Clean Energy Fuels Corp
NASDAQ:CLNE
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Clean Energy Fuels Corp
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Good afternoon, ladies and gentlemen, and welcome to the Clean Energy Fuels First Quarter 2023 Earnings Conference Call. [Operator Instructions]. This call is being recorded on Tuesday, May 9, 2023. I would now like to turn the conference over to Robert Vreeland, Chief Financial Officer of Clean Energy Fuels. Please go ahead.
Operator. Earlier this afternoon, Clean Energy released financial results for the first quarter ending March 31, 2023. If you did not receive the release, it is available on the Investor Relations section of the company's website at www.cleanenergyfuels.com, where the call is also being webcast. There will be a replay available on the website for 30 days. Before we begin, we'd like to remind you that some of the information contained in the news release and on this conference call contains forward-looking statements that involve risks, uncertainties and assumptions that are difficult to predict. Words of expression reflecting optimism, satisfaction with current prospects as well as words such as believe, intend, expect, plan, should, anticipate and similar variations identify forward-looking statements, but their absence does not mean that the statement is not forward-looking.
Such forward-looking statements are not a guarantee of performance, and the company's actual results could differ materially from those contained in such statements. Several factors that could cause or contribute to such differences are described in detail in the Risk Factors section of Clean Energy's Form 10-Q filed today. These forward-looking statements speak only as of the date of this release. The company undertakes no obligation to publicly update any forward-looking statements or supply new information regarding the circumstances after the date of this release. The company's non-GAAP EPS and adjusted EBITDA will be reviewed on this call and excludes certain expenses that the company's management does not believe are indicative of the company's core business operating results.
Non-GAAP financial measures should be considered in addition to results prepared in accordance with GAAP and should not be considered as a substitute for or superior to GAAP results. The directly comparable GAAP information [indiscernible] management uses non-GAAP information, a definition of non-GAAP EPS and adjusted EBITDA and a reconciliation between these non-GAAP and GAAP figures is provided in the company's press release, which has been furnished to the SEC on Form 8-K today. With that, I will turn the call over to our President and Chief Executive Officer, Andrew Littlefair.
Thank you, Bob. Good afternoon, everyone, and thank you for joining us. Well, for the first quarter, the good news is that our underlying growth and fundamentals were strong. Bad news is our first quarter results were impacted by an anomaly and hopefully, a onetime occurrence, which was a historic spike in natural gas prices in California, resulting in a $10 million compression in our profits. A confluence of events, including unusually cold weather in California, the lack of natural gas storage capacity by the gas utilities and the El Paso pipeline that supplies 20% of the natural gas to California being out of commission. All contributed to cause the price of natural gas to spike as high as $50 an MMBtu here in California in January. The move from $7 an MMBtu in November to January was a 600% increase, translating into an increase in our costs at the pump from approximately $1 a diesel equivalent to $7.50.
We did everything we could to mitigate this unprecedented chain of events that impacted the cost of our commodity. But California continues to be our biggest market by far, with the largest agencies in the state, dozens of refuse, truck fleets, airport vehicles and a growing number of heavy-duty trucks, all fueling at our network of 150 stations across the state. We passed along some of the increase in fuel cost to these customers, but we felt we can only do so much. Good news is that they understood in large part, because every household and business in California was also seeing their gas bills at least tripled, if not quadrupled during January.
The other important point of this historic increase is that the price began to moderate in February, although there were still some balancing effects that we were feeling. The El Paso pipeline is back online and gas utilities have filed plans for additional storage. And as of March, the price of natural gas at the SoCal Citygate was back closer to $7 in MMBtu. Something else that has been impacting our bottom line and that we discussed in the last quarter's call is the price of the environmental credits. I know these are followed closely by many on this call. And as you know, there has been a nice turnaround in the California low carbon fuel credit price recently, about a 35% increase. But for the majority of Q1, prices were on the low end and had an impact on our adjusted EBITDA when compared to a year ago.
By March, credit prices were in line with our plan, if not exceeding. In the first quarter, we sold over 53 million gallons of renewable natural gas, which was 34% more than we sold in the same quarter of last year. We won several large transit contracts, converted existing customers from traditional CNG more profitable RNG and opened additional RNG stations where Amazon heavy-duty trucks are the anchor customer. Our revenue for the quarter was $132 million, $48 million more than Q1 2022, but this was heavily impacted on the plus side by the commodity price in California that I just spoke about. By the time we got to March, we saw our overall business begin to right itself and track the plan that we had at the beginning of the year.
