Southern California Gas Company, a regulated subsidiary of Sempra Energy (SRE) entered in to a joint research and development agreement with Oberon Fuels to produce clean transportation fuel using natural gas. Oberon Fuels, based in San Diego, is focused on the development of small-scale, skid-mounted units that produce Dimethyl Ether (“DME”).
The duo will design and construct the first commercial facility in the U.S. to produce DME from natural gas for use as a transportation fuel. The facility will be located in Southern California and produce clean fuel, which can be used as an alternative to diesel and propane, as well as for a variety of non-transportation uses.
Oberon Fuels will provide proprietary technology and process which will mix natural gas with carbon dioxide to produce DME on a small-scale, skid-mounted modular units that will daily produce 3,000 to 6,000 gallons. DME used as fuel generates almost no particulate matter and produces ultra-low levels of smog-causing nitrogen oxides.
DME burns cleaner than diesel while providing improved engine performance. With handling characteristics similar to propane, DME offers the potential to provide an alternative fuel solution that is cost effective, environment-friendly, and operationally easy to adopt.
Sempra Energy for the project is first targeting the "return-to-base" trucking segment. In return-to-base applications, the trucks go out in the morning, make deliveries and then return to the same location for re-fueling and re-stocking.
According to the U.S. Department of Transportation, there are nearly 11 million medium- and heavy-duty trucks operating in the U.S. Several truck manufacturers have been testing new DME trucks for several years with excellent results, and existing diesel trucks can be retrofitted for DME with only modest modifications.
Now-a-days, DME is most widely used an environment-friendly gas aerosol propellant in consumer products. Research on DME as an alternative fuel for diesel engines began in the 1990s, and worldwide production has increased dramatically over the last decade. Using DME primarily as a blendstock for propane gas, China has driven the growth in demand and prompted large plants to be built throughout Asia and the Middle East.
Southern California Gas Co. is U.S.'s largest natural gas distribution utility, servicing 20.9 million consumers connected through 5.8 million meters. The company's service territory encompasses approximately 20,000 square miles throughout central and Southern California, from Visalia to the Mexican border.
Sempra Energy is a southern California-based energy services holding company involved in the sale, distribution, storage, and transportation of electricity and natural gas. The company presents a lower risk profile relative to its peers.
Its diversified exposure protects it from regulatory rate risks. This bullish outlook is supported by stable utility earnings, the Sunrise Powerlink transmission line, ongoing installations of smart meter and renewable power projects in the Pacific Southwest.
However, we are concerned about a lack of any near-term positive triggers, along with near-term trepidation in natural gas prices, and pending regulatory cases. The company presently retains a short-term Zacks #4 Rank (Sell). Over the longer run we maintain our long-term Neutral recommendation on the stock. One of its direct competitors is Energen Corporation (EGN).
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