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Lost in the shuffle over the last couple of months have been the recent industry developments that could finally make Clean Energy Fuels (NASDAQ: CLNE ) a major winner. Due to cheap and abundant supplies of domestic natural gas, Clean Energy embarked on a dramatic plan to build America's Natural Gas Highway. The plan was to develop a network of liquefied natural gas (LNG) fueling stations in order to encourage trucking companies to purchase LNG regional haul trucks.
The major catch until now has been the inability of engine producers to provide the types needed for long-haul and even regional trips. That fact is rapidly changing with the recent start of production for the much awaited Cummins (NYSE: CMI ) Westport (NASDAQ: WPRT ) or CWI joint venture engine that began back in August.
Clean Energy famously announced the plans for America's Natural Gas Highway back in 2011 with the official release of the backbone plans in January 2012. The plans called for phase one to include 150 LNG truck fueling stations to be completed by the end of 2013. The goal was to have around 70 completed by the end of 2012 with the plans for the remaining ones to be finished by 2013. Unfortunately during the process the much-needed engine from CWI didn't hit production until recently in August. This scenario placed Clean Energy in a bind with a large portion of the stations completed without any demand.
During the Q2 earnings call, the company provided the following stats on the highway stations:
- 76 stations completed (no word on the amount open)
- 24 stations under construction
- 30 stations in the contracting and proposal process
- 200 to 300 stations needed in the future
- 19 stations to be opened due to UPS plans
Clearly the station amounts were slightly scaled back, but the interesting note is that investors now get to purchase the stock at levels below the hype of the highway network from early 2012 when the stock surged to nearly $25.
The best part about the investment story in Clean Energy is that the CWI 12L engine finally hit production in August. Similar to the highway network plan, this engine was announced in early 2012 with much fanfare sending Westport stock soaring.
The ISX12 G engine is based on the Cummins ISX12 diesel engine platform and operates exclusively on natural gas (both CNG and LNG). It is designed for regional-haul trucks; hence it has been a crucial piece of the puzzle for the highway stations. Without trucks capable of efficiently using LNG for regional transportation, the demand to fill the new stations has been limited.
A major risk to the story for both Clean Energy and Westport remains that the transition to LNG largely depends on cheaper fuel. With the plans for the US to begin exporting LNG in 2015 along with numerous industrial plants being built using cheap natural gas as a feedstock, it could place a significant crimp in the plans for cheap fuel.
On top of that risk, Clean Energy realizes extremely low margins of around $0.30 per gallon equivalent on the fuel. Regardless of where diesel trades, Clean Energy is priced based on natural gas costs with all of the savings going to the consumer. Sure it is logical for LNG to be priced in that manner, but investors need to clearly understand that the benefit of lower comparative fuel prices is increased fuel demand and not increased margins.
Clean Energy and Westport appear to be the classic story of investors becoming over-hyped on a new concept only to lose interest by the time the item reaches production. Not to mention, during this time period Clean Energy has seen strong growth from the refuse and public transit areas that combined with the regional trucking highway market could finally lead to profitable growth. Now that the catalysts in the building of the highway network are completed and the major engine has hit production, this is the time that investors should be the most interested in the prospects of this stock. When the stock market starts looking forward to Q1 2014, it will start liking the Clean Energy story like it's 2012 all over again.
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