A Windfall of New Wealth

Transcription

1 A Windfall of New Wealth Conversation with Eddie Coats, Sr. Coordinator of Market Development for Chesapeake Energy Tell what the market for CNG is like, particularly among fleets. It is definitely a growing industry. When people think about CNG, they think of it as it was back in the 80 s and 90 s. Thanks to shale gas, we are no longer seeing CNG sell at a discount of 25 cents or 30 cents to gasoline, but in the realm of $2.00 per gasoline gallon equivalent. CNG is much more attractive today from a price standpoint. That will continue to drive adoption. Some interesting things you are seeing in 2012 include recent developments with the OEMs. Today you have the ability to go to a Ford, GM or Chrysler dealership and purchase a three-quarter ton truck with a bi-fuel set up that allows the vehicle to run on either CNG or gasoline. The infrastructure piece is expanding pretty rapidly as well. You are seeing a lot more publicly accessible stations. Additionally, there is a lot of growth on the fleet side with "behind the fence" installations for private use. So the fueling distribution networks are expanding to meet the market. Is that still a constraint in the marketplace? It is, but we continue to see positive growth in the market. We are seeing a big push from companies like Chesapeake and Clean Energy to provide more publicly accessible infrastructure. Many fleets that haven't used CNG in the past are trying it out. It is important for them to be able to take an incremental step. Through publicly accessible infrastructure, fleets can make a decision to purchase five vehicles, 10 vehicles, 20 vehicles, try those vehicles out, gather data and then make a longer term decision to move more of their fleet to natural gas. In Chesapeake s eyes, developing publicly accessible infrastructure is extremely important at this point in the industry s growth. What about conversion of entire fleets? In many instances it makes a lot of sense to talk to fleets about converting existing vehicles rather than purchasing new vehicles. A big part of what Chesapeake is trying to do, in addition to growing the number of publicly accessible CNG stations, is to help fleets across the nation develop CNG pilot programs.

2 We understand that CNG is a different fuel than what they've used in the past. It is important to give them an opportunity to see success with the fuel initially. Chesapeake may engage a company in order to better understand its fleet s needs. Is it better to convert existing vehicles or would it make more sense to go with purchasing a new vehicle in the next cycle because of the greater number of miles on their existing fleet? In sum, it is all about the financial payback. Of course, there are other benefits to CNG - the environmental aspect and sustainability message as well as the domestic energy argument. But from a financial standpoint, Chesapeake always tries to help fleets find the solution that makes the most sense for their bottom line. Our market development team at Chesapeake sees it as a win even if it just starts out at five or 10 or 20 vehicles. Fleets need the opportunity to gather first hand data that will allow them to make a decision on whether or not it makes sense to deploy CNG to a larger portion of their fleet. The conversion of even just a few vehicles is an important step for a fleet manager or a CEO because they can begin to see what a difference it makes for their company. What kind of economies might a fleet experience in converting over to CNG? We will start with the basics; questions that I get often that involve very simple things like fuel economy. A lot of people don't know that CNG is going to give drivers the same fuel economy that you receive on gasoline. When you are buying CNG or LNG at the pump, you are buying a gasoline gallon equivalent or a diesel gallon equivalent. The math equation has already been performed for drivers. You are buying the same number of BTUs at the pump and consequently will have the same fuel economy. A lot of people don't know that. Unlike many alternative fuels, CNG provides the same type of performance, horsepower and torque - you are just doing it at about a $2.00 per gallon discount. When you start to do the math, and it is a pretty simple math equation, a fleet can quickly see what conversion to CNG will mean for their company long term. What other companies or fleets have made the commitment to CNG? In addition to Chesapeake there are quite a few champions of the fuel. A lot of food service and beverage distribution fleets have made the switch. FedEx has really gotten behind CNG in a big way. UPS was one of the early adopters and innovators. I think they have over a thousand vehicles that are running on CNG today. In Chesapeake s home city of Oklahoma City almost every single brown UPS truck runs on natural gas. And then, of course, AT&T has several thousand of their vans that run today on natural gas. You are seeing some fleets that have taken that initial step through pilot programs such as O Reilly Auto Parts and U.S. Food Service. It is exciting to see brands that most

