Blue Gas Marine Charts Course to Disrupt Boating Fuels Market

Xconomy Raleigh-Durham — 

Drivers complain about the ups and downs of gasoline prices, but they’ve got nothing on boaters. Marine fuel costs more, and boats burn through a lot more of it. While motorists measure their fuel efficiency in miles per gallon, boaters tally gas consumption in gallons per hour.

“It takes $200 worth of fuel just for fishing a couple of days on a 23-foot boat,” says entrepreneur and longtime boater Miguel Guerreiro.

Guerreiro’s efforts to ease his own marine fuel woes led him to launch a technology startup. Blue Gas Marine has developed a system that enables boats to run on natural gas, which is more energy efficient, cleaner burning, and, perhaps most important to boaters, much cheaper than gasoline. The Apex, NC-based company launched the product last year, and Guerreiro says he now fields inquiries from around the world.

Guerreiro started thinking about natural gas technologies about five years ago while he was working as an operations manager at the former Talecris Biotherapeutics in Research Triangle Park, NC. Boating was his hobby, and while Guerreiro plied the waters off of the North Carolina coast, he fumed over fuel costs. He explored different engines and engine modifications (earlier in his career, he worked as a NASA engineer). Along the way, he noticed that natural gas technology had found a place as a fuel alternative for some motor vehicle fleets. Finding no comparable system for boats, he decided to make one himself.

After Grifols (NASDAQ: GRFS) acquired Talecris in 2011, Guerreiro left the company and used his severance to found Blue Gas Marine. But developing a marine engine that runs on natural gas was not as simple as adopting the natural gas technology used in trucks and vans. Boat engines are cooled by water, not air, and they have no catalytic converters to process exhaust the way that motor vehicles do, Guerreiro explains. Marine engines also need to be able to handle more fuel because powering through water requires more energy than driving down the road.

Rather than designing a brand new engine, Guerreiro developed a system that augments a gasoline engine. This system converts a boat engine into a natural gas/gasoline hybrid, capable of operating in three modes: gasoline only, natural gas only, or a dual-fuel mode that combines the two fuels. While developing the technology, Guerreiro tried as much as possible to use parts that were already available, he says. Where marine or motor technology fell short, Blue Gas Marine developed its own solutions. For example, Guerreiro designed components that precisely manage switching between natural gas and gasoline.

Blue Gas Marine says its system can reduce a boater’s fuel costs by up to 70 percent, and lower fuel consumption by as much as 40 percent compared to gasoline. The company also claims its system can reduce air and water pollution by 70 percent. As a gas (and not a liquid), natural gas mixes with air better than gasoline droplets. That means it combusts more fully, which leads to less exhaust, Guerreiro explains. Natural gas leaves no smoke or odor, nor does it leave slicks in the water the way gasoline does.

Running the engines on “natural gas only” offers maximum fuel economy and is the lowest pollution option, he says. The dual-fuel mode allows boaters to retain some of gasoline’s performance. In addition to fueling propulsion engines, Blue Gas Marine’s system can also run the power generation engines that provide electricity while a vessel is docked. Although Guerreiro readily talks about his system’s cleantech bona fides, he acknowledges that most boaters are attracted to its money savings.

Natural gas is cheap because it’s plentiful. Fracking technology made much more natural gas available, breaking the link of that commodity’s price to crude oil, says Rick Sapienza, a clean transportation specialist at North Carolina State University’s NC Clean Energy Technology Center. The abundance of natural gas and its low price encourages broader use of the fuel. Electric utilities are leading the way, shifting their power generation mix from coal to natural gas, as the U.S. Energy Information Administration explains in its 2016 Annual Energy Outlook. Natural gas use is rising in all sectors, except residential consumption. Yet relatively little natural gas is used for transportation: it represents just 3 percent of U.S. transportation fuels, according to EIA data.

The EIA estimated retail gasoline prices would average $2.25 this summer; marine fuel typically costs $1 more per gallon than the gasoline available at gas stations, Guerreiro says. Though relatively low now, history shows that gas and diesel prices are very sensitive to fluctuations in the cost of crude oil, says Sapienza, who is familiar with Blue Gas Marine but has no connection to the company. By comparison, natural gas prices should be more stable. That’s because natural gas’s commodity cost—the price of the fuel without expenses such as taxes and distribution—makes up a much smaller part of the price at the pump compared to gasoline and diesel, he explains. According to EIA figures, the cost of crude oil makes up nearly half of the retail price of a gallon of gasoline or diesel. For the equivalent amount of natural gas, the commodity represents less than 25 percent of the fuel’s retail price.

Blue Gas Marine isn’t the first company to try natural gas as a marine fuel. GM Powertrain developed natural gas engines for boats about five years ago, Sapienza says. That company targeted performance boating but found little interest because recreational boaters aren’t on the water enough to justify the investment of a natural gas system, he says.

The cost of retrofitting a gasoline engine with Blue Gas Marine’s technology depends on vessel size and the type of engine, but the company says pricing starts at $4,000 for a small boat.

Blue Gas Marine assembles its systems at its Apex facility, but the company doesn’t install them. Instead, the company trains marine service centers in how to install them. Most of that work, so far, has been for fleets. Just as operators of delivery vehicles and shuttles were the first customers for natural gas vehicles, marine fleets—patrol boats and commercial fishing vessels—are the early adopters of Blue Gas Marine’s technology. These fleets rely on hedging techniques to guard against fuel price swings, so they recognize the economic advantages of a natural gas alternative. “It costs much more up front, but you make it up in your fuel savings,” Sapienza says.

Guerreiro has his eye on the more than 12 million recreational boats that the National Marine Manufacturers Association counts in the United States. But he also envisions going beyond the retrofit market and forming partnerships with boat manufacturers. Though natural gas vehicles are now more common on the road, Guerreiro says engine makers haven’t yet warmed to natural gas marine engines because they see boating as a smaller and more limited market; there are more motor vehicles than boats, and the marine market is constrained by the lack of fueling infrastructure.

So, Blue Gas Marine is trying to build a market for its technology by piggybacking on infrastructure already in place for motor vehicles. The system’s fuel tank nozzles work at any of the 3,000 public natural gas fuel stations around the country, as well as on the natural gas lines at homes and businesses, Guerreiro says. Another option is to fill up at the docks where Blue Gas Marine has deployed mobile fuel station trailers. Some marinas are working with Blue Gas Marine to build permanent fueling installations. Guerreiro is also talking with utility companies that provide both electricity and natural gas. With electricity consumption flat, he says that utilities see a new application for natural gas as an opportunity to boost revenue. They have also proposed subsidizing new fuel stations to help speed up adoption of the technology, he says.

Blue Gas Marine Gas Tanks

To fuel the company’s sales push, Blue Gas Marine is now looking to raise $5 million from investors. The money would support new training teams that could work with customers in specialized markets, such as the military and law enforcement, Guerreiro explains. The company is also developing its technology to work with the diesel engines that propel larger vessels. In his search for funding, Guerreiro has spoken with institutional investors, family offices, and the investment arms of energy companies.

Most of the angel investors who have backed Blue Gas Marine to date are from Florida and North Carolina—both big boating states. Guerreiro says investors in those states readily recognized the potential for Blue Gas Marine’s technology to disrupt the marine fuels market. The North Carolina investor interest did not come from the Research Triangle, where Guerreiro says most angels focus on software or medical technology.

“We’re like a fish out of water,” he says. “We are a technology company, except our application is the marine industry.”