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The Natural Gas Conversion Is Accelerating

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There's an energy revolution taking place, and the pace of the revolution is accelerating. It's entirely possible that the way our world is powered 10 years from now will be vastly different from the way it's powered today.

As our energy expert Travis Hoium has pointed out, the price of natural gas is rigged to stay low for the foreseeable future. That's bad news for natural gas extractors.

Just last month, Chesapeake Energy (NYSE: CHK  ) , one of the country's largest natural gas players, announced that it will cut back on production. By doing so, it's hoping to minimize the supply glut that's plunged prices to record lows.

But one sector's pain is often another's gain, and that's certainly the case right now. With the cost of natural gas falling and the price of oil rising, the financial incentive to develop machines that can run solely on natural gas has increased exponentially.

That's great news for a couple of companies that made some huge announcements last week. All of these companies stand to benefit from a conversion from petroleum-based fuel to natural gas.

First announcement: Feb. 1
Last Wednesday, Navistar (NYSE: NAV  ) CEO Dan Ustian appeared on CNBC's Squawk Box with Clean Energy Fuels (Nasdaq: CLNE  ) board member and energy guru T. Boone Pickens. Navistar is an international trucking company, while Clean Energy is focused on building out the infrastructure of natural gas filling stations in North America.

The two announced a partnership whose goal is to "provide customers with a sustainable, commercially viable solution for adding natural gas-powered trucks to their fleets." In other words, Navistar wants to start pumping out natural gas trucks, and Clean Energy is going to help it get there.

Citing incredible demand for such trucks, Ustian said he hoped to ramp up production and start offering them up in as little as six months. Pickens was quick to point out that the switchover would have three huge advantages over standard diesel trucks: Natural gas is $1.50 per gallon cheaper -- and 30% cleaner -- than petroleum-based fuel, and it doesn't have to be sourced from the Middle East.

Time will tell whether this partnership is able to bear fruit as quickly as they claim, but such confidence is a clear indicator that the financial benefits of natural gas are at a tipping point.

Second announcement: Feb. 3
While many may have cheered the Navistar/Clean Energy partnership, investors in Westport Innovations (Nasdaq: WPRT  ) weren't happy at all. Before Wednesday, shareholders of Westport felt safe knowing their company was one of the few that had been able to engineer a practical engine that could run solely on natural gas.

With Navistar's announcement, it seemed like other industry players were going to be ganging up and moving in on their turf, and fast. The market took notice and sent Westport's shares plunging on Thursday afternoon.

But after the market closed on Friday, the story got interesting. Instead of developing its own natural gas engines, Navistar announced that it "will offer the Cummins Westport ISL G [engine] in the International TranStar and WorkStar trucks."

In other words, Navistar's not developing a new engine at all. It'll be offering the engines that Westport engineers and Cummins (NYSE: CMI  ) manufactures -- as part of the Cummins Westport partnership -- in its trucking fleet.

What it all means
As I said, it remains to be seen exactly how this will all pan out, but this news is certainly a boon for all four companies involved.

If demand really is as high as Ustian made it sound, that could mean a lot of new purchases for Navistar. New purchases for Navistar necessarily equates to a steep increase in engine orders for Cummins and Westport. It also means that there will undoubtedly be more natural gas trucks out on the road that rely on Clean Energy's fueling stations to help them move their products from coast to coast.

I already have made a positive CAPScall on my All-Star profile for Westport, but last week's news leads me to believe that Cummins, Clean Energy, and Navistar are all good bets as well. If you want to know which of these companies our team of analysts think is the best bet for your money now, I suggest you check out our special free report on The One Natural Gas Stock to Own. You already know who the contenders are for this title, but get your copy today to find out which one it is, absolutely free!

Fool contributor Brian Stoffel owns shares of Westport Innovations. You can follow him on Twitter at @TMFStoffel.

Motley Fool newsletter services have recommended buying shares of Cummins, Chesapeake Energy, and Westport Innovations. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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 (5) | Recommend This Article (25)

Comments from our Foolish Readers

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 February 06, 2012, at 10:36 PM, 1caflash wrote:

    Dan Ustian.

  • Report this Comment On February 08, 2012, at 8:53 PM, gasfortransport wrote:

    Can you really just brush off "other industry players" without looking into them, and sharing with your readers?

  • Report this Comment On February 08, 2012, at 11:30 PM, TMFCheesehead wrote:


    The other industry players I was referring to were Navistar and Clean Energy. Seeing as how they'll be getting their engines from Cummins/Westport, I think it's ok to brush them off.

    Brian Stoffel

  • Report this Comment On February 10, 2012, at 2:04 PM, LiteNin wrote:

    My understanding is the regulatory fees for a company that converts engines from petro to CNG/LNG is around $500,000/year for permits. For large engine mfg. that is not a huge negative. However, for a domestic auto engine conversion company, that alone will put a crimp in a conversion co. start-up and limit station population that handles CNG?LNG as I see it. If this is a better eco way to go (which I do like), the petro giants need to relax their $B/quarter profit strangle hold that regulates these start-up and supply companies. After all, isn't diesel/gasoline a 1 hundred year old event? Time for change Mother Earth!

  • Report this Comment On May 27, 2012, at 4:29 AM, seymourfroggs wrote:

    "not sure how this will pan out.." Me neither.

    I love Cummins (super company, superb motivation & management) but sold out when thought they were a bit high, Bought more NAV and so far, regretted it.

    So if NAV uses Cummins engines, what does it do with its own products??? (BAD) I suppose NAV will begin to build its own LPG versions of its diesels. (GOOD) This is not hard, and if WPRT has patent rights, each benefits. Surely NAV must build its own LPG versions soon. I can't see why we haven't heard.

    So I'll hang in with my NAB & WPRT holdings.


    Fools might be interested to know about the UK firm ITM with its own extensive patents (I hold shares in ITM).

    They are a good lean bunch and make Hydrogen for vehicles etc. Hydrogen has less Energy than hydrocarbon so you have to burn "more". Therefore, range is limited. But (a) they are adding it to the LPG fuel tank in commercial vehicles and (b) they turn excess wind-power, when all the turbines are being blown at once, into H2 and pipe it into the gas line, then charge gas industry for the "therms".



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