3 Americans know deploying natural gas vehicles in small numbers with the hope of expanding to a larger presence. What are the environmental benefits that are really striking? I would probably point out three or four. When driving a natural gas vehicle, you're cutting your carbon dioxide emissions by 30%. You're reducing your carbon monoxide emissions by about 75%; and with particulate matter you can see up to a 95% reduction. I like pointing to refuse trucks as an example of the environmental benefits that result from using CNG. Every refuse truck converted to CNG equates to the removal of 325 passenger vehicles pollutants from the road. Imagine the impact on emissions if our nation s entire refuse truck fleet was powered by natural gas. What is it that you have found to be the biggest challenge, particularly in the fleet market? Infrastructure seems to be a big challenge. I always think back to when Henry Ford started making Model-Ts and how he transformed our nation s transportation system. There were not gasoline stations on every corner when they were stamping out Model-Ts. Our nation is in a similar situation now with CNG. There is not a technological leap that needs to be made on the infrastructure side; we just need to grow the number of stations publicly available. When fleets make the decision to invest in infrastructure for their own vehicles, they need to consider making the stations open to the public. That is one way to grow the number of natural gas vehicles on the road. Take your local heating and air guy as an example. He only has 10 vehicles and likely can't invest in the infrastructure himself yet needs access to a CNG pump. If another fleet made the decision to fuel behind the fence but also make infrastructure public, smaller companies or individuals can start deploying CNG vehicles in their vehicles. So, you're saying that companies putting in their own fueling facilities could provide "over-the -fence" access to the public? Absolutely. That is something that Chesapeake encourages quite a bit. We have seen groups do that with a lot of success. Waste Management is a good example. They have CNG behind the fence or right next to their facility. When Waste Management makes the decision to open their infrastructure to the public, the high school football coach down the street or the florist who has just a few vans and can't afford their own infrastructure are still able to put money back in their pockets. It is convenient for the fleet that is base loading the station but at the same time it is open to others. That grows the entire market. That is the decision we made at Chesapeake. We have about 6,000 fleet vehicles including about 1,500 natural gas vehicles. At the field offices

4 where we base our natural gas vehicles, we have always made sure that the general consumer can access the CNG infrastructure regardless of whether they have a fleet card or a Master Card or a Visa. Our installations are "outside-the-fence," consumer friendly, and provide a really good user experience. That is how we grow adoption. Chesapeake believes that it is important to move natural gas as a transportation fuel beyond what it has traditionally been - which is a niche fleet fuel. There is no reason that natural gas shouldn't eventually evolve into a fuel that can be used by everyone. How do we take an incremental step with the decisions that we control as Chesapeake? One way is the decision to make our infrastructure available to the public. There are a lot of myths surrounding the utilization of natural gas. How do you deal with that? We really have to put our message out there in a big way as Chesapeake and as a part of the entire natural gas industry. There is a trade group called Natural Gas Vehicles of America, known as NGVA, which does a great job with education. The Clean Vehicle Education Foundation, The Clean Cities Coalition, all those different groups can arm people who are interested with solid information. One of the myths that we hear most often is that natural gas is very dangerous because natural gas is flammable. When people think of compressed natural gas in a tank in the back of their vehicle they compare it to driving around with a bomb on board. You have to educate people that this is just not the case. In the event that a CNG tank is punctured, the compressed gas will quickly vent into the atmosphere rather than pooling on the ground. CNG tanks are highly engineered and extremely stable. CNG is very safe, and the industry has an incredibly strong track record. At Chesapeake and as an industry, we must stay committed to educating people about the benefits of CNG and dispelling any myths associated with the fuel. What is your outlook on the CNG market? Is it just going to keep growing exponentially because of the price of natural gas? I think the low price of natural gas is going to be the biggest factor. The other selling points are the fuel s green properties, the American jobs created through the industry, and the fact that 98% of our natural gas comes for the U.S. and Canada. Those are definitely ancillary selling points but when people drive by that fueling station and they see $4.00 diesel, $3.75 gasoline and then they see $1.75 for CNG, there is no better selling point. The price on the marquee is going to get the conversation going. Our market will reach its tipping point when we see fleet and individual customers saying to the auto manufacturers

