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 The move, confirmed by the company's Chief Executive Officer,
Merritt Norton, and other people familiar with the situation, marks
an important pullback in a nascent sector that is expected to
improve U.S. energy security, lower transportation costs and create
jobs.
Just three days ago, President Barack Obama threw his weight behind
the industry in his State of the Union speech. "Congress can help by
putting people to work building fueling stations that shift more
cars and trucks from foreign oil to American natural gas," Obama
said.
Blu a year ago pledged to build dozens of liquefied natural gas
fueling stations along U.S. highways in 2013 with the help of
millions of dollars from ENN Group, one of China's largest private
companies.
But fueling stations need customers, and trucks that run on natural
gas have been slower to hit the market than many anticipated and are
still far more expensive than their diesel equivalents, making even
the allure of far cheaper fuel difficult to swallow for many fleet
owners.
"This year is a year of trying to let the trucks catch up to us,"
Blu CEO Norton said in an interview.
Regarding Obama's remarks this week, Blu said it appreciated the
president's comments and would like to see a federal effort to bring
the fuels tax on LNG in line with that of diesel, which is far
higher. The company also said it would like to see a cap on the
federal tax for new natural gas trucks, adding that any incentives
should be directed to vehicles.
Blu's retreat is coming to light months after Clean Energy Fuels Inc
<CLNE.O>, the market leader in natural gas fueling and backed by
Texas billionaire T. Boone Pickens, said it had slowed development
of LNG stations due to truck availability.
There are many reasons to believe in the market for natural gas
trucks. Companies like shipper United Parcel Service Inc <UPS.N> and
consumer products giant Procter & Gamble <PG.N> are amassing fleets
of them during a boom in U.S. shale gas production that has kept
prices on the domestic fuel low.
IMPATIENCE OVERSEAS
Blu, formed in 2012 as a joint venture between ENN and a small Utah
company called CH4 Energy Corp, has built about 25 permanent
stations where trucks powered by LNG can refuel — about half the
number it pledged to build in 2013, it said.
The company, whose legal name is Transfuels LLC, also appears to
have tempered its longer-term expectations. Originally, it hoped to
spend more than $1 billion to build 500 natural gas fueling stations
within three years, according to sources with knowledge of the
company's plans at that time.
This week Norton predicted the company will have "in the low
hundreds" of both permanent and so-called terminal stations by 2017.
Terminal stations are semi-portable, and Blu is in the process of
delivering 15 to 18 of them to customers so they can refuel their
fleets themselves.
But ENN, which has a majority stake in Blu and controls its board of
directors, last year grew increasingly impatient with the slow pace
of the market's development, according to sources close to the
company who said expectations were too high at the home office in
China. That led to the ouster over the last three months of not only
key executives in charge of finance, sales and marketing, and
business development, but also its Chinese chairman, Jun Yang.
Norton would not comment on the dismissal of people from specific
positions, but said "there were some changes that our board wanted
to make around how we were going to market."
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The company has identified a new chairman but would not say who it
is until the person's required working documents are in order. The
other vacant management positions are being filled, Norton said.
ENGINES SLOW TO REV UP
Station development has slowed down, Norton said, in part because of
issues rolling out natural gas engines for trucks.
At the end of last year engine maker Westport Innovations Inc <WPT.TO>
pulled the plug on a 15-liter natural gas engine that Norton said
was the best option for trucks hauling heavy loads across
mountainous terrain in the Western United States. To make matters
worse, Cummins Inc <CMI.N> this month put plans for its own 15-liter
natural gas engine on ice indefinitely, saying "the timing of the
adoption of natural gas in long haul fleets preferring a 15-liter
engine is uncertain."
An eagerly anticipated 12-liter engine by Cummins and Westport's
joint venture hit the market last year after some delay, but it is
better suited to haul somewhat smaller loads on flatter terrain. As
a result, Blu is refocusing on the Midwest and Southeast markets,
Norton said, and was therefore forced to slash 20 percent of its
staff. The Salt Lake City-based company still has 170 employees.
In addition, Westport spokeswoman Nicole Adams said most of the
12-liter engines that have been ordered so far are configured for
compressed natural gas (CNG) as opposed to LNG, the fuel Blu and
rivals Clean Energy Fuels and Royal Dutch Shell Plc <RDSa.L> are
banking will eventually be the fuel of choice for heavy-duty trucks
running on natural gas. LNG trucks are faster to refuel, can go
farther on one fillup, and have lighter storage tanks than CNG
trucks.
Clean Energy has built 80 public LNG fueling stations along U.S.
highways, and it too, has slowed down development to account for a
delay of about a year in its expectations for natural gas truck
availability. Only about 22 of those stations are open for business,
though the company opens a new one about once every 10 to 14 days as
fleets of LNG trucks are delivered, spokesman Gary Foster said.
Shell plans to open its first LNG fueling station this year and is
planning about 100 such stations over multiple years, according to a
spokeswoman.
The big issue long-term, however, is cost, Norton said. A natural
gas truck can run between $40,000 and $80,000 more than an
equivalent diesel vehicle.
"Customers are saying the trucks need to cost less for them to
really purchase large numbers of trucks," Norton said. Within three
years he expects an LNG truck to cost the same as a diesel truck.
With equivalent truck costs and lower prices for natural gas, Norton
said, "it's pretty hard for diesel to compete."
(Additional reporting by Terry Wade in
Houston; editing by Grant McCool)
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