Our balance sheet remains in very good shape with $220 million in cash and investments, addition to $132 million cash off balance sheet at our RNG supply joint ventures. As I spoke about last quarter, our first RNG supply project, Del Rio Dairy in Texas is now online. We now have 3 dairies in commissioning and 2 others in final construction. By summertime, we should have 6 projects producing RNG. Many of you have read about the tragic fire in South Fork Dairy in Texas, where we had plans to build an RNG digester. While we have funded some design, engineering and early equipment purchases for that project, we had not started on-site construction. And we are now working with the dairy owner as he plans to rebuild the barn and repopulate the herd.
We will keep you updated on his progress. We've added expertise in construction, project management and origination to our RNG team that are keeping our projects moving along at a good pace. Not only clean energy and our customers remain bullish on this ultra-clean [indiscernible], Washington knows the benefits of RNG as well. I hope you saw the announcement that a bill was introduced last month in the U.S. House representatives provide $1 per gallon tax credit for vehicles that use RNG. It's interesting to note that the bipartisan bill is being cosponsored by a Republican member from a rural district, Brian Fitzpatrick. and a Democrat from our urban Southern California District [indiscernible] Linda Sanchez.
So members understand both the environmental benefits of RNG, which reduces air pollution and carbon emissions. And that the investment of tens of millions of dollars per new RNG digester benefits their agricultural communities. We believe a companion bill will soon be introduced in the Senate by another bipartisan coalition. 70% of all on-road fuel used in natural gas vehicles in 2022 in the U.S. was RNG, which is a great testament to its acceptance and the ease to transition it to existing fueling infrastructure and fleets. I think a tax credit will be a big boost to the adoption of RNG if it passes.
We're also very excited about the rollout of the new Cummins 15-liter natural gas engine. It seems like a week doesn't go by that we don't hear some good -- some of the country's largest fleets like Wal-mart, Werner, NICE we are taking delivery of these preproduction 15-liter engines. I've spoken multiple times on these calls about the importance of this 15-liter engine to the heavy-duty truck market because it delivers the power, torque and economics the industry needs. And it's incredibly gratifying to see the early response. A few weeks ago, I was with the CEO of the largest trucking company in Canada and a customer of ours, . And he is anxiously waiting the delivery of 2 test 15-liter engines in a few months.
I've gone on a little long, and my goal is to keep my remarks shorter, giving us more time to get to your questions. But I do want to end by highlighting why I was in Canada, which was for a significant announcement with the largest natural gas company in Canada and 1 of the most successful energy companies in North America over the last couple of decades, Tourmaline. Mike Rose, Tourmaline's Founder and CEO, and I announced that the 2 companies are partnering to build a network of natural gas stations across Western Canada primarily targeting the heavy-duty truck market.
We've identified locations for the first 4 with 1 already operating in Edmonton and have plans to eventually add 15 or so stations that will be co-owned by the 2 companies. Clean Energy will build and operate in the stations. We are very bullish about this new partnership with Tourmaline as well as our overall business. As I detailed at the top of my remarks, we experienced some headwinds at the beginning of the year, but the momentum has already shifted back. RNG continues to be a breakthrough fueling solution, allowing fleets to decarbonize quickly and affordably. No other company is better positioned for the RNG future with our expanding low-carbon supply and our growing fueling infrastructure. Thank you for your time today. And now I'll hand the call over to Bob.
Thank you, Andrew and good afternoon to everyone. Let me start with giving a little color -- little more color around the $10 million drag on earnings in the first quarter from the high California natural gas prices. The quick math on that is that we have about 2 million gallons per month with exposure to natural gas price movement in the California market. And we saw an incremental price increase of around $6.50 a gallon. So that's an increase in our cost. We were able to increase our retail prices by $2 a gallon so taking our price at the pump to $7.99 a gallon versus diesel at the time was $5.99. So that left us about $4.50 a gallon that we absorbed plus we experienced some elevated gas utilities at our California LNG plant for about another $1 million impact.
So disappointing when we really were having a nice quarter, but that is passed and frankly, without that anomaly, the quarter was really more in line with what we were expecting. Recent trends in the natural gas prices relative to oil remains healthy, meaning we have a strong economics at our retail pricing. LCFS credit pricing has increased into the mid-80s from the low 60s, which is where it was at on our last call. And even more recently, there's been a nice rise in RIN pricing. So the current economic landscape is good for us, and we think that we can recover much of the $10 million anomaly by the end of this year. Moving on and looking at volumes. We saw increases in volume across all of our core sectors with the largest gains coming from transit and trucking when compared to a year ago.
The transit sector has seen more recovery this year, and we've also had some nice customer gains. And then our volumes with Amazon continued to increase, which is helping to drive the trucking sector growth. Both of these sectors, the transit and trucking contributed to the growth in fuel gallons, which was up 18% year-over-year. And then Transit also contributed to service gallon growth, which was 7% compared to the first quarter of 2022. We reported a GAAP operating loss of $35.4 million for the first quarter of 2023 on revenues of $132 million, compared to a GAAP operating loss of $20 million on $83 million in revenue a year ago first quarter. On the downside for the first quarter results of 2023 compared to the same period in 2022, we have the $10 million drag from the California gas spike in 2023.
