Chesapeake Energy (NYSE: CHK) $1B commitment in LNG technologies buys EV development time
This 35 year supply of shale gas is part of a greater story. According to the Chesapeake website, Aubrey McClendon, CEO of Chesapeake, writes,"These shale reservoirs are now estimated to contain more than two quadrillion cubic feet of natural gas, more than doubling America’s previously estimated natural gas reserves, and giving us close to a 200-year supply of clean, affordable, American natural gas."
Thus, America has ample supply much like its supply of coal, but a much cleaner burning commodity. So, it's just a matter of national will and good-old American free enterprise, which explains why Chesapeake Energy (NYSE: CHK) is committed to investing $1 billion over the next decade in liquefied natural gas (LNG) technologies, including technologies to help 8 million heavy-duty trucks convert from diesel engines to natural gas.
According to their latest news release, Chesapeake said it will invest $155 million of the $1 billion in SunDrop Fuels, which already makes gasoline from natural gas and waste cellulosic material. Another $150 million will be invested in Clean Energy Fuels (CLNE), North America's largest provider of LNG fueling stations.
Key to this plan is the $150 million which will be used to build 150 new LNG gas stations, where trucks can stop to fuel their natural gas engines. That's more than three times as many stations as Clean Energy built in 2010. This money will increase the rate of LNG stations by 200% in a few years.
Of course, Chesapeake isn’t the first. This writer has already reported on other companies converting truck fleets, including dual-fuel arrangements, which is surely feasible with big rigs. Read Navistar demonstrates dual-fuel protoype at the Mid-America Trucking Show
It is the EIA report, though, called, "Review of Emerging Resources: U.S. Shale Gas and Shale Oil Plays" that helps drive this commitment; and it is about time, literally.
While the report says there's about 750 trillion cubic feet of shale gas in the U.S., equating to about 31 years of supply based on 2010 consumption, it didn't include proven reserves, inferred reserves in actively developed areas, and undiscovered resources as estimated by the U.S. Geological Survey (USGS).
Add that in and you get an additional 112 trillion cubic feet of shale gas, which equates to the 35 year supply based on the 2010 use rate of 24 trillion cubic feet.
What this means for trucks
It was once believed by many stock analysts that companies like Clean Energy Fuels (CLNE) and Westport Innovations (Nasdaq: WPRT) could only survive if Congress passed the Natural Gas Act (NGA). The proposal would provide up to $64,000 (per heavy-duty truck) to truck companies to convert their diesel engines to natural gas. For the record, the bill is currently floating through Congress, among other things.
As an investor and trader, I can understand why trucking companies were holding off on converting their fleets. After all, why renew today when the government might subsidize them tomorrow to buy a new natural gas-burning truck?
The free market finally did something on its own, though. Companies like United Parcel Service (NYSE: UPS), Ryder System Inc. (NYSE: R), Waste Management (NYSE: WM), and Heckman Water led the way by changing their trucking fleets to natural gas.
This further explains why Chesapeake is spending $150 million to develop natural gas fueling stations. Nat-gas technologies are already in play.
Question: If the NGA ever gets passed by Congress, will shares of companies like Westport Innovations (Nasdaq: WPRT), Clean Energy Fuels (CLNE), and Chesapeake Energy (NYSE: CHK) surge higher?
After all, Westport is the largest manufacturer of natural gas engines. And, it has partnerships with every major engine manufacturer in the world, including Cummins (U.S.), Volvo (Europe), and Weichai (China). And that's in addition to Navistar International (NYSE: NAV), a dual fuel equipement and engine supplier.
But what does that mean for American automobiles?
Since there is plenty of natural gas to cover a national conversion, starting with big-rig trucks, then extending to automobiles would create sufficient development time to bring down the cost of electrification of future automobiles and possibly the cost of fuel cells.
Still, imagine a Chevy Volt with its electric propulsion drive supported by a natural-gas generator engine. The Volt just got greener. Why GM didn’t make that an option defies logic, except they were on a short timeline. Still, they lack marketing vision. I mean, the car already costs $42K. So, what’s a few more bucks, especially when media would foam at the mouth to cover it.
I realize the cost of EV propulsion and lithium-ion batteries is still too expensive for the average home gamer, but green has a strange way of justifying costs, at least for those who can afford it. And transition to reduce the cost of electrical propulsion systems requires more time. Thus, natural gas in any form buys America that time without having to be subject to the whims and instability of foreign oil supplies.
Will we ultimately go nat-gas for big rigs, and use the range of full electrical to hybrids for cars and SUVs? Hard to tell, but that is possible. We may not have an official national energy plan, but our transportation product plans are forming before our very eyes.
Finally, earlier news releases reported General Motors Company (NYSE: GM) is at least studying natural gas for automobiles; and Ford Motor Company (NYSE: F) is already committed with its commercial fleet of delivery trucks and vans. And Honda Motors (ADR: HMC) has a new nat-gas Civic for 2012. Read Honda aims high, thinks big with 2012 Civic Natural Gas car by TN writer, Hawke Fracassa.
The very act of nat-gas fueling stations proves another point: build it and the American automakers will respond, or they will lose once again to the foreign competitors who will.
[Image Source of Aubrey McClendon, CEO of Chesapeake Energy (NYSE: CHK): http://www.chk.com/NaturalGas/Pages/Fueling-Americas-Future.aspx ]
About the Reporter: After 39 years in the auto industry as a design engineer, Frank Sherosky now trades stocks, futures and writes articles, books and ebooks like, "Perfecting Corporate Character," "Awaken Your Speculator Mind", and "Millennial World Order" via authorfrank.com. He may be contacted here by email: [email protected]
Navistar demonstrates dual-fuel protoype at the Mid-America Trucking Show
Dual fuel upgrades on the rise for heavy trucks
GM to explore advanced natural gas engine technology
DOE supports next phase to recapture wasted energy from automotive exhaust
Lux Research ranks automotive battery and capacitor suppliers according to partnership potential
Plenty zinc supplies could replace lithium for batteries
Air hybrid technology key to 2016 and 2025 truck fuel economy
Why Obama's proposed CAFE standards to 56.2 mpg IS feasible