5 We want to be able to utilize this great, cheap resource that we have here in the U.S. We need you to manufacture vehicles that give us that ability. Is Chesapeake attempting to get consumers to adopt natural gas as a power source? Yes, that is definitely the direction Chesapeake wants to move things. The consumer market, meaning light duty passenger vehicles, make up a much larger percentage of the total energy consumption than even medium and heavy duty trucks combined despite the fact that they are not big fuel guzzlers. Addressing the light duty market is important. One thing we are doing today at Chesapeake is working with several technology providers to look at home fueling. We want consumers to have the opportunity to install a fueling device in their garage or just outside their garage, tap into the same gas line that is supplying their stove, oven or hot water heater and be able to refuel their vehicle overnight. The industry continues to place focus on light duty passenger vehicles and the question of how to deploy natural gas vehicles for the average American. You remarked earlier about education being really critical to the acceptance of CNG as a major fuel. How are you doing that? Our primary public education tool is our CNGnow website ( It is collaboration between the American Clean Skies Foundation, the Pickens Plan, NGVAmerica, ANGA, the American Gas Association and Chesapeake. It serves as a hub for those who want additional information, news or need facts on compressed natural gas. We also have an interactive map on the website that shows visitors the locations of all of the natural gas stations nationwide that are open to the public. People that have the CNGnow app on their smartphone can actually check in when they arrive at the CNG stations. They can update the price, leave comments, and rate the station with one to five stars. To have an app you can go to on your phone that tells you not only that the station exists but who filled up there two weeks ago or two days ago and what their experience was like. Chesapeake s market development team also speaks at conferences quite a bit and attends events like NAFA and AFLA in order to connect with fleet managers and answer their questions on natural gas vehicles. What do you have to say about fracking and what is it that you would like our media to say to our audience and your target market about fracking? Hydraulic fracturing, done the right way, has changed our energy future by unlocking nearly 100 years worth of shale gas. The energy industry has been

6 fracturing wells since the 1950 s. There have been over a million wells fractured. People think that because fracturing is in the news today that it is a new technique, but it is not at all. Pretty much every natural gas and a lot of the oil wells in different shale resources are fractured today. Most of the issues that have been widely publicized in places like Colorado and Pennsylvania actually have nothing to do with the fracturing process at all; they are related to well bore integrity and the concreting process. I think if people seek out the facts and really do their homework they will see that fracturing is a very safe practice. It is regulated at a very high level and companies like Chesapeake, through websites like fracfocus.org, disclose the chemicals and other inputs that go into their fracturing solution. Chesapeake and many of our industry peers are doing a lot to make sure that the process is transparent and done right. Our employees that are actually out there at the pad site running those wells; they live in the areas where the fracturing is taking place. We see it as an ethical responsibility to operate with integrity and be a good environmental steward and neighbor. I would encourage people to seek the facts and go beyond what they are simply hearing through the media and do their own research. Time and time again, whether it is through a study by the EPA or other credible sources, we've seen that the fracturing process does not harm the environment. The natural gas and oil and gas industry doesn't have a perfect track record, no industry does; but the industry is taking the right kinds of steps to ensure that this is a safe process. It is producing an incredible value for our nation. When you look at what natural gas has done in the last several years, this really is a windfall of new wealth for the U.S. BIO Eddie Coates serves as Senior Coordinator for Market Development at Chesapeake Energy Corporation, the nation s second-largest producer of natural gas. At Chesapeake, Eddie focuses on enhancing the use of natural gas within the transportation sector through CNG infrastructure expansion, strategic partnership development, and national fleet consultation. As America s Champion of Natural Gas, Chesapeake Energy is committed to providing our nation with a cleaner, domestic, abundant and affordable energy solution. eddie.coates@chk.com