Natural Gas: The Best Fuel Alternative?

Experts say local availability and a cheaper price point could be key selling points

There are few, if any, pundits who feel alternative fuels will take a large percentage share away from petroleum in the next decade or two.

However, the majority of those CSNews spoke to agree that natural gas has the best chance of invading petroleum's turf. Purported benefits of natural gas compared to traditional petroleum are many. Natural gas — comprised of compressed natural gas (CNG), primarily sold for consumer vehicles, and liquefied natural gas (LNG), primarily for fleets — is cheaper at the pump, cleaner burning, more environmentally friendly and in abundant local supply, experts say.

The United States is the top producer of natural gas and reportedly can provide the fuel for the next 100 years without any need for foreign oil.

"Natural gas has the best future among the fuel alternatives," said Dan Gilligan, president of the Petroleum Marketers Association of America (PMAA). "But I don't think anything will replace oil. And the natural gas infrastructure isn't there yet."

TravelCenters of America LLC (TA) doesn't believe natural gas will replace oil either, yet it does believe natural gas has a future. The truck stop operator recently inked an agreement with Royal Dutch Shell plc to install more than 200 LNG lanes at 100 of its TA- and Petro-branded sites.

"We look at natural gas as a potential alternative fuel for our customers," TA CEO Thomas O'Brien said during the company's August earnings call. "The rosiest forecast I saw says that 7 [percent] to 8 percent of diesel-powered vehicles could switch to natural gas in five years. A lot can change in five years. But I do believe many fleets will be involved in both [oil and natural gas]."

Joseph Petrowski, CEO of The Cumberland Gulf Group, is another executive who is curious about the future of natural gas. In last month's issue of CSNews, he noted that his company is closely following all trends regarding natural gas.

"Natural gas is one of the most important opportunities for the U.S., not just for Gulf," he explained. "We are an energy distribution merchant at Gulf, not just an oil company."

Petrowski followed up that statement by announcing on Aug. 27 that Gulf Oil LP would soon be supplying and distributing LNG as a "cost-effective, clean alternative fuel to customers in the transportation sector and other interested bulk users."

Still, according to projections in the "Future of Fuels Report," published earlier this year by NACS, the Association for Convenience & Fuel Retailing, CNG and LNG vehicle sales are expected to surpass 10,000 this year and only reach about 13,000 by 2035. In addition, there are only 1,014 natural gas fueling stations currently, according to the U.S. Department of Energy.

To make sense of it all,CSNews invited an all-star panel to talk about the future of the fuel alternative. Answering our call were Steve Zietlow, vice president and director of petroleum operations for Kwik Trip Inc., a convenience store chain that sells natural gas at the pump; Peter Grady, vice president of network development and fleet at Chrysler Group LLC, a manufacturer of natural gas vehicles; Aubrey McClendon, CEO of Chesapeake Energy Corp., a manufacturer and distributor of natural gas; and T. Boone Pickens, chairman and CEO of BP Capital, whom many believe is the preeminent natural gas expert in the world.

CSNews asked each participant a variety of questions. Here's what they had to say.

CSNews: Kwik Trip made a big plunge into natural gas this May. Have you seen a strong demand from the public thus far?

Zietlow: Certainly. We have seen a tremendous amount of interest and are now starting to see demand at the sites that are open to the public. Right now, what we see is that we are averaging 50 to 100 inquiries a day from the public and what was interest is starting to turn into demand.

We have signed several prominent fleets that have placed orders for equipment and at this point, we are seeing interest not only on the fleet end of it from the heavy duty vehicle side — Class 7 and 8 — but we are also seeing interest on the light duty side of it. There is a tremendous amount of interest and now that interest is turning into actual physical demand at our sites. Things are definitely moving in a very good direction there.

CSNews: Does Kwik Trip plan to open more LNG and CNG stations?

Zietlow: Yes. As of right now, we have 12 stations that are under construction. Ten of those stations will be open starting late this fall and toward the end of the calendar year. The balance of the stations we have coming will take us up to around 18 to 20 stations that will be fully operational by June [2013]. Those stations will be located throughout Minnesota, Wisconsin and Iowa.

We will basically be in every sizeable market on every major corridor throughout the three-state area. What we have seen is if we develop a functional infrastructure, it is going to create the ability for fleet operators and individuals with personal vehicles to operate natural gas-powered vehicles within the three-state area because of that functional demand.

We are very excited at what the opportunity will bring for Kwik Trip. By creating an infrastructure, it is something that most markets haven't seen and we really think this will be the catalyst or the driver to promote more activity with this.

