A funny thing happened at the end of trading yesterday.
Shares of companies associated with a large-scale conversion to natural gas in North America -- companies like Westport Innovations
No, this wasn't a rehashing of the infamous flash crash. Instead, it was the result of a much-anticipated vote in the Senate, the outcome of which will create a speed bump for the conversion of vehicles over to natural gas.
The NAT GAS Act
On Monday, an amendment to the highway bill that would have given tax incentives for commercial companies to buy vehicles that run on natural gas was defeated. Though it garnered a 51-vote majority, the amendment needs 60 votes to work its way onto the highway bill.
The amendment had bipartisan support, but there were concerns from conservative circles that such incentives would be indicative of the government venturing too far into the private sector. Bill co-sponsor Robert Mendez says he still thinks the amendment could pass with adjustments, and Senator James Inhofe said he was also considering introducing a reworked amendment.
With the vote, it's no wonder that Westport Innovations and Clean Energy fell. Westport, along with partner Cummins
Why this is just a speed bump
I actually believe that, for the investor with a long-term horizon, this is nothing more than a speed bump. While the passage of a bill giving tax incentives to companies who bring business to Westport, Cummins, and Clean Energy wouldn't have hurt, none of the companies absolutely needs the passage to thrive.
In my opinion, passage of the act would have actually been a lot more like free advertising than anything else. As transportation companies sit down and run the numbers on whether or not to convert their fleets to natural gas, a little extra nudge from the federal government could certainly speed up the process. But to me, all one needs to see is the graph below, which shows what the U.S. Energy Information Administration thinks a gallon of standard gasoline, diesel, and natural gas will cost over the next 20-plus years.
Source: U.S. Energy Information Administration, Annual Energy Outlook 2011. Natural gas assumes 7.9 gallons per 1,000 cubic feet.
These are clearly just predictions; they could easily be wrong. In fact, the average gallon of gas is already above 2015 predictions, while the average equivalent of a gallon of natural gas is right in line with predictions at $1.60.
Furthermore, there are many variables that will affect the prices of these commodities that we can't predict -- like Chesapeake's
But even if the country doesn't go through a full-scale conversion to natural gas -- and instead settles on having a diversified base of energy options -- companies like Westport and Clean Energy still stand to benefit.
In fact, Westport is already teaming up with Ford in marketing its new WiNG engine as "an advanced, integrated, bi-fuel system for passenger and commercial vehicles targeting fleet customers ... [which] can also run on ordinary gasoline and offer unparalleled drivability." In other words, Westport has an engine that can simultaneously run on both standard and natural gas. And that's why I'm maintaining my CAPScall on Westport for my All-Star profile.
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