Building a True Natural Gas Highway

We've been hearing about natural gas as an alternative to oil for quite a while now but it isn't until recently that it's become a viable alternative. Like a lot of major industry shifts, it's been a chicken and egg scenario. Trucking fleets and consumers won't buy natural gas vehicles if the fuel isn't available, and the infrastructure won't be available until there's a fleet to buy natural gas.

So, for a few years Clean Energy Fuels (Nasdaq: CLNE  ) has slowly built a network of buses and local truck fleets that run on natural gas, demonstrating lower costs and reliable service. But now the company is setting its sights on a much larger prize, a nationwide natural gas highway.

Infrastructure build-out continues
Clean Energy Fuels is building what it calls America's Natural Gas Highway in an effort to move liquefied natural gas (LNG) and compressed natural gas (CNG) forward. Through October the company has built 48 LNG stations, primarily at Flying J stations around the country, in an effort to build over 100 stations to serve the heavy duty trucking market. By the middle of next year it thinks there will be enough infrastructure to support this new market.

That's about the same time that an 11.9-liter engine built by Cummins (NYSE: CMI  ) , based on technology from Westport Innovations (Nasdaq: WPRT  ) , will hit the road.

To serve this growing market, Clean Energy Fuels just signed a deal with GE (NYSE: GE  ) to build two ecomagination MicroLNG plants that GE will finance for up to $200 million. These two plants will add 500,000 gallons of LNG capacity with the ability to expand to 1-million gallons each, adding to the 260,000 gallons of capacity the company currently has.

GE and Chesapeake Energy (NYSE: CHK  ) have a partnership that will install 250 CNG stations around the country as well, adding to the more than 300 CNG stations for Clean Energy Fuels. Chesapeake is even working on a home fueling "appliance" with the help of GE and Whirlpool (NYSE: WHR  ) . Imagine fueling your car before you leave for working the morning.  

Vehicles are on their way
All of this build-out is meaningless for Clean Energy Fuels, GE, Chesapeake, and others unless there are vehicles on the road that use their fuel. So this is the next big step.

As I mentioned above, the heavy duty Cummins Westport engine is coming to the market next year and will be the big driver of future domestic LNG demand. According to Clean Energy Fuels, LNG is currently priced up to $1.50 cheaper than gasoline or diesel -- for trucking fleets that becomes a huge cost savings tool.

The passenger market is less likely to be a driver of LNG or CNG demand in the near future, but we're seeing some progress. Honda (NYSE: HMC  ) makes a natural gas version of the Civic. GM (NYSE: GM  ) offers Chevy Silverado and GMC Sierra in CNG options as well.

If the trucking fleet makes a quick conversion to natural gas in 2013 you can expect a steady trickle of passenger vehicles to follow. Fueling stations are clearly influencing adoption rates, and if natural gas remains a significantly less expensive fuel source, then there's a big incentive to make the switch.

Foolish bottom line
The two pure-plays on natural gas fuel are Clean Energy Fuels and Westport Innovations, and both companies have a lot of upside. Clean Energy Fuels recently had a $16.3 million loss in the third quarter, but this was due in large part to continued investment in infrastructure. It's more important to look at a 24% increase in gallons delivered, which will eventually drive the company forward.

Westport is a riskier play on the technology behind natural gas engines. The company just reported a $32.5 million loss; while there's a lot of upside if adoption rates pick up, who's to say engine makers won't develop CNG and LNG technology on their own.

For my money, Clean Energy Fuels is the way to play this expanding natural gas highway. It's poised to make a big impact on an essential industry. Read all about Clean Energy Fuels in our brand-new report. Just click here to get started.


Read/Post Comments (13) | Recommend This Article (28)

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 November 15, 2012, at 3:17 PM, gasblogger wrote:

    Natural gas is the future of energy. It is replacing dirty old coal plants, and dangerous expensive nuclear plants. It will fuel cars, vans, buses, locomotives, aircraft, ships, tractors, air conditioners, engines of all kinds. It costs far less. It will help keep us out of more useless wars, where we shed our blood and money. It lowers CO2 emissions. Over 2,700 natural gas story links on my blog. An annotated bibliography of live links, updated daily. The big picture of natural gas.