CSNews: Are there enough natural gas-fueled vehicles on the road? What can be done to push auto manufacturers to make more of them for consumers?

Zietlow: Right now, on the large vehicle side of it, there has been a tremendous amount of development in recent years that has put us in a position where we feel there is an adequate amount of selection; however, we would always like to see more.

On the personal side of it, the passenger vehicle end of it, we are working very closely with all of the OEMs [original equipment manufacturers] to push them in their developments and efforts to bring this to the market in more than just a fleet capacity, but in a true retail capacity. Not only do we want to see options out there, but we want to see more options available to the consumer, the general public and at the dealership level. From what we are hearing, there is some movement out there and our goal is to continue to advocate the concept.

We feel that if we are building a functional infrastructure and other prominent companies are building a functional infrastructure throughout the United States, these vehicles will be able to become mainstream and will no longer be considered an alternative. We are hoping with the construction of these stations and the commitment of all these large entities out there that are building these stations similar to us, that it will be enough to push the manufacturers to the next level. We are pretty confident we will see that.

CSNews: Is Kwik Trip offering any other petroleum alternatives?

Zietlow: Kwik Trip has had a long history of promoting alternative fuels. If you look back, we were one of the first convenience store operators in our market to bring E85 to a lot of our stations. We have embraced the alternative fuels movement.

Not to take anything away from any of the other alternative fuels we might offer, but right now, natural gas has the ability to stand on its own. Unlike all of the other alternative fuels out there, when you start to look at supply, look at the fact that it is domestic, look at the price point, and look at the infrastructure that supports natural gas, it just has all of the key components that are needed for it to no longer be an alternative fuel, but the potential to be a standard fuel option.

With Kwik Trip and our family making the commitment to invest in this, combined with all of the drivers that are back there supporting it, it has the potential to stand on its own and really be a standard fuel option vs. an alternative fuel.

CSNews: Please tell us what natural gas vehicles Chrysler has and/or will have on the market.

Grady: Ram Truck is the only manufacturer in North America to offer a factory-built compressed natural gas-powered pickup truck. The 2012 Ram 2500 Heavy Duty CNG pickup is a bi-fuel vehicle (primarily CNG-fueled with a gasoline reserve tank) that is initially designed for fleet and commercial customers.

Natural gas is an abundant, domestically-sourced fuel and by using CNG as the primary fuel, the vehicle provides cost and emissions benefits, while also reducing the country's dependence on oil and enhancing the country's energy security.

In use, the Ram CNG's system is automatic, eliminating operator switches altogether. Although a small amount of gasoline is used during engine startup, the vehicle runs exclusively on CNG. When the CNG is depleted, the vehicle automatically and seamlessly switches from CNG to gasoline with little discernible difference in operation or capability. In addition to a conventional gasoline fuel gauge, a second CNG-specific gauge is located adjacent in the instrument cluster.

The vehicle's CNG tanks provide a gasoline gallon equivalent (GGE) of 18.2 gallons. Its CNG-only range is 255 miles while the 8-gallon backup supply of gasoline can extend the range to 367 total miles.

CSNews: We're starting to see some CNG and LNG fueling stations pop up in the U.S. Since the number of stations is limited, is it a risk to manufacture natural gas vehicles?

Grady: At the present, the 2012 Ram 2500 CNG is available primarily for fleet buyers. The reason being, fleet operators have a number of fueling choices. Large fleet operations frequently install both quick-fill and slow-fill CNG fueling stations. In addition, the Ram CNG's bi-fuel capability addresses the issue of "range anxiety" caused by the current lack of widespread fueling infrastructure by including a small 8-gallon gasoline tank.

For fleets, this technology is ready now and offers a viable solution along with the No. 1 "reason to buy" being lower total cost of ownership. But while delivering a factory-built Ram 2500 CNG underscores the importance of commercial and fleet customers to the Ram truck brand, it may pave the way for a potential consumer retail rollout.

Expanded CNG vehicle offerings, wider adoption of CNG as a primary fuel, and the fact that natural gas prices are expected to remain stable for the foreseeable future will serve as a catalyst for greater investment in CNG fueling infrastructure, which in turn will draw consumers. There are approximately 1,000 CNG fueling locations across the United States, half of which are accessible to the public. But, we know that CNG producers are working aggressively to bring more on line every day.

CSNews: Please tell us about Chrysler's efforts to produce ethanol and electric vehicles, and how your natural gas efforts are different.

Grady: With the addition of the all-new 2013 Dodge Dart, Chrysler Group will offer 11 E85-compatible vehicles as part of its 2013 model year lineup. Chrysler also will launch production of its first battery electric vehicle, a version of the Fiat 500. The CNG program expands the choices available to consumers seeking vehicles powered by alternative fuels.

