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AT&T to Ryder Driven to Natural Gas Vehicles as Oil Soars

For AT&T Inc. (T), the decision to introduce natural gas vehicles to the company’s fleet in 2008 proved well-timed, as the price gap between gas and diesel soared to an all-time high that summer.

The largest U.S. phone carrier began discussing a move away from higher-priced gasoline and diesel cars and vans the year before hurricanes Ike and Gustav disrupted energy output from the Gulf of Mexico. Now AT&T has 5,200 natural gas vans on the road, or about 7 percent of its fleet, as part of a plan to spend $350 million to replace about 8,000 gasoline-powered service vehicles over five years.

Fleet-owners from Ryder System Inc. to United Parcel Service Inc. are also switching as natural gas proves cheaper and cleaner. Gas prices have plunged 68 percent from a 2008 high, and are now at a 95 cent-a-gallon discount to diesel as advances in drilling technology have triggered a boom in production of the fuel from shale formations. Natural gas emits about 27 percent less carbon dioxide than diesel, Energy Information Administration data show.

“The economics are in favor of natural gas,” billionaire T. Boone Pickens said in a Dec. 19 phone interview. “During the oil crisis in the 1970s, it took only about five or six years for the U.S. truck fleet to switch from gasoline to diesel. It’s going to happen that way for natural gas.”

Source: General Motors Co. via Bloomberg

AT&T Inc. plans to introduce 15,000 alternative-fuel vehicles, including natural gas vehicles and hybrid electric cars and vans, to its fleet through 2018. Close

AT&T Inc. plans to introduce 15,000 alternative-fuel vehicles, including natural gas... Read More

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Source: General Motors Co. via Bloomberg

AT&T Inc. plans to introduce 15,000 alternative-fuel vehicles, including natural gas vehicles and hybrid electric cars and vans, to its fleet through 2018.

More Vehicles

Pickens’s Clean Energy Fuels Corp. (CLNE) has 400 stations, up from 80 in 2003. Demand for natural gas from vehicles has doubled since 2005, according to NGVAmerica, an industry group in Washington. There were 121,650 gas vehicles on the road in 2011, up from 117,074 in 2008, less than 1 percent of total registered vehicles, data from the EIA and the Bureau of Transportation Statistics show.

About 23,000 natural gas vehicles may be sold in the U.S. in 2013, according to David Hurst, an analyst at Navigant Research in Troy, Michigan. That’s a 19 percent increase over the 2011 total, the most recent year for which data is available from the EIA, the U.S. Energy Department’s statistical arm.

Compressed natural gas averaged $2.94 a diesel-gallon equivalent at U.S. fueling stations in the week of April 22, according to Clean Energy Fuels. Diesel was $3.89 a gallon. The price gap has more than doubled from 45 cents a gallon in September 2005. Natural gas futures reached a record $15.78 per million Btu on the New York Mercantile Exchange that year after hurricanes Katrina and Rita curtailed supplies from the Gulf of Mexico.

Photographer: Ken James/Bloomberg

United Parcel Service, Inc., the world’s largest package-delivery company, said April 23 that it plans to buy about 700 liquefied natural gas vehicles and build four refueling stations in Tennessee and Texas by the end of 2014. UPS already has more than 1,000 NGVs on the road worldwide. Close

United Parcel Service, Inc., the world’s largest package-delivery company, said April... Read More

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Photographer: Ken James/Bloomberg

United Parcel Service, Inc., the world’s largest package-delivery company, said April 23 that it plans to buy about 700 liquefied natural gas vehicles and build four refueling stations in Tennessee and Texas by the end of 2014. UPS already has more than 1,000 NGVs on the road worldwide.

Fuel Savings

Gas consumption in the transportation industry was about 400 million gallons of gasoline equivalent last year, double the 200 million in 2005, NGVAmerica data show. Gasoline demand was 134 billion gallons, according to the EIA.

Fleet owners might save $25,000 a year on fuel costs, according to David Pursell, a managing director at adviser Tudor, Pickering, Holt & Co. in Houston. It would take more than two years to offset the higher initial cost of the vehicle. A fleet owner paying $65,000 more for a long-haul truck engine fueled by liquefied natural gas may see a 22 percent rate of return over the life of the vehicle, Pursell said.

Widespread adoption of so-called NGVs would increase U.S. gas consumption. If 10 percent of U.S. vehicles used the fuel instead of gasoline or diesel, natural gas use would climb by 6 billion cubic feet a day, or 8.5 percent of current demand, according to Tudor, Pickering.

“That is huge,” Pursell said. “I think it’s going to happen, but the big question is the timing.”

‘Compelling Economics’

Growing use of natural gas vehicles may cut global gasoline and diesel demand by 1.5 million to 4.5 million barrels a day, Martijn Rats, an analyst at Morgan Stanley in London, said in a note to clients dated April 16.

U.S.-marketed gas output may climb 0.3 percent this year to an all-time high of 69.3 billion cubic feet a day amid rising shale supplies, Energy Department data show. Production grew 34 percent from 2005 to 2012. The drilling boom allowed America to meet 84 percent of its energy needs last year, the highest level of self-sufficiency since 1991.

