Natural Gas Vehicles Get a Boost From Washington

The final corporate average fuel economy (CAFE) rules for 2017 to 2025 have been released and the big winner may surprise you. Automakers will have to reach average fuel economy of 54.5 miles per gallon by 2025, a mark that the industry expects will add $1,800 to the cost of each vehicle.

General Motors, Ford (NYSE: F  ) , Chrysler, and Hyundai were all in on the negotiations last year but some companies complained that the agreement helped U.S. companies take a competitive advantage. Honda was placated somewhat yesterday when natural gas vehicles were given extra credits in the final rule to go along with electric vehicles.

A boost for natural gas and EVs
Honda is the only automaker selling natural-gas-powered cars to U.S. consumers, but that may soon change. The 54.5-mpg average will be hard for some automakers to meet and the addition of natural gas to their fleets would make sense if the infrastructure to fuel these cars is there.

By the time these rules start to go into effect in five years, the natural gas business may be completely different than it is today. Clean Energy Fuels (Nasdaq: CLNE  ) , Chesapeake Energy (NYSE: CHK  ) , and General Electric are building fueling stations around the country and natural gas itself already has infrastructure reaching even further into the market than oil.

Electric vehicle manufacturers will also stand to benefit from the rules. Small automakers like Tesla Motors (Nasdaq: TSLA  ) can now opt in to the regulation, allowing them to sell credits to companies that can't hit the quota themselves. Since Tesla only makes EVs, it will allow the company to sell any credits it gets.

Technology gets a boost
Natural gas won't be the only winner in the new standards. Automakers will have to make vehicles lighter and more efficient to hit 54.5 mpg and some are predicting a renaissance in auto innovation as a result.

The Natural Resources Defense Council and BlueGreen Alliance say the rule will create as many as 570,000 jobs because new technology will be needed. That's a lofty estimate but the concept is that if companies have to develop new technologies to meet standards, it will be people that will do it.

Honeywell, for one, is expecting its turbocharger business to benefit as light trucks and cars add turbochargers to boost fuel economy. I would also expect high-end materials like fiberglass, titanium, and even aluminum to be used more extensively.

Impact on oil imports
This could also have an impact on oil imports. I highlighted earlier this week that net imports are down dramatically in the last seven years and part of that is a reduction in consumption. The recession has something to do with that, but consumption has fallen since 2010, even as the economy recovered.

The White House expects the standard to reduce U.S. oil consumption by 12 billion barrels of oil. To put that in context, that's 648 days of net imports at our current rate.

Foolish bottom line
The macro trends are all trending toward natural gas as a viable fuel moving forward. This would be a big boost for Clean Energy Fuels, which I mentioned above, but it would also help Westport Innovations (Nasdaq: WPRT  ) , which works on the side of the automakers, providing technology to build natural gas vehicles. If automakers have the incentive to make natural gas vehicles, and it makes economic sense for consumers, then the "snowball effect" with regard to infrastructure should take place.

This is just another boost to natural gas and another reason to take a closer look at Clean Energy Fuels. To help you in your analysis we've created a premium report highlighting the company's opportunity and the risks it faces. Find out more about this great report by clicking here.

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 Clean Energy Fuels, Westport Innovations, Ford Motor, Chesapeake Energy, and Tesla Motors. Motley Fool newsletter services have recommended buying shares of Clean Energy Fuels, Ford Motor, Tesla Motors, Westport Innovations, and General Motors. Motley Fool newsletter services have recommended creating a synthetic long position in Ford Motor. The Motley Fool has a disclosure policy.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


Read/Post Comments (3) | Recommend This Article (3)

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  • Report this Comment On August 30, 2012, at 9:24 AM, kmacattack wrote:

    Congratulations Travis, for a very informative and up to date analysis regarding the future of natural gas and the automotive industry. $1,800 may sound like a lot of money on first reading, but if you consider the operating cost of a vehicle which achieves 55 mpg versus our aging fleet average of well below 20 mpg, a consumer driving 20,000 miles per year will recoup the $1,800 in very little time.

    It's great to see the administration and the auto industry working together to write this legislation, and from what I have read, the "Big 3" American . manufacturers were not only supportive but enthusiastic about the new incredibly high CAFE standards.

