OKLAHOMA CITY, Okla.-Are two credit unions ahead of the curve when it comes to lending money for compressed natural gas (CNG) fueled vehicles?

Communications FCU thinks so and is lending money for vehicles run by a fuel source the CU projects is only going to gain greater consumer acceptance. With the price of a gallon of gas hovering around $4 and CNG running anywhere from $1.72 to $2.46 a gallon (see chart)-and delivering virtually the same miles per gallon as gasoline-CEO Stephen Lark says his CU is ahead of a trend.

"This is not a fad," said Lark, about a fuel source that has been around for a number of years and considered by some to be a niche fuel. "The interest is there and it's growing, given CNG's virtually zero carbon emissions, our country's dependence on foreign oil, and the large natural gas supply in the U.S. The three major automakers are looking at producing CNG vehicles in the next three years and a number of convenient store/gasoline chains are looking at expanding CNG stations across the country."

A natural gas vehicle is an alternative fuel vehicle that uses CNG liquefied natural gas (LNG) as a clean alternative to other fossil fuels. Virtually all of the vehicles using CNG, largely commercial trucks and cargo vans, have been converted via aftermarket kits-adding a fuel tank and altering how fuel is injected into the engine. Honda is the only automaker offering a production CNG-fueled vehicle, a version of the Civic. Cars are refueled much like gasoline is pumped into a car.


Fueling Stations Needed

What has limited CNG and LNG acceptance is the low number of CNG (1,066) and LNG (54) fueling stations in the country, compared to the 119,000 retail gas stations, according to Bloomberg Industries. There were 114,270 CNG and 3,176 LNG vehicles in use as of 2009, the company reported.

The cost to convert a vehicle ranges from $8,000 to $12,000, and it takes about two years of average driving to recover the costs, according to analysts. Costs are higher for large commercial trucks.

The appeal in Oklahoma is not surprising, acknowledged Lark, as it is home to oil and natural gas companies and a prevalence of CNG refueling stations.

The $233-million Allegiance FCU is also making CNG conversion kit loans. According to a lending representative, AFCU is seeing good activity. CEO Lynette Leonard could not be reached for comment.

The $830-million Communications FCU has offered the CNG program for a month and has made five loans, one for a conversion kit and the rest for converted vehicles. "Local CNG installers told me they are seeing a lot more business and several said they each can send the credit union two to five loans a month," said Lark. "I would hope that in a year we are doing 15 to 20 CNG loans a month."

Lark said CFCU will only finance a conversion performed by a state licensed installer. "If the loan is just for the conversion kit, we file a UCC lien on the CNG system itself."

The loan decision is based more on borrowers and their history than the car or kit, said Lark. Rates for the kit alone (5.99%) are higher than the CU's standard A-credit card rate of 1.99% APR up to 72 months, which applies to loans for the car and conversion kit combined. Allegiance has been making the loans for conversion kits at its unsecured signature loan rate of 7.5% for A credit with a 50-basis-point reduction for the kit.

Lark is not concerned about CNG vehicles retaining their value, noting a local company has been selling its CNG fleet vehicles and getting about $5,000 more for CNG-equipped than their gas counterparts.


One Analyst's View

Ricky Beggs, managing editor at Black Book, Gainesville, Ga., sees used CNG vehicles commanding a $3,000 to $5,000 premium on the retail market, but questions lending money on the full price of a new CNG truck or van, saying the additional premium to have the new car converted will not be recaptured at resale. However, he is not sold on the potential for widespread appeal. "CNG has been around for 25 years and has been such a small percentage of the overall market. But with all this natural gas coming out of the ground now . . ."

Bloomberg Industries' energy experts have their eyes on CNG as a potential fuel of the future, noting that if the commercial side takes off it could motivate automakers to convert the consumer side. "I don't think CNG is a fad in that the U.S. has a real abundance of natural gas and it could over time become a more meaningful source of alternative fuel," said Chris O'Neill energy analyst for Bloomberg, Princeton, N.J.

The positives are the lower costs, and as long as the spread between gasoline and CNG fuel stays where it's at the argument for the alternative fuel becomes stronger, observed O'Neill, who added the lack of refueling stations and the high cost to build the alternative fuel stations will be roadblocks.

O'Neil is betting more on LNG, since it can be frozen and compressed more, allowing less frequent refueling. "I think we will see CNG and LNG take hold more when trucks can make a trip coast-to-coast on the fuel. Right now the use of the fuel is limited, mainly to vehicles that make area runs and can be refueled locally each day, like FedEx or waste management companies."

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