Our increased volume with Amazon resulted in incremental Amazon warrant charges of $10 million in 2023. And our RIN and LCFS revenues combined were down $4.5 million from a year ago due to the lower credit prices. On the upside, in 2023, we have $4.3 million of incremental alternative fuel tax credit revenue compared to a year ago, as the alternative fuel tax credit was not in effect in the first quarter of 2022. Our adjusted EBITDA was negative $4 million for the first quarter of 2023, which includes the $10 million negative impact from the California gas prices. We've also, in our table in our press release, we've disclosed the EBITDA components of our RNG supply JVs, since we are operating 1 project, and we'll be operating more this year. Having said that our adjusted EBITDA of the negative $4 million breaks down as a negative $2.9 million coming from the distribution business and negative $1.1 million coming from our RNG supply business.
And you can calculate these figures utilized in the press release and our 10-Q, but we intend to update our company presentation on this adjusted EBITDA to show you the 2 different contributors to the adjusted EBITDA. We're going to update our company presentation that we'll put on to our website soon. And with that, operator, please open the call to questions.
[Operator Instructions]. Your first question comes from Eric Stine with Craig Hallum.
So thanks for the details on the RNG pipeline. Maybe if you could go beyond that a little bit. I know in the past, you've talked about kind of the next level, which is the number of plants that you've got in engineering phase. And I'd also love to hear just kind of the size of the pipeline as it stands now maybe versus 6 months ago, 12 months ago?
Right. So we slice -- Eric, thanks. We slice these things different ways. So when you kind of -- when you sort of boil all of it down, we have 9 under construction. Now 1 of those is South Fork. And I can go in a little more detail on that in a minute, but we have 9 under construction, we have 4 under engineering. In engineering these projects are pretty detailed, right? So it's -- you're spending some money at that point, and you're getting up to about 30% drawing. So they're well underway, and you have MOUs and everything. And then we have 2 kind of in the early stages of development. So they are about to enter engineering.
So those are the projects, let's just call them active where you're really moving forward. Then the pipeline can kind of ebbs and flows, Eric. There are 18 to 20 active in the pipeline where we're dealing with the farmers and passing paper back and forth. And so now just to be clear, that number could probably . I mean our guys are in touch with more than that. But that's the number that I asked for this morning, as we're kind of looking at those that we really are starting to get a real nice line of sight on. There are more. But time will tell over here over the next few months of kind of which ones then move into the real active pursuit. But the pipeline is robust and our guys have really done, I think, a nice job on not only on the development, but also on the RNG supply side, which is very active for us as well.
Got it. And just curious, I guess, first of all, I mean I think in the past, you talked about an ultimate goal. I mean, obviously, you could expand beyond this with BP and total at some point, but I think targeting like 105 million gallons. Is that still a number we should think about?
Yes, still. No, I'm glad you bring that up because it's still -- because we've kind of talked about it. We did acknowledge on the last call that some of these projects were taking a little bit longer and so there's a little slippage, if you will, to the right. But the main goal is still in place that's still what we laid out a little over a year ago of the 105 million, 100 million gallons of our own equity account with our partners on the supply side.
That's still -- we're still on track for that. Now we've always been very clear that some of that will be greenfield that we'll develop some and it could be an M&A. And so we'll still work on that. But we still like that number, frankly. I'd like to see that go up. But our partners are still looked with us on that. And then at the same time, and that's in development 2026. We have to then bring a lot more third-party, low CI gas and landfill gas to the equation as well. So we're very busy on that front. But we really haven't changed the size of what we're trying to achieve or the money that we're going to need to spend with our partners on it.
Okay. And then, I guess, maybe last 1 for me. Just I think last quarter, with the Amazon stations, you would -- not through anything that you were doing. It was more permitting delays, those sorts of things. Curious where that stands? Has that loosened up a little bit? And when you might get back to what you would view more of a normal rollout, if you're not [indiscernible]
It has. We worked really hard -- we have a very large team on the site acquisition, entitlement permitting, this side of the equation and then, of course, construction, right? And we've worked hand in glove with our friends at Amazon as well, our construction party and all of that team. Starting late last year to see what we could do to streamline the process and working together, utilizing all the levers that we have. I'm happy to note that we have 7 stations that are under construction right now, and that will come on in the next 5 months, and I reviewed that with Amazon the other day.
