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Friday, Mar 29, 2024

A Full Tank

Applied LNG is not the most well-known of companies in the Los Angeles region. It also has had a financially troubled past and is closely held by undisclosed ownership. Yet the Westlake Village firm has staked out a spot for itself in the alternative energy industry, with one of the largest fleets of tanker trucks that supply liquefied natural gas to municipal and industrial clients – and it’s about to get substantially larger. The company has one production facility in Arizona that serves customers as far west as Los Angeles and just broke ground on a second $35 million plant south of Dallas. When the plant in Midlothian, Texas becomes operational in the middle of next year, it will allow Applied LNG to reach customers in the South, Midwest and even the Eastern seaboard. “It is a game-changer for us,” Chief Executive Cem Hacioglu said. Applied LNG has been in the wholesale natural gas distribution business since 2008, when an acquisition of another energy company gave it ownership of a liquefied gas facility in Topock, Ariz., on the California border. Its fleet of 49 delivery trucks is the second largest in the industry, after Clean Energy Fuels, a wholesaler and retailer in natural gas in Newport Beach is owned by oil-and-gas tycoon T. Boone Pickens. The fleet is dispatched from a company logistics facility in Fontana. They drive to Topock, load up with LNG and make deliveries. Customers include the Orange County Transportation Authority, Speedy Fuel Inc. stations at the ports of Los Angeles and Long Beach, waste hauler Waste Management Inc., rental truck provider Ryder System Inc. and Occidental Petroleum. The company – privately held by a single owner that Hacioglu would only describe as a “large money management firm” – is starting construction on its new plant, though, at a tricky time in the energy business. New techniques such as horizontal drilling and hydraulic fracturing have created an abundance of natural gas that has led to a fall in LNG prices. But diesel – the prime competitor for LNG – has followed a similar trajectory. U.S. diesel prices last week averaged $3.80 a gallon at retail, its lowest price in three years. And the government forecasts it could decrease to an average of $3.38 a gallon next year. However, there are other factors that are boosting the LNG market, not the least of which are federal regulations pushing fleet operators to reduce pollution associated with diesel. Tighter regulations create an impetus that makes natural gas-powered trucks an attractive alternative. The Southern California market in particular is a strong one for the company because the state and local air districts have some of the strictest emissions rules in the country. Oil patch Applied LNG is building its Texas production facility on 31 acres it purchased in the spring at the RailPort Business Park in Midlothian, just south of Dallas-Fort Worth. The site is near state and interstate highways and existing natural gas pipelines. It also is close to the productive Eagle Ford Shale formation in south Texas and oil-and-gas patches in Louisiana and Oklahoma, as well as industrial customers in Texas and Arkansas, Hacioglu said. Larry Barnett, chief executive of Midlothian Economic Development, a non-profit industrial development corporation, said Applied’s project represents a significant capital investment and a boost in job creation. Surprisingly, the Applied LNG facility will be the first of its type in the area. Other industrial players in the area include cement plants and steel manufacturers. “It fits nicely with what we have here already,” Barnett said. The company currently employs 50 workers, including six who oversee the largely automated facility in Topock. The Texas production plant will require a similar number of workers. The delivery truck drivers are independent owner/operators and not included in the headcount. One of the company’s LNG liquefier has capacity to process 86,000 gallons a day, which Hacioglu said makes it a typical small-scale commercial LNG plant. The site in Arizona was recently upgraded with a second liquefier and has space for two more. The Texas site can accommodate six liquefiers. The company currently brings in about $30 million in annual revenue, and each new liquefier can generate another $30 million, Hacioglu said – thus the two plants at build-out could generate about $300 million in sales. The process involves taking natural gas off a trunk line and pumping it to the liquefier. ConocoPhillips Co., in Houston, is currently the supplier, but the gas can come from any energy company transporting natural gas through the pipeline. After removal of heavy carbons, the gas is cooled to a temperature of -260 degrees Fahrenheit at which point it becomes a liquid. The liquid is then loaded onto trucks for delivery to the end users where it is stored in above ground tanks until used in vehicles. “When liquefied it is 1/600th the volume of (non-liquid) natural gas and that is the big reason you can transport large quantities,” Hacioglu said. Price drops The U.S. Energy Information Administration, the statistical agency of the U.S. Department of Energy, has forecast natural gas production to increase by 4.8 percent this year and 2.3 percent next. At the same time, the price is expected to drop from $4.04 per thousand cubic feet in September to $3.64 in May. Meanwhile, a diesel gallon equivalent of liquefied natural gas costs between $1.27 a gallon and $1.70 a gallon based on prices outlined in public contracts, but that does not include sales tax or federal or state road-based taxes, said Erik Neandross, chief executive of Gladstein, Neandross & Associates, a Los Angeles clean transportation and alternative energy consultancy. However, including those taxes, he said that LNG is currently cheaper than diesel on a per-mile, per-gallon basis. Neandross estimates that companies like Applied and Clean Energy Fuel have tapped less than 1 percent of the potential market for vehicles powered by natural gas. But he cautioned that while there is a huge opportunity, challenges stand in the way. For one, knowing the market demand is tough. For example, manufacturers of locomotives and marine vessels would like to build their vehicles to use natural gas over diesel because of the cost savings. The technology, however, hasn’t reached that stage, and the federal government needs to draw up standards and codes for the LNG cars that would be attached to the engines. “For Applied to meet the optimal market demand, it is all a timing issue,” Neandross said. Another challenge is that it’s difficult to predict what the diesel market will do. Right now prices are relatively low and that may cause some to reconsider whether it is the right time to convert to natural gas. Neandross’ firm works with the transportation industry in developing plans to transition to alternative fuels, and many view diesel versus natural gas in the long term. “They are not reacting to short term news,” he said.

Mark Madler
Mark Madler
Mark R. Madler covers aviation & aerospace, manufacturing, technology, automotive & transportation, media & entertainment and the Antelope Valley. He joined the company in February 2006. Madler previously worked as a reporter for the Burbank Leader. Before that, he was a reporter for the City News Bureau of Chicago and several daily newspapers in the suburban Chicago area. He has a bachelor’s of science degree in journalism from the University of Illinois, Urbana-Champaign.

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