The Natural Gas Fuel Revolution Is Here

For decades we've been looking for alternatives to gasoline fuel and our dependence on imported oil. Slowly but surely, I believe, this revolution is taking some major strides forward, magnified by the rise in oil prices. Quietly, the U.S. has become one of the world's leaders in natural gas production, and prices have fallen so low that it's impossible to ignore as a potential vehicle fuel.

The challenge
I would love to say that we could flip the switch and change from gasoline-powered vehicles to natural gas. The problem is that the natural gas infrastructure is decades -- at least -- behind when it comes to fuel. Gasoline fuel stations are established on almost every street in every city and on every highway across the country, and automakers have a century of experience building and servicing vehicles powered by gas. But we aren't starting completely from scratch: At least we have natural gas pipelines crisscrossing the country, so the transition may not take as long as one might think.

To make the transition to a natural gas fleet of vehicles, there needs to be major investment in infrastructure and vehicle technology. And that's where I'm beginning to see some major movement.

The contenders
Clean Energy Fuels (Nasdaq: CLNE  ) has a head start in building the infrastructure necessary to make a transition to natural gas. The company has 257 CNG and LNG fueling stations across the country, including more than 100 LNG truck-fueling stations that the company has dubbed "America's Natural Gas Highway." And the company is getting some competition from a big name in energy.

General Electric (NYSE: GE  ) announced this week that it is teaming up with Chesapeake Energy (NYSE: CHK  ) to accelerate the adoption of natural gas vehicles. GE will supply more than 250 "CNG in a Box" units to build fueling stations around the country. These are, essentially, self-contained gas stations that include a point-of-sale interface that accepts credit cards.

But what would the infrastructure mean without vehicles to fuel up? That's where Westport Innovations (Nasdaq: WPRT  ) come in. The company provides the technology and equipment needed to transition vehicles to natural gas. It has partnerships with the likes of Ford (NYSE: F  ) on its F-250 and F-350 trucks as well as Cummins and many other engine makers.

Manufacturers like Ford, General Motors, and Chrysler are also getting in the game, albeit at a slow pace. Ford unleashed the Transit Connect, a taxi that can use a variety of fuel sources and is already operational in Los Angeles. GM is going to offer a bi-fuel model of the 2013 Chevy Silverado and GMC Sierra.

How the transition works
The initial transition to natural gas has focused on fleets like buses, airport vehicles, and other short-distance vehicles. Slowly, the revolution is moving to semi-trucks traveling nationally as the infrastructure builds out.

This business-oriented transition will likely continue through 2012, because routes are easier to define and fueling stations can be built based on where fleets need them. But as natural gas fueling stations become more prevalent, the barrier to entry for passenger vehicles will go down. In certain big cities like Los Angeles, there are enough stations to make a passenger vehicle viable and that will should begin influencing customer purchases because of the potential fuel-cost savings.

This way of developing the natural gas fuel industry may take longer than some would like, but what it also does is set a solid, financially sound footing for the industry. Unlike electric vehicles, which were in the media's eye and had yet to overcome challenges like rage anxiety, this will probably be a healthier way for natural gas to transition to wider-spread fuel use. It isn't a national focus yet, which allows the kinks to be worked out while the industry is still small.

There's one stock our analysts think will outpace others in the transition to natural gas. To find out what it is, check out our free report highlighting this rule breaking company. Just click here for free access to this report.

Fool contributor Travis Hoium does not have a position in any company mentioned. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.

The Motley Fool owns shares of Ford Motor. Motley Fool newsletter services have recommended buying shares of General Motors, Cummins, Westport Innovations, Ford Motor, and Chesapeake Energy; and creating a synthetic long position in Ford Motor. 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.


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  • Report this Comment On March 20, 2012, at 8:48 PM, luremaster wrote:

    Don't know about the rest of the country, but in Texas cities most gasoline stations are about 50 feet from a natural gas line. So there is infrastructure already in place. They just need to hook up their equipment to the natural gas line.

  • Report this Comment On March 22, 2012, at 10:22 AM, Usnzth wrote:

    I have been living in Thailand for the last four years. Nearly all of the big trucks here use natural gas. More and more cars are using it, too. I bought a brand new Toyota van 3 years back and had it fitted with a natural gas system. I pay the equivalent of $1.40 per gallon.

    Fill up takes a little longer at the pump, but the longest wait is getting to the pump. More people are converting to natural gas every week. Once it caught on, it really caught on.

    Thailand isn't especially against importing from Arab nations. It seems to be a purely economic decision. But in the US, when people have a chance to buy cheap gas AND avoid buying from Arab countries, I think they will go for it in droves.

    This company seems to be a classic Rule Breaker.

    Long CLNE stock and call options.

  • Report this Comment On March 27, 2012, at 10:00 AM, canucklew wrote:

    What is "Rage anxiety"?

  • Report this Comment On May 03, 2012, at 11:26 AM, casenundra wrote:

    Just where is this mythical "natural gas highway" anyway? The North/South corridors I5 and I95, or the East/West corridors of say Interstates 40,80,&90?

    Just so you know, When you knock foreign oil you're pointing a finger North not East. Canada is the largest importer of oil to the United States.

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