Natural Gas Guzzling: Chesapeake Energy’s Drive to Innovate Transportation
Large oil and gas companies are often portrayed as suppressing technology and energy innovation in order to secure their profits for the future, no matter what the cost. But lately, natural gas giant Chesapeake Energy (NYSE:CHK) has kicked off a series of announcements that bring hope to both those who want cleaner fuel, and to those who are invested in the natural gas sector, which is in a price rut.
In February, the second-largest natural gas producer in the world announced a partnership with 3M (NYSE:MMM) to create a compressed natural gas (“CNG”) Tank, which incorporates 3M’s nanotechnology. This week, Chesapeake is at it again, announcing its new collaboration with General Electric (NYSE:GE) to move forward with a plan to try and adopt natural gas as a clean transportation fuel in the US.
As natural gas sits at barely economic lows around the $2.30/mcf mark, the news is welcomed by natural gas producers looking to sell their product to a larger market. While the drive to permit and construct liquid natural gas (“LNG”) terminals for international shipment continues, the thought of enhanced domestic utilization of dry gas is welcomed. Chesapeake’s stock price has gone up from $23.40 on Wednesday to $24.65 at the time of this article on Thursday for a rise of over 5%.
The Chesapeake/GE deal consists of signing a memorandum of understanding (“MOU”) on a product and services development partnership, spanning multiple years to collaborate in the development and delivery to market of both CNG and LNG transportation and natural gas home-fueling solutions. Like that of an electric car, the idea of home fueling is appealing to consumers who are being decimated at the pumps by today’s skyrocketing prices of gasoline.
The partnership’s idea is to improve customer access to CNG vehicles, which are currently deployed in the form of light- to medium-duty vehicles such as pickups, vans, SUVs, taxis, buses, garbage and delivery trucks as well as consumer vehicles. LNG vehicles are typically used for more heavy-duty industrial purposes. The idea is to not only open up new markets, but to reduce US dependence on foreign energy sources, fueling costs and vehicle emissions.
The previous deal with 3M is also an integral piece in this drive towards natural gas vehicles. By developing new CNG tanks, the hope is to reduce costs while increasing performance. In today’s economy, any cost reduction will no doubt be welcomed with open arms.
The solution proposed by 3M and its CNG tank is to transform the pressure vessel industry by combining proprietary liner advancements, thermoplastic materials, barrier films and coatings, and damage-resistant films. The new tanks are said to be 10 to 20 percent lighter in weight, with 10 to 20 percent greater capacity. But more importantly, the package comes a lower cost than standard vessels and is safer and more durable than those currently on the market.
“3M believes in the potential of natural gas, and this agreement illustrates our commitment to the industry,” said George Buckley, Chairman, President and Chief Executive Officer of 3M. “We are excited about this collaboration to speed the development and adoption of natural gas-powered vehicles.”
Chesapeake initially pledged $10 million toward design and certification services, market development support, and has committed to using the new tanks for a corporate fleet conversion to CNG. Through a subsidiary designed to advance these types of technologies, Chesapeake has committed $1 billion over the next 10 years to help fund a variety of initiatives with the aim to increase demand for natural gas, including investments totaling $300 million in Clean Energy Fuels Corp. (NYSE:CLNE) and privately-held Sundrop Fuels, Inc.
With both 3M and GE in the mix, Chesapeake is certainly making strides to get North Americans to better utilize the abundant and comparatively cheaper natural gas supply. Before the impact hits the consumer market, another deal with an automobile manufacturer will need to commence to actually bring these vehicles to the road.
How long that will take is up in the air, but with the positive reception that each of these companies has received in the wake of these announcements, it’s not hard to see a willing participant from the auto industry willing to step up to the plate to see this dream come to fruition.
G. Joel Chury is a veteran investment columnist for Resource World Magazine and the Editor in Chief of VantageWire.com. His knowledge of both the mining and oil and gas sectors along with his ability to sift through TSX.V data and press releases makes him one of the best up-and-coming newsletter writers on the web.
With a diverse background that includes investor relations writing and consulting for publicly-held companies and previous field work as a surface land agent for oil and gas companies, Mr. Chury seamlessly translates technical results geared towards engineers and geologists into a more readable language that’s palatable for investors on the go. As well, Mr. Chury is an avowed silver bug, always willing to join the debate on where the precious metals market is heading.
Disclaimer: No information in this article should be construed as individualized investment advice. A licensed financial advisor should be consulted prior to making any investment decision. VantageWire makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of the VantageWire only and are subject to change without notice. VantageWire assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this article and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. The author of this article does not currently own shares of any of the companies mentioned in this article. Furthermore, VantageWire assumes no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information, provided within this article.
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June 4th, 2020
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