Shares of natural gas fueling station-builder Clean Energy Fuels (Nasdaq: CLNE ) have soared recently, up about 25% in the last week. On Monday, the company announced it had signed a 10-year contract to build fueling stations for transportation and logistics firm Saddle Creek, though the financial arrangements were undisclosed. This is the third such agreement Clean Energy Fuels has signed this year, partnering with Green Energy Oilfield Service and Navistar in earlier contracts.
The recent run was just icing on the cake for investors, as Clean Enegy has jumped more than 150% since its low in October at $9.02. The rock-bottom prices for natural gas (a diesel gallon equivalent of Compressed Natural Gas costs just $2.36) have caused a surge in other natural gas plays like Westport Innovations (Nasdaq: WPRT ) , which has nearly doubled in the last four months. Westport designs natural gas engines for industry heavyweights including Ford (NYSE: F ) and Cummins (NYSE: CMI ) .
The network effect
Every additional contract that Clean Energy signs is good news for others in the natural gas fueling industry. With natural gas prices sufficiently lower than those of gasoline, the argument for the alternative fuel is clear. It's cleaner, producing up to 30% fewer greenhouse emissions than gasoline and diesel, and it comes from an abundant source -- with a projected 120-year supply just in North America.
Replacing gasoline with natural gas en masse, however, requires time, investment, and a range of stakeholders buying in to the new fuel. Vehicle manufacturers need buyers, drivers need a network of fueling stations, and those fueling stations depend on a critical mass of drivers to offset the capital costs of building them.
Clean Energy has boldly taken the first step in the process. In addition to building fueling stations for private transportation companies, the outfit led by Boone Pickens recently unveiled the first part of what it calls America's Natural Gas Highway, with plans to have 70 stations in 33 states open this year and 150 stations by the end of 2013. Clean Energy also has the backing of Chesapeake Energy (NYSE: CHK ) , the nation's second-largest natural gas producer, with a $150 million investment to help build the Natural Gas Highway.
With the potentially huge market for natural gas fuels and the support from the federal government -- including proposed tax incentives -- the upside for companies like Clean Energy appear to outweigh the downside. Still, it has not yet turned a profit, and analysts are projecting losses this year and next. I think the long-term economic landscape favors it, though, and high gas prices and tensions in Iran will make natural gas fuel look even more desirable by comparison. I've decided to make a bullish CAPScall on Clean Energy; I think it will outperform the S&P 500 in the coming years based on cheap natural gas prices and its advantages over gasoline.
One more bet
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