And the entire -- maybe less 1 of the original stations that we signed on to Amazon that we've disclosed, will -- should be completed by the end of the year. So there's a lot more to be done there. It has sped up some. We get a little break with the weather, right? I mean we've made tremendous progress in a couple of stations out here in California, here in the last 6 weeks after the rain stopped. And that's also the case in other parts of the country. So I'm feeling good. We have cameras on all those locations. And we have meeting -- a standing meeting with a big team every Friday morning at 8:30, and a lot of activities we're bringing those projects along.
So I'm feeling much better about that. And those are like magic, Eric. You opened 1 of those stations and literally within a few days, even before we were in final commissioning and ready to get the occupancy permit from a city, even those 158 trucks in there. And so it's a beautiful thing when you see it. And so we're very excited about.
Your next question comes from Rob Brown with Lake Street Capital Markets.
Just following on with Amazon, how many stations are now open? And do you have a sense of how the truckload you're feeling at the moment?
Well, now you , I always give this little warning and I get in trouble if I -- but I do know this. that we -- you know there's a couple of pieces to that, right? So we, early on, going back, I guess, what, 18 months ago, we -- as they began to take trucks, we opened up our nationwide network of stations. And as of the last week in my meeting with folks of executives Amazon reported that we've actually fueled heavy-duty trucks, Amazon trucks and mediums at 101 of our different stations. And that's a daily occurrence.
And as of last week, it appears to us -- because it changes from time to time. You're approaching 1,500 trucks that are fueling on a daily basis. Now as those stations, that I just discussed with Eric come online, you'll see that number, I hope, go up. And I know that through the public information that Amazon's disclosed, I think they've admitted to 2,000 or 2,500 trucks that they've disclosed. And so our numbers should continue to go up as these stations come online.
Okay. And then on the 15-liter rollout that they're testing right now, how does that ramp roll out? How do you sort of see that flowing into the fleet over the next 2 or 3 years?
It was really pleasing to see -- I would like to say that Cummins has really gotten into this in a big way. And you may see it, Rob. But gosh, in the last 6 weeks, almost every week, there's another announcement coming out about different parts of the business. And last week, at the ACT Expo [indiscernible] huge presence by Cummins, 1 of my salesman reported that he thought there was as many as 20 Cummins individuals there. Now they had a couple of other fuels, but about fully half of that [indiscernible] was natural gas, portion of a lot of customer interest there.
In fact, Rob, 1 of the only the ride and drive, big fuel cells and electric vehicles and all the showbiz of advanced technology and innovation there, the only vehicle that made it there under its own power to be in the right drive the heavy duty was the Cummins natural gas product that was driven in. It was actually being operated at the time by Wal-mart. Those vehicles, the way I understand it, and you might get better information from Cummins, but the way I understand it, there's about 40 some of the nation's largest fleets that are in line now to -- are kind of in sequence to take delivery of those vehicles.
Those are new engines that are being placed into existing diesel OEMs, right, into trucks [indiscernible] so they have to go to the shop from the fleet and put in the new engine. And some of -- those are on the road now, some of them -- some of those fleets I mentioned in my remarks. And I haven't seen anything official from Cummins, but the early reports are, the lady that drove the truck from Wal-mart had just a very good report that she imported there to the people at Expo. So I have my fingers crossed that the customer experience is going to be good. The torque and horsepower is good. I saw -- I think today, Cummins made another announcement on their upfitting program on their new design back-of-cab. And I really like this because you're beginning to see sort of the OEM nature that Cummins can bring now with their upfitting capability to bring the fuel system and everything together as a factory product. They've improved that. They have 170-gallon option, and I think 130-gallon options that really look slick.
It's much lighter, 400 pounds lighter.
Yes, that tank package -- thank you, Bob, it's 400 pounds lighter. So seems like things are going well, and I'm hoping I can never -- I always get out there a little bit ahead of myself. But the story is later this year, the kind of order book will open at some point. And I'm hoping that we begin to see those orders taken for that engine.
Your next question comes from Manav Gupta with UBS.
I actually quickly wanted to touch a little bit on the third-party volumes. Some of your upstream projects are delayed. Some of your competitors upstream projects are also slightly delayed. But in your guidance, you had indicated that you're still seeing very strong contractual volumes from third parties for both landfill and dairy RNG. Can you talk a little bit about your third-party volume contracts, as they relate to RNG and the volumes you actually distribute through your outlets?
Sure. Bob, [indiscernible] handy here. But we -- the third party, I'll start, Manav, good to hear your voice. The third party is a very important piece to our story until we begin to -- well, it always will be, right? I think what the count is -- we have 63 different RNG suppliers. So we work with almost everybody in the business landfill and dairy. Our dairy is increasing dramatically this year that we're bringing in from third party.
