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NGV Growth Slowed by Paybacks, Thin Diesel Differential, Clean Energy CEO Says

In the continuing low price commodity market, growth in the natural gas vehicle (NGV) sector is essentially flat, facing longer paybacks and narrower price differences with diesel, Clean Energy Fuels CEO Andrew Littlefair said Thursday during an earnings conference call.

While the cost of compressed natural gas (CNG) and liquefied natural gas (LNG) trucks has come down in the past year by about $10,000/vehicle, Littlefair said paybacks have reversed and are closer to two years again in today's depressed commodity price environment.

"Our prices per-gallon and the differential with diesel have been compressed, so we are seeing paybacks on heavy-duty trucks using 20,000 gallons or more annually increase some," Littlefair said. "It was not too long ago, they were just outside of a year, and now it is closer to two years."

Littlefair said Newport Beach, CA-based Clean Energy is still able to save its NGV fleet operators between 50 cents and 75 cents/gallon, and in some cases up to 85 cents. In response to questions about the growth in volumes at individual fueling stations in the Clean Energy network, Littlefair said the NGV sector is "in a tough environment."

While Clean Energy has not seen any of its existing customers turn back NGVs, conversely there are fewer fleets that are not already using natural gas as a transportation fuel that are deciding to switch to NGVs in the current environment, he said.

"We continue to see [fleet operator] customers that have made significant investments in natural gas continue to add trucks," Littlefair said. "We're pleased with that because they still see an economic reason and they are getting the sustainability [climate change] benefit as well. A year ago we didn't talk about sustainability, but it is an important piece."

While the climate change push by the Obama administration and in states like California is helpful, Littlefair conceded that for customers still on the fence, today's environment with low diesel prices is challenging to the NGV sector's growth. "Those customers who think we are now in a long downturn in oil and diesel prices are taking a hard look [at NGVs], but others are continuing to have interest [in natural gas]."

In response to another question, Littlefair also conceded that NGV engine sales flattened out this year after increasing by 27% last year. "Given the current price environment that we're in, I consider it good," he said.

For 3Q2015, Clean Energy reported an adjusted net loss of $25.8 million (minus 27 cents/share), compared to a loss of $20.8 million (minus 23 cents) for the same period last year.

Two days before Clean Energy's conference call, Ryder Systems Inc., a major global proponent of alternative fuels for fleets, sent out a promotion on social media touting natural gas as being "good for business, regardless of size or industry." Ryder is making the case that it is providing NGVs to an increasingly diverse set of fleet operators, from retail to logistics firms.

"Every industry -- large and small -- is realizing the benefits of NGVs," according to Ryder. "As fueling infrastructure expands and NGV technologies continue to evolve, a greater diversity of fleet applications can now be supported by this alternative fuel."

Ryder cited four companies that recently have leased NGVs, including an e-commerce startup and what the vehicle supplier called one of the largest food industry redistributors. According to Ryder, the companies are seeking both sustainability and economic benefits, underscoring some of Littlefair's points.

There is a "broadening interest" in NGVs for both longer-term environmental and fuel efficiency benefits, said Dennis Cooke, Ryder president for global fleet management solutions. He touted Ryder's ability to provide extensive experience for operating and maintaining NGV fleets for the companies that outsource their fleet needs.

Ryder said it has 18 NGV maintenance facilities and more than 4,000 trained NGV technicians. It provides training across North America and has committed to expand existing maintenance facilities to fit the needs of customers leasing its NGVs.

Separately, Trillium CNG said that it has opened a second CNG fueling facility for American Honda Motor Co. Inc. in Ohio as a public access station in Troy, OH. This follows the station Trillium opened for Honda in Marysville, OH, last August (see Daily GPIAug. 31).

The new CNG station provides NGV fueling for Honda of America Manufacturing's carrier distribution network, and is open to other CNG-fueled vehicles. The continued use of CNG in its operations is part of the car maker's effort to cut its carbon dioxide emissions in half by 2050.

Honda's parts/service division partnered with Trillium on the latest Ohio site, and Steven Bailey, Honda's vice president for parts operations, said the company has used CNG in California with "great success" for a long time, and it is now testing it in its Texas operations.

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