Crude and heating oil on the Nymex have more than doubled from crude’s 2008 low amid a U.S. economic recovery, rising demand from China and concern that Mideast violence may curtail supplies. Heating oil prices are used as a proxy for diesel.

“With compelling economics for many vehicle owners and a large number of industry initiatives in place to stimulate takeup of natural gas, we foresee further growth in the global NGV fleet, despite some of the obstacles,” Rats said.

Stations Needed

The relatively small number of compressed natural gas filling stations is an obstacle to NGV expansion. There are about 1,200 in the U.S., about half of which are in five states, General Motors Co. (GM) Chief Executive Officer Dan Akerson said in a March 6 keynote speech at IHS CeraWeek in Houston. That compares with 160,000 retail gasoline stations, about 70,000 of which sell diesel, according to the Petroleum Marketers Association of America, an industry group in Arlington, Virginia.

About 53,000 natural gas fueling stations at a cost of $58 billion are needed in the U.S. to reach the “tipping point” for large-scale NGV adoption, Rats said in the April 16 report. Passenger vehicles can be fueled by compressed natural gas stored in high-pressure cylinders, while trucks use higher- density liquid gas pumped into thermal tanks. It could cost as much as $60 billion to build the needed LNG plants, Rats said.

Clean Energy

Pickens’s Clean Energy Fuels is working to “fill in the network,” said Andrew Littlefair, the president and CEO of the Seal Beach, California-based company.

Clean Energy and Pilot Travel Centers LLC, the country’s largest truck stop operator, built 70 natural gas filling stations in 2012 on highways between major metropolitan areas, including Los Angeles to Atlanta and the so-called Texas Triangle linking Houston, Dallas and San Antonio. The company plans to add about the same number of stations this year.

“You can see that there’s a lot of talk about LNG for trucks,” Loews Corp. (L) Chief Executive Officer Jim Tisch said on a company earnings call yesterday. “I’m a believer that we’re going to see significant increases in demand for our natural gas.”

Loews holds a 55 percent stake in Boardwalk Pipeline Partners LP, an owner and operator of pipelines and storage caverns for natural gas and associated liquids.

Obama’s Proposal

President Barack Obama, in his State of the Union address Feb. 12, proposed using oil and gas revenues to fund an Energy Security Trust that will bolster research and technology to shift cars and trucks away from petroleum products.

Ryder, the largest publicly traded truck-leasing company, began a natural gas truck program in 2011. The company has 300 of the vehicles serving customers in California, Arizona and Michigan. Ryder (R) signed an agreement in March to lease 23 compressed natural gas tractors to Eagle Distributing of Shreveport Inc., an Anheuser-Busch distributor in Louisiana. Ryder also has plans to expand the NGV program in Texas.

Ryder received $19 million in grants for the California initiative from the state’s energy commission and the Department of Energy, Scott Perry, the company’s vice president of supply management in Miami, said in an interview. Ryder met the remaining $19.4 million cost of buying the trucks, upgrading maintenance equipment and building fueling stations.

UPS Plan

UPS, (UPS) the world’s largest package-delivery company, said April 23 that it plans to buy about 700 liquefied natural gas vehicles and build four refueling stations in Tennessee and Texas by the end of 2014. UPS already has more than 1,000 NGVs on the road worldwide.

AT&T plans to introduce 15,000 alternative-fuel vehicles, including NGVs and hybrid electric cars and vans, to its fleet through 2018. The initiative would save 49 million gallons of gasoline over the 10-year deployment period, according to a 2009 report from the Center for Automotive Research, an Ann Arbor, Michigan-based nonprofit.

“It seemed like there was going to be some kind of fuel- price Armageddon,” Jerome Webber, vice president for AT&T global fleet operations, said in a Jan. 31 phone interview from Dallas. “That certainly validated what we were doing and helped move the natural gas initiative forward. We wanted to position ourselves to make sure we weren’t as dependent on imported fuel in the future.”

Cummins Westport

Engine makers including Cummins Westport Inc., a joint venture of Cummins Inc. (CMI) and Westport Innovations Inc. (WPRT), are expanding their natural gas offerings to meet increased demand. The company is developing a 6.7-liter natural gas engine, scheduled to be in production by 2015, that can be used in school buses, sanitation trucks and other medium-duty vehicles.

Cummins Westport introduced a 12-liter natural gas engine earlier this year for heavy-duty vehicles. The company also offers a 9-liter natural gas engine.

“We’re seeing a huge investment in the natural gas vehicle industry and the economics are the critical driver,” said Westport Chief Executive Officer David Demers, who is based in Vancouver. Widespread adoption of gas trucks will reduce American reliance on foreign oil, he said.

NGVAmerica, the Washington-based lobbying group for natural gas vehicles, has enjoyed increased visibility as gas prices have tumbled, said Rich Kolodziej, the organization’s president, in a phone interview.

“When we started in 1988, we were pushing a boulder up a hill,” Kolodziej said. “Now the boulder’s on the other side of the hill.”

To contact the reporter on this story: Christine Buurma in New York at cbuurma1@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net

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