I think it's going from roughly in California from 20 million gallons of load of dairy RNG last year to something closer to $60 million for 2023. So a big nice increase. And we have what about 20% increase in third-party supply for 2023. That's right now on budget. So we'll end up with about 234, I think, million gallons for the year. And it's going well, Manav.
Yes. Andrew, I agree. And I think -- I mean it ebbs and flows as we have always seen it, but it's not really being impacted by us seeing that projects are delayed kind of thing. But we -- because all of our third-party supply is pretty much operating units. And so anything that we come across there might be from an operational matter, where yield is a little different, but because we're kind of spread out with a number of the suppliers, then all that is anticipated. And we're planning on our 234 million gallons from third party for this year.
Yes. So I think we're on track on that. So no, it's a good question. Are we seeing a slowdown? And no, I think we'll be able to meet our demand with our -- which is in large part due to our third-party supply.
Congrats on that. And a quick follow-up, and then I'll turn it over -- you mentioned in your opening comments, you are seeing some improvement in LCFS prices. There were meetings at [indiscernible] they are looking to make some changes over there to support higher carbon prices. You guys obviously talk to them a lot more than we can. So help us understand a little better what's going on with carb and are they actually serious about making some changes, which will help support higher carbon prices in the future? And I'll turn it over after that.
Okay. Well, I would say, first off, we're in weekly or daily contact with different groups that -- at them as they look at adjustments to low carbon fuel standard program, which kind of the way it works, Manav, is there will be 1 more kind of community workshop at the end of this month -- end of May, first of June. then you should see some time, these things aren't set in stone right now, but it looks to us pretty closely that in June, July, you'll begin to -- then sometime in mid-June, you'll have a proposed rule out on adjustments to the low carbon fuel standard.
And the Board will then begin to hear that some 30 days or so after. So sometime in late July, August, that will kind of move along. And of course, there'll be lots of input on that. I wouldn't say that the ARB is looking to make adjustments to raise the price and I don't know that they would agree with that. I Think they're looking to make some adjustments in the program to increase the compliance curve that is require more obligation by the obligated or compliance by the obligated parties to use more renewable fuel -- low-carbon fuels in the state that we're at about 20%. And so there's a couple of choices that's sitting before ARB, all of which are constructive for our business, we believe, biomethane business is 30%, increasing from 20% to 30% or 35%.
And an awful lot of the industry and others have weighed in and we think the time is right to move to the 35%, and we believe that the industry is willing to spend the money. The private sector are willing to bring -- spend the money to be able to get to the 35% over time. So that's exciting. We think that will shake out. There are some other things that are kind of -- I would consider sort of some hurdles about where the supply could come from and how long you could go into certain -- how long could RNG go into certain markets. And we're making our views known on that if the ARB finally on this point, if the ARB moves to a 35% compliance level.
You're going to need all the RNG you can get from all over the United States. And I hope that's where they'll land. And if so, that will, I think, positively impact prices. And I think, frankly, you're seeing the market begin to [indiscernible] a little bit that there is going to be a higher obligation threshold. And I think that's why the prices moved from 60 to 85 -- 62 to 85. And it's likely it could move a little bit higher, even though it doesn't take effect for another year, right?
Your next question comes from to Dushyant Ailani with Jefferies.
My first one is on the Tourmaline contract. Could you kind of share some more color around the economics of the cadence of R&D stations coming online over the next couple of years? Yes, just maybe some more color on that.
Yes. Well, we have line of sight on 4. One is actually operating. And we'll get those -- we should get those constructed for the most part this year, maybe going into the first quarter of '24 on the other 3. And then -- but we've already identified probably 10 others in that market, and those will come on. So like our whole model is we got -- you have to go through a period to build them, it doesn't take that long. What we're most excited about there is the -- is our partner there Tourmaline, they're in this to drive adoption of natural gas heavy-duty trucks.
They want natural gas heavy-duty trucks on the road up there in Canada. And as Andrew and I have been up there, the view is very bullish on that type of vehicle. They do need the 15 liter. So that also plays in. But the timing is good because if we had all the stations right now, we wouldn't probably have the vehicles. So we don't -- so we need to hurry up and get those built and then we're working -- the thing is with Tourmaline, they have so many operations. They see all of the various geographic areas where there's thousands of trucks going by locations each day. So we'll get about 4 in this year, early part of next year and just keep on going from there.
The nice thing in Canada is you have a huge vast resource of natural gas and you have very expensive diesel. So you really have economics. This thing sits on its own bottom up there. And over time, you will parse in some RNG, but -- and everybody is open to that. And as you know, may know, there is a federal RNG low-carbon fuel program in Canada. It kind of kicks and phases in over time. It's -- I think it's already in, in D.C. But so everybody understands that you'll begin to blend in RNG later, but it will start out compressed natural gas and the economics of a as compared to diesel.
