Cheers or Jeers for CNG?

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Cheers or Jeers for CNG?

01/14/2015

NATIONAL REPORT — Convenience store retailers are beginning to get on board with compressed natural gas (CNG) in increasing number. Kwik Trip Inc., Love's Travel Stops & Country Stores and OnCue Marketing LLC are all considered CNG veterans in the channel. Meanwhile, Speedway LLC, Duchess Shoppes, Holiday Stationstores, CHS Inc. and Wawa Inc. are just a few of the c-store retailers to recently announce they will soon sell the alternative fuel or put forth efforts to make it easier for their franchisees to do so.

Should more c-store retailers take the plunge and sell CNG?

As of October, there were 751 public and 669 private CNG fueling centers in the United States, according to Dr. Paulina Jaramillo, assistant professor at Pittsburgh's Carnegie Mellon University. Some say there needs to be more refueling centers for the alternative fuel. Others take the opposite view by saying demand from fleets and consumers must be present to open more CNG locations.

Industry experts interviewed by CSNews Online, however, all agree that fleets represent the present and future success for CNG. Although a small number of consumers will switch to the alternative fuel, they believe the number will not be enough to move the needle.

For c-store retailers considering CNG, there are several factors to consider, according to Scott Minton, manager of CNG business development for Stillwater, Okla.-based OnCue Marketing.

First, retailers must know what the demand is in their area. If they open a CNG station, will local businesses fuel up there and/or convert more vehicles to run on CNG? Retailers must have enough fleets refueling at a location for it to be successful.

"I need about 100 pickup trucks filling up at each station every month in order to make that station viable," explained Minton. "If I already know that a store would have 20 to 30 CNG trucks coming by, it could be worth it if I feel I can get another 50 or 60 trucks to convert [to CNG]. Getting the first 50 or so is tough, but then it becomes easier because people want to save money."

If an operator is unsure about whether they will draw enough CNG vehicles to their site early on, Minton recommends the c-store or truck stop be located near a major highway or throughput area where placing a CNG sign at the location will lead to traffic in the future.

"If you determine there is enough demand for CNG, the next thing you must have is a gas pipeline nearby," the OnCue executive said. "Is a pipe adequately sized that can deliver fuel to the store? It's not like diesel, where a truck can come and dump a load of diesel underground every morning. You need to have a pipe that is not only available, but has excess supply on it that you can take from the gas company."

Once a c-store retailer has successfully placed a check mark next to the previous two items, another decision must be made. Should the operator handle the entire CNG installation process itself, or should it team up with an established gas provider?

This is a tough call. Retailers have gone different routes. OnCue decided to handle the task on its own because when it first opened CNG locations in 2009, it had a volume fueling commitment from Chesapeake Energy Corp., a local Oklahoma City natural gas provider. On the other hand, Wawa decided to partner with South Jersey Gas, a company well established in the CNG field, for its two CNG sites that are expected to open soon.

Financial wherewithal is another huge factor. Although not impossible, smaller operators of five stores or less may want to sit it out regarding opening CNG locations, said Minton.

"If you maintain one [CNG] station, it can be very costly if something goes wrong. It could be a $50,000 part that you need to have in play tomorrow or next week at the latest," he stressed. "But if you have a chain of CNG stations, you can spread out the cost of that part to all of them."

In fact, OnCue, which expected to have 20 operational CNG locations by the end of 2014, has full-time employees that are on call to maintain these locations as need arises.

"If you are four or five stores, for example, it's very difficult to come up with the [approximate] $1.6 million it costs to open the location, as well as the potential maintenance costs that may come up," said Minton.

Clearly, the decision whether to offer CNG is difficult for c-store and truck stop operators. Less cloudy is the future of the alternative fuel when it comes to fleets. The potential for profits on the part of the c-store retailer or truck stop is certainly there, industry players maintain.

"We are very bullish about the future," said Peter Grace, senior vice president of sales for Clean Energy Fuels Corp., operator of approximately 200 public alternative fuel stations in 40 states. "We look at [annual] growth rates of more than 20 percent in our industry. We have a very strong long-range economic story. There is so much gas being discovered in the United States, which creates more jobs and an increased tax base. Better yet, we are keeping all of the money at home."

Clean Energy reports that its CNG sales have been strong. Some of its stations are standalone locations, while others are incorporated into existing c-stores. Based on Dr. Jaramillo's figures, Clean Energy operates approximately 30 percent of all the public CNG stations in the country. The Newport Beach, Calif.-based publicly traded company operates many private CNG locations as well.

"We are doing well selling this fuel to both the refuse and transit industries," Grace said. "More than 60 percent of new refuse trucks built [in 2014] run on natural gas. In the public transit industry, about 35 percent of the vehicles today run on natural gas. And then, of course, there's heavy-duty trucking, which is seeing plenty of CNG conversions."

For more on the potential staying power of CNG, look in the January issue of Convenience Store News