CNG pump: Small start to what may be a huge new business

Nearly four years after VNG.co set out to build a nationwide fueling network for compressed natural gas, the Bala Cynwyd company last week launched its first outlet: a single pump at a BP Station next to a Roosevelt Expressway on-ramp.

That Gov. Corbett would come to East Falls to inaugurate one fuel pump might indicate that VNG.co L.L.C. has bigger ambitions than building a few natural gas vehicle fueling stations.

VNG's founders, two entrepreneurs with heavyweight business pedigrees, say they have methodically created the foundation for an entirely new commercial sector that is just getting ready to take off.

"We've been four years building a market, not just a business," said Harvey Lamm, 78, VNG's cofounder and co-chief executive who, in his youth, founded Subaru of America.

VNG's business model is to build fast-fill compressed natural gas (CNG) fueling outlets within existing retail gasoline stations, eliminating the need for fleet owners to maintain their own stations.

By building out the number of public fuel outlets, the company hopes to make CNG appeal eventually to a broader market of private vehicle owners. For now, its target are owners of fleets of light-duty trucks and passenger vehicles.

Lamm knows a few things about start-ups. He and Malcolm Bricklin created Subaru of America Inc. in 1967, pioneering markets for Japanese imports and later the four-wheel-drive vehicle. The Harvard Business Review profiled Lamm as one of its 20th-century business leaders.

VNG's cofounder and co-CEO is Bob Annunziata, a founder of Teleport Communications Group. He oversaw telecom businesses with billions of dollars in revenue and thousands of employees.

CNG represents "an opportunity of such magnitude it's scary," said Robert B. Friedman, 50, VNG's chief operating officer, a private-equity industry veteran.

Friedman anticipates VNG could install CNG pumps in 500 to 1,000 stations by the end of the decade. There are 746 public CNG stations nationwide, according to the Department of Energy's Alternative Fuels Data Center. That is not counting private stations.

With energy experts predicting an abundant long-term supply of cheap natural gas because of hydraulic fracturing, CNG's advocates say it could displace imported petroleum while reducing emissions.

The big attraction is price. VNG charges $2.39 for a gallon equivalent, a price trumpeted on the BP Station's sign at Fox Street and Abbotsford Avenue. That's $1.20 less than its cash price for gasoline.

The Corbett administration has embraced CNG to promote the state's natural gas industry, which has grown dramatically since the Marcellus Shale discovery. Marcellus producers now account for 23 percent of all U.S. gas production.

The annual use of natural gas as vehicle fuel has quadrupled over the last 17 years to 32 billion cubic feet, according to the U.S. Energy Information Administration.

But CNG remains a tiny market. Barely one-tenth of 1 percent of natural gas now goes to vehicle fuel. The Marcellus Shale can produce enough gas in two days to fuel all of America's NGVs for a year.

Widespread CNG adoption has been hindered by the high cost of the vehicles - natural gas equipment adds about $10,000 to a light-duty truck - and the lack of fueling infrastructure. Lamm says he believes that as CNG vehicles become more widely adopted, the incremental cost of the vehicles will decrease.

The industry's approach has been primarily to promote CNG to owners of heavy trucks, who can recover the higher vehicle costs from savings on the massive amount of fuel consumed by each vehicle.

The nation's biggest CNG fueling operator, Clean Energy Fuels Corp., has built more than 500 public and private stations in North America primarily for heavy-duty trucks. It operates a station in Lester, Delaware County, that serves buses and trucks at Philadelphia International Airport, and at depots in Camden and Bucks County that largely serve trash trucks.

"Our model is definitely a transition from what has been done in the past," said Jake Wharton, a senior associate at VNG.

Friedman said VNG had established relationships "with all, not some, of the major stakeholders."

It has been working with vehicle manufacturers - that's where Lamm's connections to automakers come in.

It has also reached out to fleet operators of light-duty trucks - it has joined with Aqua Pennsylvania, Comcast, HB Electric Services, and the Safelite Group to obtain state grants for CNG vehicle purchases.

VNG has also spent much energy lobbying federal policymakers to establish a friendly regulatory environment, such as modifying fuel-efficiency rules to favor natural gas vehicles.

Now, with its flagship station in operation, VNG has something real to sell to gas station operators like Bob Rushton Sr., who stopped by Thursday to see if the equipment would be suitable for his Mobil station on Baltimore Pike near the Springfield Mall.

"I think CNG is going to be quite prevalent," said Rushton. "But you're going to need a lot of stations, because the public is not interested in driving around looking for fuel."