Enverus Blog

Insights across the energy value chain

As I was watching the election returns Tuesday night, it occurred to me that I LOVE Oklahoma! It might be the best state in the Union these days, and, as a Texan, I couldn’t be prouder than having them as a neighbor.

As I further reflected, it also occurred to me that two Oklahomans (at least on some dimension) are the architects of perhaps the biggest strategic geopolitical superiority our country has ever enjoyed – the benefit of cheap and green energy. As hard as it is for a Texan to admit it (something as difficult to wrap your head around as a Texas Aggie being the father of the French Wine Industry), these Oklahomans deserve to be recognized for the incredible contributions they have made, are making and will make to our lives.

Of course, I am talking about T. Boone “Oklahoma State” Pickens and Chesapeake’s Aubrey McClendon.

T. Boone picked up the political football of natural gas and made it a good word for our progressive politicians, no easy task. Who can forget Nancy Pelosi’s quote, “I believe in natural gas as a clean, cheap alternative to fossil fuels?” It “boggles the mind,” as Joe Biden might say.

Mr. McClendon has done something way beyond making royalty owners richer than Croesus. He has actually invested the money to make natural gas the cross-over transportation fuel it needs to be for the United States to fully take advantage of our advantage.

Building the Infrastructure

Let’s examine what Chesapeake’s non-E&P natural gas infrastructure investments promise to bring forward in 2013.

They have made a substantive investment in Sundrop Fuels, which uses a revolutionary technology to take cellulose-based waste biomass and natural gas to create tank-ready gasoline at under $2 per gallon. This makes natural gas available to all vehicles as gasoline.

Their investment in Peake Fuel Solutions has yielded, in partnership with GE, a new paradigm in “filling stations” where a skid mounted “box” of CNG can be dropped, with card operated dispensing and remote signaling when the box needs to be replaced. They anticipate having 250 units available by the middle of 2015, cutting fuel costs by 40% and CO2 emissions by 24%. That’s great, but what about engines? Who needs this unless they have a CNG/LNG vehicle? And who is going to get a vehicle unless they can easily fill up everywhere they go?

Great question!

This leads to Peake Fuel Solutions’ Diesel Natural Gas conversion kits that allow your diesel engine to run on any combination of CNG, LNG or diesel. And it costs less than one year payout when fuel cost reduction is calculated at 20-30%. Currently designed for Class 8 engines, this same technology is also applicable to drilling rig conversions. Chesapeake is converting its Nomac Drilling rigs to this system. This gives truckers ultimate flexibility.

All great, but why would any trucker convert to CNG when the current delivery of CNG/LNG is so sparse?

Farm to Market

That question leads us to Chesapeake’s investment in Clean Energy LLC. Clean Energy met with the top 200 retailers and manufacturers of goods in the U.S. and mapped out their shipping routes under individual non-disclosure agreements. They then partnered up with Pilot Truck Stops, the popular chain with over 550 stations that sell 25% of U.S. heavy transportation fuels. The companies built 150 2-bay CNG fueling stations at $1.5 million apiece with the ability to double capacity for an additional $750 thousand per station along the routes that service the vast majority of goods in the U.S. 70 of these will be completed by the end of 2012 and the rest by then end of 2013. These retailers and manufacturers get the benefit of substantively lower trucking costs as they bid out transportation contracts. Typically, trucking is a few pennies per mile profit business. But truckers with CNG capacity will see profits soar to between $0.50 and $0.80 per mile by leveraging the differential between diesel and CNG fuels along these routes.

If you haven’t gotten the picture yet, this is a big deal. A very big deal. In fact, it is the biggest deal in our lifetime. The beautiful thing about all of this? It’s market driven. And it’s all thanks to a visionary Oklahoma businessman that will be remembered for a variety of things, but will be remembered by me as someone who changed the world as we know it, and for the better.

What do you think? Are you excited about America’s energy future? Please, leave a comment below.

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