    I suspect the administration was able to enact these rules without a vote of congress, since Sen. MItch McConnell is deep in the pockets of the Koch brothers and the international oil companies. McConnell has filibustered over 700 bills since the democrats won control of the Senate in 2006, including the energy bill twice in 2010 and the watered down version Natural Gas Act early this year.

    The Energy Bill was supported by 85 percent of the American public and 59 of the 100

    Senators, but McConnell's ONE VOTE blocked it, after McConnell received a "campaign contribution" of almost $500,000 from big oil and the Koch brothers super PACs. The filibusters allowed the Kochs to make hundreds of Billions in added profits, and big Oil to make several TRILLION in profits taken out of the pockets of American consumers.

    The Kochs have multiple reasons to oppose Natural gas fuel, which we have a 100 year supply of under the US. By filibustering the Energy Bill and denying a paltry $450 million in funding to build the coast to coast Natural Gas superhighway, the Kochs reduced demand for the fuel as the Natural Gas industry was building supplies in anticipation of the need for more natural gas. The Kochs own Georgia Pacific, several chemical companies and fertilizer plants which consume massive amounts of natural gas.

    By paying below $2.00 per mcf, instead of $5.00 to $6.00, the Kochs drastically reduced their manufacturing costs while they kept prices high on finished goods The Kochs also protected their refinery business against the conversion of Americas vehicles from imported gasoline and diesel fuel to 100 percent American produced Natural Gas.

    International oil protected their exclusive price fixed monopoly on transportation fuel by paying McConnell to block the bill. Natural gas fuel sells locally for $1.11 per gallon, and if you have a home natural gas compressor, you can fill up at home every day for $0.56 per gallon according to the marketing department of ONEOK, our local gas provider.

    Watch for gasoline to top $4.00 per gallon by election day as a result of a coordinated effort by oil companies to elect republicans, just as they did in 2000 by using a phony NON EXISTENT shortage. My then next door neighbor was a senior accountant at one of the local refineries. When I asked him why we had a shortage occurring which drove gasoline from $0.79 to over $2.00 in a matter of 6 months. He laughed and told me, "There is no shortage.Every oil storage tank in this country is full. We have had oil tankers lined up in the gulf of Mexico outside of Houston which have been "parked" for weeks because we have no place to put ANY more."

    Americans were actually dumb enough to vote for two oilman who were largely financed by big oil monopolies, because they were told that gas prices would drop if Bush and Cheney were elected. Why would they, and congressional republicans DO ANYTHING WHATSOEVER TO "bite the hand that feeds them"? So, instead of fuel prices dropping, we saw a 700 percent increase in a matter of 8 years, prices which sucked the life out of the American economy and the middle class.

    McConnell's filibusters and delays in debating the energy bill which passed the house with over 280 votes in early 2009 have cost American consumers about $10 TRILLION since 2009, 15 times the amount spent on the Stimulus bill.

    SUPER PAC Bribery and behind closed door lobbying are costing Americans dearly. The top 2 percent are getting special favors every day which cost the other 98 percent of us TRILLIONS of Dollars.

    If there is "only 9 cents per gallon" profit in gasoline, then how is it possible that gasoline is selling in Caracas for $0.11 per gallon today?

  • Report this Comment On August 30, 2012, at 10:13 AM, Hueyones wrote:

    Not even ANGA, America's Natural Gas Alliance, whose membership includes all the major producers of natural gas, endorsed the nat gas act. They don't want more Federal control, especially Federal control led by Obama, over the natural gas industry.

    "Small automakers like Tesla Motors (Nasdaq: TSLA ) can now opt in to the regulation, allowing them to sell credits to companies that can't hit the quota themselves. Since Tesla only makes EVs, it will allow the company to sell any credits it gets."

    Looks like a backdoor plan (bypassing Congress) to institute cap and trade.

  • Report this Comment On December 02, 2012, at 12:09 PM, oldman144 wrote:

    50 mpg sounds a bit far fetched. I owned a 99 Saturn SC3. In summer, it managed 38-39 mpg. Fast forward 13 years and my wife's Cruz gets 34 mpg with a 6 speed manual and a rather small 4 cylinder engine.

    Point is, we made a quantum leap in reducing fuel use by going to fuel injection - but there does not seem to be any other magic bullets in the future. Even the Hybrids have a tough time cracking 40 mpg in real driving conditions such as 70 mph on the interstate in cold weather. Talk with a Prius driver in Minn in the winter and I think you find some shocking real mileages.

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