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Paving the Way for Natural Gas Vehicles

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By Jason Hall
November 21, 2013

Natural gas vehicles, at least in the U.S., haven't really been in demand for many years. The cheap gasoline (and diesel) that we have enjoyed for decades simply created a situation where there wasn't enough pain at the pump to drive any kind of demand of natural gas as a transportation fuel. However, the domestic cost of gas and diesel, largely driven by the international oil market, has risen considerably in the past half-decade, while the overall price of natural gas has stayed relatively low.

Domestic oil consumption has continued to decline, since peaking in 2006.

With this trend expected to continue as natural gas vehicles start to take market share in both commercial shipping and for private transportation, investment in production and infrastructure to support the growth in demand is ramping up. Does this create any opportunities for investors? Let's take a closer look.

Chicken or egg? Neither
It's only been in the past few years that expensive (by American standards) gas and diesel has created any sustained interest in natural gas vehicles. Add in what is shown above -- a trend of reduced consumption of oil that is also expected to continue -- and this has led companies like Royal Dutch Shell (NYSE: RDS-A ) and ExxonMobil (NYSE: XOM ) to step up their involvement in natural gas production and refueling in North America.

ExxonMobil is one of the largest companies in the world, a dominant player in oil and gas exploration, production, and sales to both consumers at retail and contract sales to fleets. One only has to look at its own website to see that natural gas is going to become a growing part of the company's future results:

For the next two decades, over half the growth in unconventional gas supply will be in North America, moving the U.S. energy mix toward a lower-carbon resource. This competitive energy supply provides a strong foundation for increasing economic output in the United States, opening up new and valuable opportunities in many regions and sectors of the U.S. economy...
ExxonMobil's domestic gas production also points at this: The company was the largest domestic producer of natural gas during the second quarter of 2013. Expect to see ExxonMobil continue to be active in this space.

Shell has been a big player in natural gas for years and is already one of the largest natural gas suppliers in the world. But the company isn't stopping at production. In April, Shell and TravelCenters of America (NYSE: TA ) announced plans to open LNG refueling lanes at "at least" 100 TA and Petro stations in major shipping corridors across North America.

This announcement followed two in March. The first announced plans for two liquefaction plants to provide LNG for heavy-duty land and marine vehicles in the Gulf Coast and Great Lakes regions. The second announced a collaboration between Shell and Volvo, which aims to "provide a complete solution to customers to help them convert to LNG as a fuel."

It's not just big oil



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