(Corrects AUG 19 story to show engine maker Westport, notCummins, paragraph 16)
By John Kemp
LONDON, Aug 19 (Reuters) - Cheap natural gas is starting torevolutionise traffic on U.S. roads, cutting bills for some ofthe country's heaviest fuel users while reducing carbonemissions and other pollution.
The revolution is still in its very early stages. Gasremains a niche vehicle fuel, with last year's nationwideconsumption less than the amount of gasoline and dieseldispensed in the tiny state of Vermont.
But gas consumption by motorists, taxis, refuse trucks,transit operators and logistics companies is growingly rapidlyat a time when overall gasoline and diesel sales are flat.
Like other bold gambles on new technology, there is noguarantee that this one will pay off. But the steady rise innatural gas sales suggests that gas-fuelled vehicles are makingprogress.
Gas as a transport fuel is sometimes portrayed as a cottageindustry, but the truth is rather different. Gas-fuelledvehicles have strong support from some of the biggest and mostpowerful names in truck manufacturing and petroleum.
Royal Dutch Shell is constructing a network ofnatural gas fuelling stations at truck stops along theinterstate highway system in association with TravelCenters ofAmerica, an existing truck refuelling operator.
Love's Travel Stops, Blu LNG, Kwik Trip, Questar Fueling andTruStar Energy are also adding gas-refuelling systems atlocations across the United States as well as parts of Canada.
The concept has powerful strategic and financial backingfrom engine manufacturer Cummins, gas producerChesapeake Energy and equipment maker and financingcompany General Electric.
Leading truck manufacturers including Freightliner,International, Kenworth, Peterbilt, Mack and Volvo all offer natural gas trucks using Cummins' ISX 12G engine,which one major fuel supplier hopes will be a "game changer" forthe industry.
TRADE-OFFS
Gas-fuelled vehicles typically cost significantly more thanconventional gasoline and diesel-powered equivalents, whilefuelling stations dispensing compressed natural gas (CNG) orliquefied natural gas (LNG) to the public remain rare.
Set against these disadvantages, however, is thesubstantially lower price of natural gas.
Between 2011 and 2013 compressed CNG and LNG delivered costsavings of more than $1 per gallon on an energy equivalent basiscompared with gasoline and diesel to California customers.
For individual vehicles and fleet operators that use a lotof fuel each year, the savings on fuel can more than offset theincreased equipment costs and inconvenience arising fromrestricted refuelling infrastructure.
Switching to gas makes most sense for high-mileage vehiclesand those with very large engines, which explains why taxifleets, transit operators, refuse collectors, airport shuttlesand trucking companies have shown the most interest ingas-fuelled engines.
SLOW START
Gas conversion, however, has been plagued with the teethingproblems typical in any new technology and there is stillcompetition between companies promoting either CNG or LNG as thebest fuel.
The transition has not been helped by early gas-fuelledengines not always being suitable for certain customer groups.Engine maker Westport supplied 8.9 litre and 15 litre enginessuitable for LNG, but the former did not deliver enoughhorsepower and the latter was too large for efficient operationby most potential users.
Gas-fuel vendors are pinning their hopes on a new generationof 12 litre Cummins engines, led by the ISX 12G, to speed thespread of gas-fuelled vehicles.
Notwithstanding the problems, sales of gas as a roadtransport fuel are rising rapidly. Clean Energy Fuels,the leading provider of natural gas as an alternative fuel forvehicles in the United States and Canada based on sales volumesand the number of refuelling stations, has reported rapid andsustained growth in the amount of CNG and LNG sold since 2009.
Clean Energy Fuels sold almost 65 million gasoline gallonsequivalent (GGE) of natural gas fuels in the second quarter ofthis year, up from 50 million in the same period of 2012 and 25million in 2009.
CNG accounts for two thirds of the company's sales, butdeliveries of both CNG and LNG have been rising steadily overthe past five years (http://link.reuters.com/sat62w).
Roughly half of all natural gas sales for transport fuel arein California, according to the Energy InformationAdministration, and gas sales remain tiny compared with otherfuels.
U.S. drivers purchased 174 billion gallons of gasoline anddiesel last year, according to the Federal HighwayAdministration. So if Clean Energy manages to sell 170 milliongasoline equivalent gallons in 2014, it will still amount toless than 0.1 percent of all U.S. fuel sales.
But Clean Energy has big ambitions and believes it is wellpositioned to capture expected future growth in demand foralternative-fuelled vehicles.
CLEAN ENERGY
The company owns, operates and supplies 516 refuellingstations dispensing CNG, LNG or biogas, up from 224 at the startof 2011.
Some of these stations are open to the public, but themajority are private stations operated on behalf of transit andrefuse companies or other fleet operators.
In 2013 Clean Energy served 779 fleet customers operatingapproximately 35,000 natural gas vehicles and had fuellingstations in 39 states across the United States, plus theprovinces of Ontario and British Columbia in Canada.
In the first six months of this year the company addedanother 43 CNG fleet customers, accounting for an extra 9.8million gallons of sales, and 11 new LNG customers, adding anextra 6.5 million gallons.
Clean Energy has been building a network of refuellingstations along major transportation corridors, which it calls"America's Natural Gas Highway" (ANGH). The idea is to guaranteerefuelling facilities for coast-to-coast trucking companies.
More than 80 ANGH stations have been built, though only aminority are open to the public, with the company waiting forcustomer demand to increase.
Building so much infrastructure has pushed Clean Energy deepinto debt. The company posted a pre-tax loss of $60 million inthe first half of this year, bringing total pre-tax losses sincethe start of 2011 to $271 million.
"We have a history of losses and may incur additional lossesin future," the company admits, adding in regulatory filingsthat it might never achieve or maintain profitability and thatinvestment in the business "involves a high degree of risk".
The company had consolidated debt of more than $600 millionon June 30, according to its quarterly filing with theSecurities and Exchange Commission.
Clean Energy is essentially a concept company dedicated tothe idea that cheap gas could grab a significant share of NorthAmerica's giant fuel market.
The main risks are that the company will run out of cashbefore natural gas vehicles go mainstream or oil prices fallenough to spoil the economics of switching.
But otherwise the concept is a good one. Gas is cheap andabundant in North America and the engine technology is mature.
Gas will not be suitable for all motorists, but for a groupof the heaviest users there is a compelling argument for makingthe switch. (Editing by David Goodman)