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Total to provide credit support for US LNG truck purchases


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S&P Global  /  May 10, 2018

French oil major Total has taken a further step downstream in the natural gas supply chain, with a plan to facilitate the purchase of gas-fueled trucks in the United States.

The aim is to make the upfront capital cost of LNG trucks equal to an equivalent diesel truck. The company also intends to guarantee a discounted natural gas fuel price to diesel.

The move is part of a pattern amongst international oil companies to invest in all parts of the gas value chain and stimulate demand for the fuel in new markets such as land and maritime transport.

The company announced Thursday that it has entered into a strategic agreement with Clean Energy Fuels Corp. Total will take 25% equity in the US company, buying 50.8 million shares for $83.4 million, making it CEF's largest stockholder, subject to shareholder approval.

CEF plans to launch a leasing program to allow early switchover for trucking firms from diesel to gas. Total intends to provide up to $100 million of credit support for the program, which is slated to launch in the third quarter.

"Launching the financing program should expedite the adoption of natural gas as the most environmentally friendly fuel for the trucking industry," CEO and President of Clean Energy Andrew J. Littlefair said.

Cost Volatility
The adoption of gas-fueled trucks, either CNG or LNG, implies potentially significant oil demand displacement and a commensurate increase in natural gas consumption as trucks have high mileage and low fuel efficiency, which means they use much more fuel than passenger vehicles.

However, the number of natural gas vehicles in the US has remained static over the last two years at 160,000, representing just 0.06% of the total US vehicle fleet, according to NGV Global data.

Natural gas-fueled trucks typically cost around $100,000 compared with $70,000 for diesel trucks, while the fuel savings depend on the relative cost of diesel and natural gas.

"Total believes there is a strong development opportunity in the natural gas for transportation market in particular in the United States which benefits from unique giant low-cost gas resources," Total CEO Patrick Pouyanne.

Diesel prices rise and fall largely in line with the crude oil price, which dropped sharply in the latter half of 2014, but has been rising over the past year, hitting a three and a half year high Wednesday, following US President Donald Trump's decision to withdraw from the Iran nuclear deal.

US natural gas prices in contrast have stayed relatively steady and low over the same period on a diesel gallon equivalent basis, despite rising demand, owing to large increases in supply associated with shale oil drilling. CNG has about a 25% the energy density of diesel, while LNG has about 59%. Results vary from study to study, but in general LNG has a higher diesel equivalent fuel economy. This, like fuel costs, is again something of a moving target as both LNG and diesel engine fuel economy is improving.

Natural gas trucks tend to be lower maintenance as they are cleaner burning. However, while the cost benefits are mostly a function of the relative price of the alternative fuels, the issue of whether natural gas is a better fuel for the environment than diesel is also more nuanced than might be expected.

Natural gas' more complete combustion leads to lower nitrogen oxide and particulate emissions, while diesel engine exhaust was classified by the World Health Organization as long ago as 1998 as "probably carcinogenic to humans". This stance was toughened in 2012, when the WHO concluded there was sufficient evidence that diesel exhaust "is a cause of lung cancer."

However, the findings on overall greenhouse gas emissions is different because natural gas - methane - is itself a potent greenhouse gas. The International Council on Clean Transportation in a study from 2015 noted that "recent studies on natural gas supply chain leakage and emissions indicate that even low levels of methane emissions can turn natural gas truck technology from an asset into a liability for the United States' long-term climate mitigation planning."

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