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Whitepapers by Amir Sardari, President & CEO

May 2018

The Growing Demand For Liquefied Natural Gas (LNG)

Heavy-duty trucks, refuse trucks, public transportation buses, commercial bus fleets, commercial marine, recreational boats, mining & farming heavy-duty off-road equipment, passenger vehicles, and rail markets all support the LNG industry. Our rampant population growth and increased consumption of energy fuels have an ever-growing demand and pressing need for these markets to look for new sources of cleaner burning fuels. Research shows the U.S. has an abundant supply of Natural Gas. By switching to natural gas as a transportation fuel or implementing LNG/CNG conversion systems, companies not only receive substantial fuel savings but will also new meet environmental standards.

The transportation industry reports indicate the market for heavy-duty natural trucks is growing at an annual pace of 20%.  Municipal fleets and transit systems are increasingly transitioning to natural gas; 25% to 30% of all public transportation buses currently on order are natural gas-powered. Markets supporting the LNG industry are experiencing growth and developing ways to implement natural gas fuels. Mining companies are utilizing LNG conversion systems for heavy-duty off-road equipment. Railway companies are testing LNG to fuel its trains. TOTE, Inc., a marine company located San Diego CA started construction on the world’s first LNG -powered containership to service Puerto Rico. The state of California has more LNG/CNG refueling stations operating than any state in the United States. There are plans to build additional refueling stations in California and throughout the country. The growing number of refueling stations is due to significant demand for LNG/CNG as a transportation fuel in other markets; medium-duty trucks, light-duty trucks, light-duty vans, SUVs, and passenger vehicles.

However, there are still bottlenecks in the supply chain of natural gas for LNG fueled vehicles and refueling stations as production cannot keep up with the demand. There is a compelling case for the long-term oil supply-demand imbalance,” stated by NGVAMERICA. By ignoring the facts and deferring investments in natural gas vehicles and natural gas fuels, the result can produce an adverse effect. It can delay economic growth and long-term fuel price stability that only natural gas can deliver as a transportation fuel. The future outlook of the LNG industry is positive, and the market timing still shows favorable signs for LNG.

Transitioning Trucks from Diesel to Liquefied Natural Gas (LNG)

Vehicles using diesel engines dominate the delivery and transportation industries and have for a very long time. With most long-haul trucks, local transport vehicles, freight locomotives, cargo handling equipment, boats, and barges all running on diesel engines, it’s no wonder that billions of gallons of diesel fuel are being consumed annually in the United States alone. Thankfully, companies are now looking for ways to use cleaner burning fuel alternatives.

LNG Semi Truck

LNG Can Replace Diesel Fuel in Trucking

One such alternative is the use of natural gas instead of diesel. While it’s true that traditional natural gas is not a viable fuel for trucking and delivery vehicles. The use of Liquefied Natural Gas (LNG) is a viable fuel and is growing in the trucking industry. The transition from the use of diesel to the use of natural gas is gaining traction and momentum among environmentally-minded individuals and companies. However, the higher cost of trucks that run on LNG is one of the biggest factors slowing the growth of using LNG in trucking.

Diesel Conversion to LNG

Many companies are developing new methods of converting existing diesel engines into engines that run on natural gas for about the same price as a traditional overhaul. These conversions provide a significant reduction in our country’s use of diesel. Omintek has developed a diesel-to-natural gas engine conversion technology. ”As engines are converted to use 100 percent natural gas, CNG or LNG, the payback on a diesel-to-natural gas truck conversion can be as short as 16 months, including the cost of the engine, fuel storage system and installation labor,” Werner Funk, president and chief executive officer of Omnitek Engineering Corp. Conversion to LNG allows these vehicles to continue in operation and emit fewer environment-harming chemicals at the same time.

As the industry moves from diesel to cleaner burning fuels, some companies will not be able to switch fully from diesel to LNG for various reasons. For those companies, a dual-fuel conversion system is a solution in the short term. Dual fuel conversions allow a diesel engine to use either a mixture of natural gas and diesel fuel or straight diesel fuel at need. The use of natural gas in converted engines displace diesel fuel by 50% or more and provides emission saving benefits of a cleaner burning fuel.

With many trucking companies thinking about moving to cleaner burning fuel alternatives, it’s a great time to invest in LNG.

The Impact of Falling Oil Prices

Many people in the investment community ask the question, “What is the impact of falling oil prices?” The oil industry goes through a structural change almost every 10 to 15 years and has experience highs and lows due to supply and demand. In the last six months, daily headlines tell the story of falling oil prices. Prices fell from over $100 per barrel in July 2014 to under $50 and perhaps below $40 per barrel; representing a 50% price reduction. The market is experiencing a shift in a supply-demand balance. However, the price of oil is resilient due its actual cost of production as well as real demand and will weather through to make a strong rebound.

The downside of low oil prices will impact exploratory projects, hydraulic fracking projects, and mega projects for LNG export as well as crude oil production. This impact is primarily a result of profit margins based on $90 to $100 per barrel prices. New large-scale exporting LNG projects will slow down however they will bounce back within a couple years. Planned U.S. LNG projects already under construction or committed construction projects with long-term contracts will continue as many projects will avoid the negative aspect of lower oil prices.

The upside will provide financial relief for American consumers and the manufacturing sector to the tune of $150 billion dollars. In addition, the manufacturing sector will benefit strongly from lower energy cost, that some portion may also be transferred to the consumers. We are witnessing an increase in consumer spending which directly benefits retailers throughout the country.

The clean energy revolution is one of the biggest factors for America’s economy for the next 10 to 20 years. The U.S. has transitioned from a significant net energy importer to a near self-sufficient state and close to an exporter. Morgan Stanley’s economics team is predicting that crude oil prices will bounce back to the mid-$80s a barrel in 2015 from their recent plunge. “U.S. LNG has value beyond its price, and the benefit is greater flexibility for buyers”, noted Alex Munton, a senior analyst for North America Gas & LNG with Wood Mackenzie.

Our economy relies on transporting people and products by way of the trucking, shipping and railway industry. The over-the-road transport industry is a vital part of our American economy. Regardless of oil prices LNG is an essential part of the equation due to EPA demands to reduce greenhouse gas and emissions. Most fleet owners are looking for solutions to stay compliant and reduce cost. Surprisingly, lower prices have not prevented our nation’s forward-thinking fleet owners and fleet managers from implementing ways to save fuel and improve their sustainability efforts. For heavy-duty applications, the choice of transportation fuel and substitute for Diesel is LNG. Green fleets are finding various ways to save money by implementing route optimization, right-sizing, transporting more freight in the same number of trailers and most of all converting to cleaner burning fuel.

In closing; We feel the rebound will gradually effectuate and LNG will continue to be a short term & long term solution providing companies with multiple strategic benefits.