Understood. And then just a quick follow-up on that. In terms of permitting, how is that coming along? Are there any issues around that? Or is it relatively easier to get it versus what you've seen versus Amazon?
Yes. I wouldn't say easy, but on the first 4, we're pretty well into those. And you always have it, but I do believe that these -- the areas are kind of heavy industrial. And so just -- I don't know that the permitting is going to be as prevalent as it is, is when we want to put something into San Bernardino.
Understood. And my final question, and then I'll turn it over. Just on Del Rio in terms of pathway approvals. How is that coming along? And then any kind of thoughts on the other facilities that are going to come on this summer. I think you talked about 6 flowing by summer. So just if you could share some color on the pathways approval for these.
Yes. Pathways take longer. So you will begin to operate these things would come on production and then you'll put into storage, right? The pathways can take. We got to work on this. The industry, everybody is aware of it, the pathways in my humble opinion, take way too long right now, right? Pathways can be anywhere from 12 months to longer. You don't have to wait for the pathway, but you can't operate your full potential and you have to store some gas. It's under -- that pathway is underway, but that takes a while.
Yes, because you have to run the dairy. You have to get a number of months of operation data that they collect and then establish the CI score. So all that is in the works, if you will. But that will take some time.
Your next question comes from Matthew Blair with TPH.
Andrew and Bob, could you talk about how the economics for dairy RNG will change in 2025 when the benefits of the IRA flow through? Should we expect that you would receive a PTC of approximately $80 per MMBtu in addition to the existing support from D2 RINs and LCFS programs.
Well, we'll get PTC at whatever, we hope it's $80, but it would be an addition, Matt, I mean, to your point, it's kind of on top of the economics that we've already -- that we've built in to justify the investment, it's additive for sure. And the big question is on how much. But we continue to hear that it could be substantial.
It's graded on the carbon intensity of the fuel and that rule has to be promulgated by the Treasury Secretary. So that hasn't happened yet. So we don't want to count our chickens before they hatch, but we think it could be substantial [indiscernible].
Yes. And it's relevant in the marketplace. It's in the narrative for sure.
Sounds good. And then could you talk about what gives you confidence to keep the full year guide of $50 million to $60 million EBITDA. Are there any parts that are coming in better than expected that would offset the $10 million loss from High California natural gas prices in Q1?
Yes. I mean we've -- now some of this has to stay. But look, when we set our plan and talked about our guidance, we said we're kind of going low on LCFS in the low 60s. That said right now, $85 million and if there's more encouraging news, that could go even more. So I think the LCFS is cooperating nicely. The RIN is cooperating nicely. And then just in general, kind of the underlying commodity economics at our stations before credits, we're at like a 30-plus spread between WTI crude and NYMEX okay? So you're at 70-something and $2.26.
And when we see that, that just means that we're very competitive. We have a low-cost delivered product. That's against a relatively high-priced competitor in diesel. And that -- so that's good for us. So I like all that, moving forward, and we have enough of the year. You have about 9 months. So we feel like you can raise kind of our $10 million picky, if you will and stay with it.
Sounds good. And then last question. I think you have stations in Seattle and Tacoma in Washington State unveiled their LCFS program. Could you talk about how that's going and whether you're starting to receive like any sort of LCFS contribution from Washington so far?
We do. We participate in the program in Oregon and Washington. I don't believe we collect anything yet in British Columbia, but I can't give you any more specifics than that.
It's Not material yet.
It's not material yet, but we'll try to get back to you on that, but I just don't know, it's not a lot. We have a few stations up there.
It will grow. So it's going to -- it will be meaningful. It doesn't really the radar at the moment. But we see volume up there. We'll get it. Oregon a little less, but...
Higher pricing.
They have great prices. So I mean it's more about the truck traffic and that sort of [indiscernible]. It's not anything that we're doing to not be there.
Trying to get that number, Matt. I'll try to get a number.
Your next question comes from Paul Cheng with Scotiabank.
Andrew and Bob, just two questions. One, in Amazon, can you talk about the path to profitability on that joint venture. I don't think they are profitable yet? And what is the economy of scale that you need in order for you to really be profitable on there? And also that if we're looking at, there's a multiple avenue. I suppose that you can get to total corporation profitable over the next, say, by 2025, if the plan go through, what is the most critical path for the most important driver in your opinion for you to get to profitability?
Okay. Paul, on your first question on Amazon, let me see if I get this right -- on kind of Amazon profitability, if you will -- so I don't know that we've -- we haven't, I know I won't say I don't know. I'll say we have not discussed the economics on Amazon. So I'm curious -- I'd be curious as to maybe what you're looking at to say, when would Amazon be profitable or not. I think that certainly, what we -- certainly 1 of the things we see in our numbers is the Amazon warrant charge, okay? That is -- that's not an item that affects the kind of cash collected at the station in terms of when we transact on price per gallon and just what all is entailed relative to that.
