital and this surely can't always be available in the middle of nowhere? Well, first of all his statement about the vast power demand is incorrect. Secondly, in the event it would be prohibitively expensive to run electrical power to a site, using gas-fired compressors is an economical and technically sound option that is used all over the world.
This means that all of the 112 ANGH stations listed on CLNE's website are in locations where a fast fill CNG station already exists, where one is being developed or where one could be developed.
"CNG has its place, Harger says, citing smaller vehicles, package delivery, transit buses and refuse trucks as examples. In fact, 'It's our bread and butter,' he says, as Clean Energy operates nearly 400 CNG stations."
Yes, it is indeed true that CLNE operates nearly 400 CNG stations. However, this number is completely irrelevant when discussing fueling Class 8 trucks as only 150 of these stations are open to the public. The rest of the stations are private stations that provide CNG for refuse trucks and other captive fleets. Out of the approximately 150 stations that provide public access, less than 50 of these stations can accommodate heavy duty vehicles, according to the database run by the Alternative Fuels Data Centre. To make matters even worse, CLNE has fallen behind in the race to develop fast fill CNG stations and this market is now being populated by a mushrooming number of rapidly expanding CNG station players. Out of the 84 CNG stations capable of accommodating Class 8 trucks that were opened in 2013, CLNE only opened two of those facilities.
CNG fast fill stations are now being developed by a wide range of companies; utility-backed companies like Trillium CNG and Questar Fueling, travel stop and C-store chains like Love's and Kwik Trip or wholesale petroleum distribution companies like U.S Oil through its subsidiary Gain Clean Fuel. All of these companies either generate the vast majority of their income from non-CNG sales or are subsidiaries of well-funded parent companies. This means they can play the long game when developing a network of stations, and if need be they can afford to operate at low margins for a sustained period of time in order to build market share and customer loyalty. You even have cities and local communities around the country that are eagerly developing CNG fast fill infrastructure. The city of Columbus, Ohio is just one example.
It is going to require a Herculean effort by CLNE to survive in this competitive environment, let alone thrive, with a high-cost product like LNG and a vulnerable business model.
Disclosure: I am long HXGCF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.