    Ron Wagner

  • Report this Comment On November 15, 2012, at 11:38 PM, Rustyismydog wrote:

    You mentioned the potential for a competitive response for Westport, but at least they have the competitive moat provided by their patents. What is the competitive moat for CEF? As soon as there is a critical mass, why won't all the Big Oil companies simply add a CNG pump at their thousands of existing service stations and truck stops? If they do, where will that leave CEF?

  • Report this Comment On November 16, 2012, at 7:14 AM, JadedFoolalex wrote:

    gasblogger

    Nat. gas does NOT lower CO2 emmissions in and of itself! The burning of Nat. gas emits lower levels of CO2 but it certainly does not lower or eliminate them.

    Just sayin...

  • Report this Comment On November 16, 2012, at 9:55 PM, sevenheart wrote:

    Nat gas can do a lot of things better. I operated Natural Gas powered natural gas compressor stations for over a decade (Cat engines). Engines last longer, synthetic oil looks as clean the day we change it as the day it is put in the engine, it can burn at nearly 95% efficiency with the exhaust being primarily water vapor (which environmentalists will claim will destroy the planet and increase global warming). The forecast in this article for a rapid conversion to Nat gas for trucking is offtrack though. Trucks cost 1/8th to 1/4 of a million dollars, there won't be a rapid transition to nat gas power since a lot of these rigs run for nearly a million miles before they are replaced. I'm a fan of nat gas transportation but this will be a transition like that from horse and buggy to the automobile. 50% of the US was farmed by horse teams in 1950.

    And CO2? When I went to school it was essential for plant life and photosynthesis, now its destroying the planet? Dry air contains roughly (by volume) 78.09% nitrogen, 20.95% oxygen, 0.93% argon, 0.039% carbon dioxide, and small amounts of other gases. Pretty scary when .039% of the atmosphere will destroy the planet, obviously we're too fragile to sustain life here.

    I'm just sayin...........

  • Report this Comment On November 16, 2012, at 10:26 PM, sevenheart wrote:

    Rustyismydog,

    Great points. Perhaps CEF could end up like Eaton, they manufactured most of the gas pumps and related equipment used in the world for decades. If CEF has good leadership they could dominate the market for pumping equipment. Big oil will gladly leave that aspect to companies like CEF, their major income stream is not in retailing their products but in exploration, extraction and refining (and not all companies refine). Keep in mind that only 35-45% of all oil consumption is for transportation, the balance is for fertilizers and chemical feedstock for industry. In the interest of full disclosure I confess that I work in the oil and gas industry improving the quality of life of every human being who doesn't live in a country ruled by a dictator or despot.

  • Report this Comment On November 18, 2012, at 3:10 PM, kthor wrote:

    it's not the co2 destroying the planet, it is human activity that is destroying the planet ...if humans take more than the planet can restore ... isn't this just like the fiscal cliff? lol just saying

  • Report this Comment On November 19, 2012, at 12:50 PM, SteveBrigge wrote:

    I'm excited about the home refueling station GE and Chesapeake have announced. Lack of refueling stations is a huge barrier to owning a cng car. From what I understand it won't be available for several years, but It's not a bad start.

    Here's a link to the site if anyone wants to read more.

    http://www.peakefuelsolutions.com/Pages/cng-in-a-box.html

  • Report this Comment On November 23, 2012, at 11:41 AM, modeltim wrote:

    Natural gas is a highly risky proposition and has significant capability to harm the environment and it's not just fracking causing contamined water including lighting your kitchen faucet: http://www.huffingtonpost.com/2012/11/16/fracking-sand-healt...

    Sure go right ahead and invest in this and "clean coal" as well if you have no moral scruples and don't mind contributing to the earth as a human life sustaining planet.

