Navistar, Clean Energy deal:
Devil is in details
If you’re a trucker or private fleet manager looking for a
predictably priced alternative source of fuel, truck maker
Navistar International Corp. and natural gas advocate
Clean Energy Fuels Corp. have a deal for you.
Ironically, how good that deal turns out to be will depend
on doing one’s best to predict the unpredictable.
In early February, Lisle, Ill.-based Navistar and Seal
Beach, Calif.-based Clean Energy, cofounded by energy
baron T. Boone Pickens, unveiled a joint program to provide incentives to truck owners, renters, and lessors to purchase new and more expensive vehicles powered by liquefied natural gas (LNG) or compressed natural gas (CNG),
both of which are considered cheaper and more environmentally friendly than traditional diesel fuel.
Under the program, a user would agree to purchase a gas-powered vehicle manufactured by Navistar and then commit
for five years to buying 1,000 gallons of natural gas per month.
In return, Clean Energy would offer the user a $500 monthly
rebate, which, over the five-year span, would offset the estimated $28,000 per-unit differential between buying a gas-powered truck and purchasing a new diesel-powered vehicle.
In addition, the user would pay for its natural gas fill-ups
at a price 60 cents a gallon below the prevailing price of
diesel fuel as calculated each week by the Department of
Energy’s Energy Information Administration (EIA). As of
April 9, the national average price for a gallon of diesel fuel
stood at $4.085, according to EIA data. Thus, a customer
would pay $3.485 a gallon for the first 1,000 gallons consumed during the month.
Users who buy over 1,000 gallons in any given month
would be charged Clean Energy’s “retail” rate, which currently stands just below $2.90 a gallon, the company said.
BIG SAVINGS POTENTIAL
Based on estimates that a typical solo long-haul driver logs
12,000 miles a month, the program could deliver monthly savings of $1,200 per month between the rebate and the savings
at fill-up, according to the companies. LNG-powered vehicles
can run about 400 miles on a full tank. Vehicles powered by
heavier CNG wouldn’t get the same range with a full load.
For fleet owners and operators uninterested in participating
in the program, the alternative would be to pay for the gas-powered vehicles out of pocket and fill up at the pump at prevailing prices for either LNG or CNG. Based on the wide differential between natural gas and crude oil prices, that option,
at least for now, sounds like the better bang for the buck.
As of April 24, natural gas futures contracts traded at $2.01
per million British thermal units (BTUs). Futures prices have
fallen about 50 percent in the past 12 months due to a mild
North American winter that depressed energy demand and
go figure …
19,030%
The increase in price of Kansas City Southern
shares from March 1992 to March 2012. Smart
Money magazine said it was the second best-per-forming stock in the 20 years the magazine has
been publishing.
an increase in domestic exploration and development that has
led to an oversupply of inventories.
By contrast, West Texas Intermediate (WTI) oil futures
prices, which are more influenced by global demand and by
geopolitical factors, have hovered in the $103-a-barrel range
for several months. Brent crude (a sweet, light crude oil), considered the world’s benchmark, is trading at a 20-percent premium to WTI.
The current differential of about “ 52 times” between market prices for natural gas and WTI oil is unprecedented; the
ratio is historically between six and 12, according to Clean
Energy. Many analysts believe the combination of factors that
have already affected natural gas supply and demand could
cause futures prices to fall even further in 2012 and beyond.
The market price for natural gas translates into a pump
price of $2.50 a gallon for LNG and $2.25 for CNG.
MARKET UNCERTAINTIES
James N. Harger, Clean Energy’s chief marketing officer,
said the company is marketing to businesses skeptical that
such a wide price gap between oil and natural gas will persist in the years ahead. From 1990 through 2012, natural gas
futures prices averaged $4.01 per million BTU, reaching an
all-time high of $15.35 in December 2005 in the wake of
hurricanes Katrina and Rita that shut off natural gas supply
flows along the Gulf Coast. Prices hit a record low of $1.05
in January 1992.
Each $1 per million BTU increase in natural gas prices
would equal a 14- to 15-cent per-gallon price hike at the
pump, according to Clean Energy’s estimates. Thus, a spike
to levels midway between the historical high and low price
ranges could significantly narrow the gap between oil and
natural gas, and make the Navistar-Clean Energy initiative
more attractive, Harger said.
Perhaps mindful of all the market uncertainties, Clean
Energy said it would allow customers to opt out of the
agreement at any time without penalties, Harger said.
Navistar spokesman Stephen C. Schrier said the company
plans a late-summer rollout of a gas-powered line of vehicles in the mid-sized category. It plans to roll out gas-powered trucks in the heavy-duty, or “Class 8,” category sometime in 2013, he said. ;