So there is that aspect to it. The -- so -- and the Amazon warrant charge will be here for a while as they consume the amount of spend that was targeted for them to earn the warrant.
Yes. No, maybe let me rephrase it. If I exclude the warrant charges, if your joint venture with Amazon today. You don't have to tell me the exact number, but can you share whether they are profitable?
Well, I'll say this. We are investing in building stations. And we have a model that would suggest that we need a fair return on investments. And so -- and it's fair. Look, all that's kind of negotiated, but understood that the commitment that we have with Amazon is good for both parties, okay? So we make -- we should be able to make money, and they should be able to get 1 of the best fuels at the lowest cost around with the RNG and all of that. And then the more they spend is based on volume, so that benefits us. So that whole program is good. And I'll say that it's beneficial.
I would add, I mean, Paul, it's not spec, right? We're not specking stations, hoping that an Amazon truck is going to show up, right? So there is a -- we are working hand in glove with Amazon, and we have a relationship to volume commitments for developing these stations, and that's beneficial for both companies.
Then on your other question in terms of overall corporate profitability, what's needed there to really kind of get over the line of, let's call it, positive net income, if you will. And ultimately, it's about volume and the adoption of heavy-duty fleets of natural gas vehicles. I mean that drives everything, all it really does. I mean, all the projects of RNG supply, and look, we -- so we're -- but we're bullish on that because -- well, I mean because it's kind of the epitome of renewable energy that's running our transportation fleet.
So of course, we're -- but the -- and part of that -- the big part of that, Paul, is because for a while, we're already kind of built out to take on much more volume and so that can -- that would really kind of pop with us because we could already take on a lot of capacity without really expanding much more significant CapEx. And so that's really -- that's the play on it. And the big market that is just untapped literally is the Class 8 heavy-duty market. That's 40 billion-plus gallons a year. That predominantly uses the 15-liter engine.
So Bob or Andrew, do you think that, that path to profitability, the critical mass is like 80 million or 100 million-gallon sales? Or that what is that number in your opinion when you're looking at your internal model?
Well, good question. And there's a lot -- there's a little bit, but a lot under that, I mean, because as we go through, as we just talked about with our Amazon warrant charge and that sort of thing. But it won't -- I'll just say this, it's not a tremendous lift because you can kind of -- you can start to do the math and say, if you added 100 million more gallons that $0.45, $0.50 a gallon on a margin without expending a whole lot of other OpEx, you're putting in -- you're dropping in another $50 million that puts us on the positive side kind of things.
Your next question comes from Craig Shere with Tuohy Brothers.
Wanted to just dig a little bit into the EBITDA ramp. First, for this year in terms of making up for the $10 million drag in mostly January, it sounds like pricing power and low gas prices that all things are many equal from here forward with LCFS and RINs, who knows that, that's just kind of a static situation where you have an opportunity. So if everything remains the same, as it is today, should we assume that making up that $10 million would be kind of ratably equal over the next 3 quarters, if it happened, versus rising over time? Or how do you see that progression?
Well, yes, it rises. I mean the progression -- our progression, as said, it would be -- our progression would be somewhat similar to last year, which was -- it rises. But the reason it arises is because of volume. It's not rising because we're saying that is -- that LCFS is going to go . We're not kind of planning that to happen.
Volume ramp. It's the Amazon station volume ramp, other stations that come on. It's a volume ramp. And it's always -- and I know it frustrates some of you that want -- we should maybe -- and we're working on maybe a little more clarity quarter-over-quarter. But we've always had those of you that follow us while, we've always had a ramp that starts a little bit low in the first quarter and then ramps as they take trash trucks and we finish stations. And it's always the case, and it will be the case again this year.
I hear you. I'm sorry, maybe I didn't ask clearly. The ramp in terms of volumes was always a part of the plan. But the January dislocation was not and the very wide spread that you're enjoying between gas and diesel today is not. And so to the degree upside versus plan for the remainder of the year can make up for January. I guess what I'm trying to ask is -- assuming I have no idea what the future is. But assuming all things remain equal, is there -- there's no special reason to think that you're going to have a stronger upside versus plan in the fourth quarter than in the second. Is that a fair statement?
Well, I think we already answered and you said that wasn't the answer. It would be stronger because of the volume, but on a relative basis, you get there. I mean you're going to see the ramp and you're going to see kind of the -- while we didn't see really any benefit -- much of a benefit other than kind of in March and Q1, but certainly not at these kind of current prices. So all I can say is that do you have the same ramp, but yet better economics and what we planned, right, I mean...
So therefore, as the volume goes up, that's impactful.