  • Report this Comment On November 23, 2012, at 11:43 AM, modeltim wrote:

    Correction:

    Sure go right ahead and invest in this and "clean coal" as well if you have no moral scruples and don't mind contributing to the decline of the earth as a human life sustaining planet.

  • Report this Comment On November 23, 2012, at 2:15 PM, SkepikI wrote:

    If you are tempted to believe the commentary, I strongly urge you to do your own research. End use energy costs have followed a fairly predictable pattern over the past century. A resource gets expensive as its finding cost and capital oriented conversion costs get more expensive. Coal replaced wood largely for this reason. Oil replaced coal again largely for this reason. As Natural Gas costs decreased, town gas was replaced. Cheap Oil and better conversion capital costs replaced Coal fired steam engines. Advances in Gas Turbine efficiency and reduced costs caused a rush for gas fired electric stations, and competition for cheap gas drove prices up. Drillers drilled and punched so many holes in productive places that prices declined (repeat at least 3 times since 1980) Pressing the competition has always been our ticket to better days....subsidies of the lazy and inefficient the drag on our success.

    And I'd love for one of my fellow NW residents to post pictures of the Large flatbed trucks hauling windmill components down the freeway for those "zero emission" windmills....

    Oh and Ron Wagner, for 3 years my life depended on the correct, safe and reliable operation of one of those "dangerous, expensive nuclear plants" I generally find those sorts of opinions from people who have never operated, designed or maintained a nuclear plant.

    C Wagner Nuclear Submarine vet

  • Report this Comment On November 23, 2012, at 4:33 PM, artbros wrote:

    I own four CNG Honda Civics. Over the past five years my fuel prices have ranged from $0.65 per gallon equivalent to $1.48. Gasoline has ranged between $3 and $5 per gallon. According to the EPA there is no cleaner car on the planet than the Civic GX. That includes all-electric cars like the Nissan Leaf. On a bad-air day, my exhaust is actually cleaner than the ambient air. I like saving money on fuel. I also like the feeling I get from knowing I am helping our air be cleaner than if I used gas or diesel.

    CNG is a bridge fuel. It can take us toward hydrogen use. In the end, I hope for a picture where solar PV is running the energy to split water into hydrogen and oxygen. The H gets stored and the O is off-gassed. The only exhaust byproduct will be water.

    Don't let the naysayers blind you. CNG is a viable fuel.

  • Report this Comment On November 23, 2012, at 5:00 PM, bruderly wrote:

    American consumers do NOT control motor fuel markets; OPEC and an Oil Oligopoly controls our motor fuel choices. Widespread use of natural gas and electric motor fuels TODAY will break the OPEC market power. These two motor fuels are also building the foundation for accelerated introduction of near-zero pollution electric and hydrogen motor fuels TOMORROW. Any piston engine vehicle can easily be redesigned to accommodate slightly larger NG fuel storage tanks -- with no significant loss in range or performance -- while still reducing total cost to owners AND reducing life-cycle emissions. Battery and plug-in hybrid electric vehicles are likewise demonstrating the cost-feasibility of electric drive technology AND recharging with solar and wind electricity. Just as biodiesel can be blended with fossil diesel, renewable methane and hydrogen can be blended with natural gas to create a cleaner, cost-competitive alternative to fossil diesel / gasoline for use in either piston or fuel cell engines. And when the proton exchange membrane fuel cell is ready for the mass market, retail NGV fuel infrastructure can quickly be adopted to also supply 99.999% pure hydrogen; carbon content of motor fuels will then be determined by the consumer, not the supplier. Our politicians need to restructure energy policy to break the OPEC Oil Oligopoly by empowering consumer choice.

  • Report this Comment On November 25, 2012, at 2:57 PM, aldousworp wrote:

    When will we start taxing home natural gas filling stations and electric charging stations? If we don't how will we pay for the upkeep on the highways?

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