U.S. LNG Supply for Natural Gas Vehicles Set to Double: Clean Energy Fuels Corp (CLNE), Chesapeake Energy Corporation (CHK), Martin Midstream Partners L.P.(MMLP)

Royal Dutch Shell plc (ADR) (NYSE:RDS.A) recently announced it would build two new liquefied natural gas (LNG) fuel plants to supply all types of heavy-duty natural gas vehicles. Royal Dutch Shell plc (ADR) (NYSE:RDS.A)’s general manager for the America’s, James Burns, estimated these will double the liquefied-gas manufacturing capacity in the U.S. and Canada.

LNG is not to be confused with compressed natural gas, or CNG, which is used in cars and light-duty trucks. LNG is used in large-scale trucks, boats, and industrial uses. It is better for large vehicles to use LNG as it is much denser than CNG, requiring less storage space on board. With CNG or LNG, the big draw is cheaper refueling costs. A gallon of CNG ranges in price from $0.80 to $1.70.

Challenges
As my colleague Arjun Sreekumar wrote recently, there are two challenges holding back natural gas vehicles:

1. High upfront costs.

2. Limited refueling capacity.

For truckers and other heavy users of fuel, the cheaper refueling costs easily make up for the high up-front costs in around a year. It’s really the limited refueling capacity that is holding truckers back from making the switch.

The limited refueling capacity is being worked on by the likes of Clean Energy Fuels Corp (NASDAQ:CLNE) and TravelCenters of America LLC (NYSEMKT:TA) to make LNG a viable option for truckers in the future. Clean Energy Fuels Corp (NASDAQ:CLNE), with financial backing from Chesapeake Energy Corporation (NYSE:CHK) , is developing a network of 150 LNG stations at Flying J truck stops across the county. For its part, TravelCenters of America signed a memorandum of understanding with Royal Dutch Shell plc (ADR) (NYSE:RDS.A) in June 2012 to build natural gas refueling lanes at around 100 TravelCenters of America truck stops around the country.

When Royal Dutch Shell plc (ADR) (NYSE:RDS.A) announced on Monday its new liquefaction plants, it also announced that these would be the basis for two new natural gas refueling networks. The first would be in the Gulf Coast Corridor (Texas and Louisiana) with the liquefaction unit at its facility in Geismar, Louisiana with distribution provided by a subsidiary of Martin Midstream Partners L.P. (NASDAQ:MMLP).

The second network would be in the Great Lakes Corridor with the liquefaction unit at its facility in Sarnia, Ontario, Canada. This facility will provide LNG to all five Great Lakes as well all the bordering U.S. states and Canadian provinces.

Once these networks are complete we should see more and more truckers begin using LNG for fuel, hopefully starting a virtuous cycle of refueling stations deciding on their own to add LNG and CNG refueling options.

The article U.S. LNG Supply for Natural Gas Vehicles Set to Double originally appeared on Fool.com and is written by Dan Dzombak.

Dan Dzombak can be found on Twitter @DanDzombak or on his Facebook page, DanDzombak. He owns shares of Chesapeake Energy. The Motley Fool recommends Clean Energy Fuels, and has the following options on Chesapeake Energy: long Jan. 2014 $20 calls, long Jan. 2014 $30 calls, and short Jan. 2014 $15 puts.

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