CSNews: Do you think natural gas can be a viable petroleum alternative in the next 10 years? What will it take to advance the natural gas movement?

Grady: The trend is unmistakable: companies of all sizes and character are embracing CNG and alternative energy sources for their fleets. And CNG is now found powering vehicles that range from buses to lawn mowers.

The commitment to CNG spans business sectors across America, and includes telephone companies, airport shuttle fleets, mail delivery companies and transportation services. [The] waste management [industry] in particular has embraced CNG, reflected in multimillion dollar investments.

The advantages are clear: CNG helps lessen the environmental impact on greenhouse gas and smog-forming emissions, along with offering significant fuel cost savings. In fact, CNG demonstrates a reduction of 60 [percent] to 90 percent of smog-producing pollutants.

Along with the environmental benefits, one of the most attractive aspects of this bi-fuel engineering is in straight-forward economics, measured in day-to-day expenditures and cost of ownership over years. While CNG delivery is in the process of becoming more and more widespread, the figures speak for themselves: CNG achieves nearly identical mileage figures as unleaded regular gasoline — with a retail cost more than 30 percent lower than the average price of a gallon of gasoline.

Once the advantages are measured, the logic is as clear as the product itself. Compressed natural gas offers compelling reasons for consideration as a fuel source.

CSNews: Are you happy with the progress the country has made regarding natural gas as a viable fuel alternative?

McClendon: Interest in natural gas as a transportation fuel has grown significantly in the last few years, but for me, progress cannot happen fast enough for our country and our economy. Despite our nation's plentiful supply of natural gas, our adoption of CNG and LNG lags too far behind other countries. As the leading producer of natural gas in the world, there is no reason why the United States should rank No. 17 in terms of natural gas vehicles (NGVs) on the road. Currently Iran, Italy, Argentina and Thailand each have more NGVs on the road than the U.S.

To change this and offer Americans a more affordable, cleaner and domestically produced fuel, we must tackle both the "chicken and the egg" simultaneously by encouraging fleet conversions and infrastructure development partnerships. Investments, technological innovations and economies of scale in both areas will encourage widespread business and consumer adoption.

Convenience store and fuel retailers have an opportunity to capitalize on this growing market and capture early market share. The price of the fuel — generally half that of gasoline — will lure customers to the pump, while also spurring purchases at the counter. And because CNG can provide a higher per-gallon profit margin than a gallon of gasoline or diesel, retailers have many opportunities to positively affect their bottom lines while providing their customers with an inexpensive, domestic transportation fuel.

CSNews: What is the No. 1 thing that must be done to get more natural gas stations and vehicles on the road?

McClendon: For critical economies of scale to develop, the economic opportunity gained from a low-priced, domestic energy must be communicated with convenience store operators and gasoline and diesel retailers. It took our country almost 100 years to develop our present gasoline and diesel infrastructure, yet I am confident that we can produce a natural gas fueling network much faster as we partner with retailers who have best-in-industry business models.

Increasing incentives to develop natural gas fueling stations will create a market pull that promotes consumer confidence in the fuel, leading to lower incremental NGV costs. The benefits of natural gas, particularly the cost savings, make the fuel attractive to consumers on its own. But consumers will not act until they see natural gas fueling stations near their homes or businesses.

Our partners in the retail fueling market are critical to the overall adoption of this domestic fuel and can be major movers in encouraging greater use of natural gas as a transportation fuel. Now is a good time to become familiar with CNG and identify opportunities for your business and customers. Websites such as www.cngnow.com and www.ngvamerica.org are good resources.

CSNews: How long do you think it will take for natural gas to become a strong alternative to petroleum? Please share your goals regarding that and what you'd consider significant progress in the near future.

McClendon: Given our natural gas supply and American ingenuity, I am confident that we can make progress to loosen OPEC's [Organization of the Petroleum Exporting Countries] grip on our economy within the next decade. One way our company leads by example is by converting our fleet vehicles to run on natural gas. In the next few years, Chesapeake's fleet of more than 5,000 light-duty vehicles will be fueled by natural gas. Following this conversion, Chesapeake expects to save at least $12 million annually in fuel costs while we enable many public fueling stations to offer CNG across our operating regions. We know that more fleets will follow suit, particularly as we will continue to see higher gasoline and diesel prices.

