Natural Gas Can Drive Our Economy

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If you share my opinion after being bathed in the steady stream of news about solar panel producer Solyndra, its bankruptcy, and its questionable federal loan (with others apparently being teed up for other companies), you may have discovered periodic eruptions of smoke emerging from your ears. I suggest we turn our attention to a far more palatable subject: the increasing supply, availability, and use of natural gas as a transportation fuel.

You know all about the still relatively new and improved techniques involving horizontal drilling and hydraulic fracturing (fracking) that have gas emerging from underground at prodigious rates. Indeed, according to the International Energy Agency, assuming that environmental concerns about fracking can be overcome, the use of natural gas may increase by more than 50% by 2035.

At the same time, efforts to expand the use of natural gas to power trucks and cars in North America are generally emanating from the private sector, rather than from government (taxpayers') largesse, as was the case with Solyndra. For instance, as my Foolish colleague Adam Crawford told you not long ago, Chesapeake Energy (NYSE: CHK  ) , a leader in the development of several major unconventional gas plays, has initiated a significant program to stimulate the use of natural gas as a relatively cheap, clean-burning, and domestically plentiful substitute for gasoline and diesel.

Chesapeake's bold plan
Under Chesapeake's $1 billion plan, which will be paid for by up to 2% of its drilling budget, the first funding recipient is Clean Energy Fuels (Nasdaq: CLNE  ) . The California-based company will build and operate 150 natural gas fueling stations that will be crucial to the ascendancy of the fuel in transportation.

Just last week, Royal Dutch Shell (NYSE: RDS-B  ) and Westport Innovations (Nasdaq: WPRT  ) , a Canadian manufacturer of natural gas engines, announced that they had formed a co-marketing program. According to the pair, their effort is intended to provide an integrated solution to the needs of operators of natural gas vehicles, especially trucks. Separately, Shell plans to kick off its natural gas fueling efforts by offering natural gas at some of its Flying J truck stops in Alberta, Canada, beginning next year. In the first year, the liquefied natural gas (LNG) will be obtained from others, while its own product will be marketed beginning in 2013.

Following the Shell-Westport announcement, concerns have bubbled forth from investors and other observers about the ability of Clean Energy Fuels to compete with the giant oil company and its new partner. From my perspective, Clean Energy Fuels stands to benefit from Shell's entry into the market. Indeed, the group hardly is encumbered by a surfeit of stations; Shell's position as a member of Big Oil stands to lend credence to natural gas's use as a transportation fuel.

Trailing Europe badly
For the sake of comparison, the U.S. Energy Department tells us that, at the beginning of summer, there were 889 compressed natural gas (CNG) stations in the U.S., along with 44 LNG stations, about 2,400 E85 (an ethanol-gasoline blend) stations, and approximately 2,100 electric-vehicle charging stations. At the same time, there were about 125,000 conventional gasoline stations. Furthermore, about 13 CNG vehicles will be sold in Europe this year for each one purchased in the U.S.

Its new Shell arrangement isn't the only partnership for Westport. In July, the company inked an agreement with General Motors (NYSE: GM  ) to foster the development of new engine components to power the Detroit company's light vehicles and position it in an alternative power train market beyond the one currently served by the plug-in electric Chevrolet Volt.

For the big trucks
Westport also has entered a venture with Indiana-based Cummins (NYSE: CMI  ) , largely for the production of midrange natural gas engines, such as those that power transit buses. Furthermore, Peterbilt has led the way among large-truck manufacturers by teaming with Cummins Westport and Westport HD to provide a family of alternative-fuel vehicles. For instance, its Model 367 LNG and Model 386 LNG, both of which are powered by Westport HD GX engines, offer up to 475 horsepower and 1,750 foot-pounds of torque.

In addition to the bevy of municipalities that you'd expect to have moved into the arena of natural-gas-powered buses, a number of major corporations have begun to grace their truck fleets with increasing numbers of natural gas vehicles. For instance, AT&T (NYSE: T  ) currently operates 2,000 natural gas vehicles and is moving toward a count of 8,000.

I'm not ignoring the supply side. There is progress in fracking, where virtually all of the environmental concerns lie. You may have noticed a pair of commercials by ExxonMobil. In one, a geologist discusses the environmental aspects of fracking. Hopefully both the gas producers and the environmentalists will recognize the degree to which the expanding use of natural gas is contingent upon candor, cooperation, and common sense in both camps.

Foolish bottom line
Exercising candor of my own, I have little doubt that, were we to slip into a Rip Van Winkle-type slumber, we'd awaken to discover a world with transport largely dependent upon liquefied and compressed natural gas. On that basis, I'll remain especially observant of Westport Innovations, given its multiple meaningful partnerships. I hope my Foolish friends will join me in adding the company to their customized Motley Fool watchlists by clicking here.

Motley Fool newsletter services have recommended buying shares of AT&T, General Motors, Chesapeake Energy, and 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. Fool contributor David Lee Smith doesn't own shares in any of the companies named above. The Motley Fool has a disclosure policy.  






Read/Post Comments (2) | Recommend This Article (9)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 19, 2011, at 1:04 PM, 102971 wrote:

    WPRT is my stock for 2011/12

  • Report this Comment On September 19, 2011, at 2:30 PM, gibbstj wrote:

    Forget natural gas as transportation fuel in the near term. The fueling infrastructure, engine cost differential, and range limitations make it impractical for the majority.

    Natural gas will be the fuel of choice for new electric generation capacity. U.S. utilities must add over $500 billion in new generation in the next 20 years. Most of this will be powered by natural gas.

    And forget natural gas "producers," there is too much supply coming on-line, which will drive down profits. Look at the companies that transport fuel: Pipelines and tankers.

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