$150 million gives natural gas infrastructure a boost

$150 million gives natural gas infrastructure a boost

The announcement last week that Chesapeake Energy Corp. would be investing $150 million in Clean Energy Fuels is welcomed news to natural gas supporters in this country, particularly in trucking.

The announcement last week that Chesapeake Energy Corp. would be investing $150 million in Clean Energy Fuels is welcomed news to natural gas supporters in this country, particularly in trucking.

The timing of the announcement dovetails with a bipartisan bill introduced in the House of Representatives this spring that would provide significant incentive for the purchase of natural gas vehicles. The “New Alternative Transportation to Give Americans Solutions” Act (HR 1380), dubbed NAT GAS, is intended to provide financial benefits for users of natural gas as a vehicle fuel. This includes tax credits for the purchase of such vehicles, for retrofitting diesel or gasoline vehicles; for the purchase of natural gas; and for the building of fueling stations, including home refueling units.

The bill would offer a tax credit of up to 80% of the incremental cost of buying a natural gas vehicle, with the maximum value ranging from $7,500 for a light-duty passenger vehicle up to $64,000 for commercial vehicles over 26,000 lbs. GVWR. Conversion of a new or used vehicle to operate on natural gas would also be eligible for this vehicle purchase credit. It would also provide a 50-cent per gallon fuel tax credit and an infrastructure tax credit of 50% of the cost of building a fueling station up to a maximum of $100,000 per station.

But the big drawback has always been infrastructure. Natural gas is viable as a vehicle fuel as long as the vehicles can be refueled conveniently at a central fueling station. According to at least one expert, this move will eliminate that as an obstacle.

“This buildout will effectively eliminate lack of fueling infrastructure as the main limited factor to more widespread fleet adoption of natural gas,” Eric Stine, senior analyst with Northland Capital Markets, told the Wall Street Journal.

Clean Energy said it will use the money, to be distributed in $50 million increments (the first payment was made July 11, with additional investments expected to close in June 2012 and June 2013), to build “America’s natural gas highway.” Approximately 150 liquefied natural gas (LNG) truck fueling stations will be built at “strategic truck-stop locations along major trucking corridors” in the U.S.

Clean Energy said many of the stations will be built at Pilot Flying J Travel Centers. Clean Energy already has an agreement with Pilot Travel Centers to own and operate public compressed natural gas and LNG stations. Pilot Flying J has more than 440 retail facilities in 40 states.

“With the advent of new natural gas truck engines well-suited for heavy-duty, over-the-road trucking, it is time to build America’s natural gas highway,” said Andrew J. Littlefair, president & CEO of Clean Energy. “The investment by Chesapeake will help us accelerate the development of this important fueling network.”

The investment is in the form of debt, payable seven years following the issuance, Clean Energy said. The debt carries an interest rate of 7.5% and is convertible into Clean Energy common stock at a 22.5% premium to the volume-weighted average closing price of the 20-day period prior to the initial closing.

Chesapeake NG Ventures Corp. (CNGV), a wholly-owned subsidiary has been created to develop the LNG infrastructure.

“There is clearly ample demand for the benefits of abundant, affordable and American natural gas among consumers who face the high costs of OPEC oil at the fuel pump every day, especially America’s truckers and goods and product shippers,” said Aubrey K. McClendon, CEO of Chespeake. “We are investing our capital in Clean Energy to accelerate the delivery of the natural gas fueling infrastructure needed to assure truck operators that they can transition away from high-priced diesel, the cost of which is set by foreign oil, and choose a better road powered by American natural gas.”

“Deployment of new and innovative heavy-duty natural gas engines by world-class engine manufacturers and original equipment truck manufacturers such as Cummins-Westport, Kenworth, Peterbilt, Navistar, Freightliner and Caterpillar, combined with Clean Energy’s LNG fueling station construction expertise through our NorthStar subsidiary, the strategic locations afforded by Pilot Flying J and the investment by Chesapeake, should serve to quicken the transition to natural gas fuel as a game-changer for heavy-duty trucking,” added Littlefair.

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