To grow the market with fleets and other vehicles, we must address bottlenecks, specifically the technology costs associated with manufacturing NGVs and transforming fueling stations to offer natural gas. Chesapeake is committed to supporting and stimulating both sectors by partnering with leading, innovative American technology and automotive companies. Chesapeake's recent collaboration with GE directly impacts retailers by offering an efficient entry point for c-stores to introduce CNG pumps in more confined spaces and attract new, loyal customers. GE has created the "CNG In A Box," a modular and standardized CNG compression station that provides the necessary fueling equipment to expand access to natural gas at fueling stations. It's a fully integrated system that's "plug and play" to offer your store easy installation and a smaller footprint, while your customers receive a new fueling solution.

On the vehicle side, Chesapeake is also working with 3M to design, manufacture and market a broad portfolio of larger, lighter and more affordable CNG tanks. Since the tank is the single most expensive component of a NGV, more cost-efficient tanks will facilitate greater market adoption of NGVs and more demand for CNG fueling retailers.

We look forward to the adoption of these technologies by large fueling retailers to create economies of scale; by smaller, more entrepreneurial retailers interested in capturing market share; and by auto manufacturers pushing the supply side of NGVs.

CSNews: You've met with many politicians promoting natural gas as a viable fuel alternative. Please tell us what specifically you are saying to the politicians.

Pickens: I let them know that thanks to the hard work and innovation of America's oil and gas industry, we've created vast new reserves of supply both in crude oil and natural gas that were once unimaginable. America is now energy rich. We're no longer followers when it comes to exploration. We're leaders in natural gas and oil production.

Then, I tell them we must unleash our chains to OPEC oil and embrace the economic freedom and security of American-produced energy. Energy independence is no longer a fantasy. It's achievable thanks completely to America's oil and gas industry.

I make sure they understand that America's economy doesn't run on empty. It runs on energy, and more than anything, we need to see specific policies focused not only on supply, but demand. Without question, the lowest hanging fruit is transportation. Injecting natural gas as a transportation fuel is a win for consumers, our economy and our national security.

CSNews: What feedback are you receiving from politicians and do you agree with their viewpoints?

Pickens: They know we can't continue down the path we have for decades without putting our country in economic peril. The continued purchase of OPEC oil will go down in history as one of the biggest transfers of wealth ever. We need the money in America to invest in America.

Some elected officials want to talk about the need for a free market. Heck, there's no greater believer in free markets than me. We can debate whether energy is a free market, whether OPEC is a cartel, or whether we should restrict the building of a pipeline from Canada to Cushing, Okla. But the most important thing in a free market is the law of supply and demand.

Have you checked the price of natural gas these days? There's no better example of too much supply chasing too little demand. Elected officials get it. The deal is to get them to do something about it. Right now, we are seeing bold bipartisan leadership at the state level. Gov. [Mary] Fallin in Oklahoma and Gov. [John] Hickenlooper in Colorado are doing their part to create demand with their initiative to purchase natural gas-powered vehicles for state fleets. They get it and they're getting it done. They are doing what Washington has been unable to do thus far.

CSNews: Why have congressmen/senators been so slow to promote natural gas as a viable petroleum alternative? What's standing in their way?

Pickens: You ask a good question. It beats me. I am baffled. It's a no brainer. You know the natural gas act did get a majority vote in the Senate, but not a super majority. I am from Holdenville, Okla., and in Holdenville, the majority rules. All I can say is if this generation fails to seize this moment to reverse course on energy and do the right thing for America, we'll go down as the most foolish generation ever.

CSNews: Other than the government, what's the biggest obstacle blocking natural gas from being used in cars throughout the country? Can that obstacle be overcome?

First, when you say government, you can't include the states. Many state governments have done a good job creating policies to spur demand, including building infrastructure. The economics strongly favor natural gas. More companies are adding natural gas vehicles to their fleets. Our government needs money. The post office is broke. You convert the government fleet to natural gas and you could save taxpayers billions. Heck, you might even save the U.S. Postal Service.

We are making tremendous strides building access to natural gas fueling infrastructure across the nation, especially for 18-wheelers. The natural gas super highway will be a reality, and you'll be able to haul goods from coast to coast on natural gas — LNG. We'll get there. I'm convinced.

CSNews: What's next in your efforts to tout natural gas? Pickens: There is no doubt the "Pickens Plan" moved energy into the national narrative. For too long, our elected officials neglected energy. They don't anymore. It's an issue now. I will continue to deliver the leadership to help increase demand for natural gas.

Editor's Note: The opinions expressed in this feature are those of the interviewees and do not necessarily reflect the views of Convenience Store News.

"All I can say is if this generation fails to seize this moment to reverse course on energy and do the right thing for America, we'll go down as the most foolish generation ever."

— T. Boone Pickens