Yes, it does. As you get more volume at better economics. But those -- the volumes, to your point, that's in the plan, that's fine. But what's not in the plan is kind of the LCFS and the RIN and as well as the spread that we're seeing on than nat gas. I mean those have profound effects. So if you just say, look, all else equal and lay in this new pricing, that's how you get there.
Fair enough...
You don't have to go through any big -- any other big hoops.
Let me pivot to the upstream. You announced kind of a breakout, which was nice of the 2 business lines in terms of the adjusted EBITDA. Assume the RNG supply is merely an issue of fixed overhead on a burgeoning business that obviously is moving towards breakeven and positive EBITDA. But you've got these delays that you alluded to on the pathway issues, could we reasonably expect your upstream business to be breakeven to positive by the first half of '24.
Sure. Yes. I mean -- Yes. I mean there's ways that you -- yes, there's ways that you get there, which is by producing the gas and then there's economics on the gas, and that's what gets you a breakeven.
Yes.
Operator, if I can just, Matthew Blair may be gone, but the answer was in Washington in Q1, we did a couple of million gallons and 50% of it was RNG.
Your next question comes from Chris Sung with Webber Research.
Andrew and Bob, I just wanted to just dig in on the previous question, EBITDA perhaps asking in a slightly different way. How did Q1 and Q2 so far compare to your internal expectations for last quarter? Like with negative margins, right, with the historic ramp in natural gas prices, like higher volumes kind of hurt your full year EBITDA guidance. So I was just wondering like was most of the $10 million hit. Was it just on pricing or mix of higher-than-expected volume for the quarter? And how does that fit into the rest of your full year guidance considering that you as you're keeping it unchanged?
Yes. The $10 million was really on the cost of gas, okay? So you take that out and then our quarter was within our plan. All things considered, there's volume and other margins and just all throughout. So we were kind of -- we met our expectation other than $54 California gas. So right -- so we feel like, okay, well, that was there, but you have a $10 million hole that you've dug, what does the environment look like today? Look, if nothing had changed, I probably have to say there, I would say there's -- It'd be hard-pressed to say you're going to make up a $10 million hole, but things have gotten more positive than what we kind of laid out a couple of months ago in terms of what our assumptions were.
So that's good for us. I mean the environment is -- that's a good environment. We're just disappointed that we had to absorb what went on, which was -- I mean, frankly, it was horrific. The checks that I was writing for gas bills was out of -- it was just unbelievable. And our customers, too. We had a whole campaign to contact our customers because we have a lot of kind of pass-through gas costs as part of the arrangement. And so we add customers that was going to get a bill from us that was 7x what they've seen in the past. And that adds ramifications all throughout. Are they going to be able to pay? I mean it was devastating to a lot of industry here in California.
Restaurants went out of business.
I mean we've seen some of the other groups in the alternative energy. Energy transition that kind of -- we're fairly well kind of blown away. A big part of their quarter was also this topic. So I feel like -- I feel like we financially, yet again, have weathered a significant storm. I was not -- that's not just a little talking point and okay, it costs us $10 million. It was -- that's a lot of money, and it was huge. And that's after we took prices up to nearly $8 a gallon compared to diesel at $5.99.
Yes. No, right. And I kind of see it silver lining right, it's like the pricing [indiscernible] with RNG. Sorry?
Yes, with silver lining, I mean, I speak too highly of it because we've had a fair number of events that we've had to weather in the first quarter. But right now, the economics are good for us. And it looks good. I mean, the 15 liter, the excitement about that, Canada. It looks good looking forward.
Great. And I'm trying to try to squeeze 1 more question in. I know we've asked about this in the past, and it's always good to kind of check in. Is there any updates on the rail or marine markets with respect to commercialization or timelines to commercialization for RNG and/or hydrogen via RNG?
On the marine market?
On the marine market. well, the only update I would say is that our second ship is being cooled down. It's not our ship. The second patient's ship is being cooled down in Brownsville at the end of this week and will then complete a sea trial and begin to move to the Port of Los Angeles. So that's nice every time those tips, there'll be 2 in service later here in the next month or so, and they use quarter million gallons of LNG on a round trip. So we like that. And the third ship should be here late 2023. No real -- Chris, I may be behind here, no real hydrogen or RNG going into shipping yet, not as far as we know, but we are putting LNG in a few ships and there are some other very large shipping lines that are out talking to us and others about more ships to be brought into the port.
No, I appreciate the color. Thank you for that.
Your next question comes from Jason Gabelman with Cowen.
It's Jason Gabelman from Cowen, but all my questions have actually been answered.
There are no further questions at this time. I turn the call over to Andrew Littlefair for closing remarks.
Operator, thank you. Thank you, everyone, for joining us today, and we look forward to updating you on our progress next quarter. Good afternoon.
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.