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Supplier: Higher Natgas Prices Won't Hurt NGV Competitiveness

Higher natural gas prices, even three or four times above current low levels, won't harm the switch of fleets to compressed natural gas (CNG) and liquefied natural Gas (LNG) for transportation, according to a supplier of natural gas for transportation.

Clean Energy Fuels Corp. CEO Andrew Littlefair made these points and others while reporting increased revenues and volumes of CNG and LNG during a 1Q2012 conference call with financial analysts, during which Clean Energy also reported increased red ink for the quarter-over-quarter period.

In response to an analyst's question, Littlefair explained the general relationship between wholesale natural gas prices and the price of gas used as a transportation fuel, noting that for every $1 increase in wholesale gas prices, CNG or LNG used in vehicles would increase about 12 cents on a gasoline-equivalent basis.

"The good news is that there is an awful lot of room between the price of the natural gas for whatever it is at the nozzle tip [less than $2/gallon] and the price of gasoline," Littlefair said. "We really don't see natural gas prices going up significantly from where they are, and we still have a couple of dollars of growth in gas prices we can absorb and still maintain an advantage over gasoline. The spread is so big that it provides a lot of flexibility for us."

Another questioner wanted to know if the lag time for development of new and more powerful natural gas engines was a bottleneck for Clean Energy's future growth?

"We don't ever have all the engines we need," Littlefair said. "Back in 2008, we had to go out a buy the first 100 new engines and convince Kenworth to put them in their trucks and put them on the road. Besides a couple of test trucks, they didn't have any natural gas vehicles [NGV]. So we have come a long way from there," he said. "But now even having every OEM in the world announce new products, after all that, we still don't have all the engines we need.

"So we are kind of waiting for engine products [largest new long-haul tractor-trailer product due in 2013]." It is a combination of timing the infrastructure and the right engine products to come online at the right time, and at present Littlefair thinks the key elements are all coming together at the right time.

While predicting that his company's widely touted national "Natural Gas Highway" will be a reality by the end of this year, with long-haul truck fueling stations "coast-to-coast and border-to-border," Littlefair said Clean Energy is on track "to double our construction volume [of fueling stations] by the end of this year," compared to 2011.

"Our pipeline in the first quarter included 545 deals in various stages of allocation, qualification and negotiation, and that total does not include the more than 100 Natural Gas Highway projects."

For 1Q2012, Clean Energy reported a 23% quarter-over-quarter increase in gallons of natural gas transportation fuel delivered, totaling 43.7 million gallons. Similarly, revenues in the first quarter hit $73.6 million, compared to $65.3 million for the first quarter last year. Nevertheless, Clean Energy reported a bigger loss in the most recent first quarter compared with the same period in 2011 (minus $31.9 million compared with minus $9.8 million in the year-ago quarter). The company listed assets of $942 million.

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