Oil? Who Needs Oil?

Five hundred years from now, when historians look back at the 20th and 21st centuries, they will focus on one variable that played a role in more global events than any other: oil.

Whether it's accusations of going to war to protect oil interests, having production interrupted by foreign revolution, or simply worrying about how much it costs to fill up a tank of gas, we all have the black gold on our radar.

The death of trucking?
Back in 2008 -- when the cost for a barrel of oil shot north of $120 -- anyone who had to move merchandise across the country started to reassess their options.  It was already accepted wisdom that moving goods via railroads was more fuel efficient than semi-trucks -- but when gas prices rose so precipitously, railroads also became the financially efficient mode of transportation.

Such economic realities were a boon for rail companies such as Union Pacific (NYSE: UNP  ) and CSX (NYSE: CSX  ) . Though they, too, had to deal with the 2008 recession, profits surged 37% and 47%, respectively, from 2009 to 2010.

Meanwhile, companies that rely heavily on oil to help transport goods -- freighters like Old Dominion (Nasdaq: ODFL  ) and delivery services like UPS (NYSE: UPS  ) -- are now left with the guillotine of oil hanging precariously over their heads. This all begs the question: Is the future of freight transport dead?

Enter our hero
Canadian-based Westport Innovations (Nasdaq: WPRT  ) , with its engines designed to run solely on natural gas, could solve the trucking industry's problems. The innovative company is not in the trucking industry, nor does it drill for gas, nor does it even have its own factory. Instead, Westport has developed the technology for natural gas engines, then outsourced all of the manufacturing to partners including manufacturing stalwart Cummins (NYSE: CMI  ) .

Though Westport's technology is relatively new -- and the entire trucking industry certainly won't transform its fleets overnight -- initial results look promising. Besides its presence in North America, Westport has begun transforming trucking on the other side of the world as well. It has already shipped 3,600 engines to China, and it's making inroads into India as well.

Foolish takeaway
But tread carefully, Fool. The company has yet to turn a profit. Though falling, research and development costs have eaten up an average 74% of gross profits over the past three years. That, of course, is the price you pay for investing in a company with cutting-edge technology.

If you think Westport could help save the trucking industry -- and in the process, wean us from foreign oil -- I suggest you add it to your watchlist.

If, however, you'd rather dig further into oil stocks, The Motley Fool has created a new special oil report titled "3 Stocks for $100 Oil," which you can download today, absolutely free. In this report, Fool analysts cover three outstanding oil companies, including the stock Fool analyst David Lee Smith calls the "energy king." To get instant access to the names of the three oil stocks, click here -- it's free.

Fool contributor Brian Stoffel does not own any of the stocks mentioned. The Motley Fool owns shares of United Parcel Service. Motley Fool newsletter services have recommended buying shares of Westport Innovations. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (2) | Recommend This Article (11)

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  • Report this Comment On June 22, 2011, at 10:56 AM, NozRydr wrote:

    Interesting. Will keep an eye peeled.

    A couple questions/uncertainties come to mind immediately:

    1. CNG is already in use in local transit buses in a big way. Existing diesel engines can be upgraded/modified to run on CNG. Should we infer from this article that this companies purpose built engines trade some fuel flexibility for some gains in engine performance? What's to keep the likes of CAT and Detroit from just jumping in with their own solution? Where's the moat around the business?

    2. The basic premise of the article is imprecise -- not incorrect but incomplete. It smells of sensationalism and stock pumping. Seriously, does any one think it's a simple as being an either/or situation for trains vs trucks?

    There's actually a lot published and in the public domain for those that will work their google-fu. Trains are indeed more efficient than trucks for denser cargo. As fuel costs rise the crossover point moves. However, there will always be a significant role for trucks -- at any realistic, imaginable, fuel price point.

  • Report this Comment On October 17, 2011, at 8:51 PM, MHedgeFundTrader wrote:

    I received some questions last week on my recent solar pieces as to whether I minded paying more money for “green” power. My answer is “hell no,” and I’ll tell you why. My annual electric bill comes to $1,500 a year. Since the California power authorities have set a goal of 33% alternative energy sources by 2020, PG&E (PGE) has the most aggressive green energy program in the country (click here for “The Solar Boom in California”). More expensive solar, wind, geothermal, and biodiesel power sources mean that my electric bill may rise by $150-$300 a year.

    There is another factor to count in. Anyone in the oil industry will tell you that, of the current $82 price for crude, $30 is a risk premium driven by fears of instability in the Middle East. The Strategic Petroleum Reserve, every available tanker, and thousands of rail cars are all chocked full with unwanted oil. This is why prices remain high.

    If enough of the country converts to alternatives and adopts major conservation measures, then we can quit importing oil from that violent part of the world. No more sending our president to bow and shake hands with King Abdullah. Oil prices would fall, our military budget would drop, the federal budget deficit would shrink, and our taxes would likely get cut.

    Yes, these are simplistic, back of the envelop calculations that don’t take into account other national security considerations, or our presence on the global stage. But these numbers show that even a modest conversion to alternatives can have an outsized impact on the bigger picture.

    By the way, please don’t tell ExxonMobile (XOM) or BP (BP) I told you this. They get 80% of their earnings from importing oil to the US. I don’t want to get a knock on the door in the middle of the night.

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