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Why This Chinese Company Is Investing in U.S. LNG

March 18th, 2013
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Money Morning Article of the Week

by Jeff Uscher, Money Morning.com

A private energy company based in China is reportedly investing in the construction of a network of liquefied natural gas (LNG) fueling stations in the United States.

Follow up:

According to a Reuters report, ENN Group Co. Ltd. is teaming with a small U.S.-based company, and the partnership plans to open 50 to 60 LNG fueling stations this year. LNG stations cost an average about $1 million each to build, industry experts say.

ENN has already built a number of natural gas fueling stations in China, which is much further along in use of LNG for heavy trucks than the United States.

LNG's been promoted by investors such as T. Boone Pickens and natural gas producers including Chesapeake Energy Corp. (NYSE: CHK) as a cheaper, cleaner fuel for long-haul trucks.

Now more natural gas companies are teaming up to provide LNG, which means more investment opportunities for energy investors.

Natural Gas Companies Focusing on LNG

Reuters reports that ENN initially approached Clean Energy Fuels Corporation (Nasdaq: CLNE), the largest natural gas fueling company in the U.S., about forming a partnership to develop LNG fueling stations for large, long-haul trucks.

ENN was rebuffed by CLNE, which has already built 70 LNG stations in the U.S., and turned to a tiny Utah company, CH4 Energy, which operated a single LNG and compressed natural gas (CNG) fueling station in Salt Lake City.

ENN and CH4 Energy formed Transfuels LLC, which operates under the Blu LNG brand. Blu has now opened five LNG fueling stations and will have several more open later this month.

Royal Dutch Shell (NYSE: RDS.A) is also entering the U.S. LNG fueling station business, with plans to open 100 fueling stations although no schedule was given.

Clean Energy uses Pilot Flying J, a closely held, nationwide truck stop operator, to run its LNG fueling stations. Shell says it is in negotiations with TravelCenters of America LLC (NYSE: TA) to operate its planned LNG fueling network.

Blu remains unaffiliated with any truck stop chain. The company says it ultimately plans to build up to 500 LNG stations nationwide.

All of the companies involved are being rather secretive about where they plan to locate their fueling stations.

Because the business is aimed at heavy, long-haul trucks, just about all of the LNG stations will be along major interstate highways.

Advantages of LNG

Natural gas has many advantages as a transportation fuel.

First, LNG and CNG are much cheaper than gasoline. Truckers can save $2 a gallon or more using natural gas.

Second, natural gas is abundant here in the U.S. so we don't have to send money to unfriendly countries overseas to buy their oil.

Third, natural gas burns much cleaner than most other hydrocarbons. Natural gas is mostly methane and, when burned, methane releases carbon dioxide and water.

Compressed natural gas is more widely available than LNG, which requires low-temperature storage tanks. But LNG is denser than CNG, which means that a truck can hold more energy in a 200-gallon LNG tank than it can hold in a 200-gallon CNG tank.

A truck with an engine built to use natural gas will have the same performance as a diesel or gasoline engine - but with a much lower fuel cost and less pollution.

So why doesn't everyone use natural gas to fuel their vehicles?

The real issue is distribution. The gasoline distribution infrastructure in the United States has been around for 100 years. Gas stations can be found everywhere.

According to the U.S. Department of Energy, there are only 28 public LNG fueling stations in operation in the United States. (Most of the 70 LNG stations that have already been built by CLNE are not yet in operation, as the company is awaiting sufficient demand before opening the stations.)

Long-haul truckers have to know they can get fuel all along their route. Until there are enough LNG fueling stations available around the country, long-haul truckers will be slow to adopt the new fuel, despite its advantages.

In addition to the natural gas fueling stations mentioned above, investors might want to look at Westport Innovations Inc. (Nasdaq: WPRT), the nation's leading manufacturer of CNG, LNG and bi-fuel (combination CNG and gasoline) engines. As the natural gas fueling network in the United States is expanded, Westport can be expected to see increased demand for its natural gas engines and retrofit kits.

With all of the cheap shale gas coming on stream in the United States, it makes sense for investors to look to the expanded use of natural gas as a transportation fuel for new investment opportunities.

To learn more about natural gas stocks and LNG, check out Money Morning Global Energy Strategist Dr. Kent Moors' report "Betting on the Coming Boom in Natural Gas."

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