Is Clean Energy Fuels "Redeeming" the Energy Sector?

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Everyone hates Big Oil.

Okay, so "everyone" may be a bit strong. But according to Gallup's annual Work and Education poll, more than half of Americans view the oil and gas industry in a negative light, despite the irony in that there isn't a single industry more important to our world and economy than energy. With our domestic addiction to oil, one could almost say that "Big Oil" is our national drug dealer. And nobody likes a drug dealer. 

Clean Energy Fuels  (NASDAQ: CLNE  ) is making an attempt to "Redeem" the gas and oil business with a product that's not so bad for us. Is this a real attempt to help create a more sustainable fuel infrastructure, or just more Big Oil lip service to keep us hooked?

Biomethane: More hot air?
Clean Energy announced just last week it will begin offering the methane produced and captured as a byproduct of landfills, animal waste, and other biomass processing facilities at 35 natural gas stations located in California. From the press release:

...said Andrew J. Littlefair, president and CEO of Clean Energy. "Our goal is to produce and distribute 15 million gallons of Redeem in our first year which can make significant progress toward achieving California's climate change goals and show that this is a viable, cleaner and abundant alternative fuel source for our future."

The beauty of biomethane is that it's essentially the same thing as the natural gas that's pulled out of the ground. With the political and environmental dangers -- whether serious or exaggerated -- of extraction techniques like horizontal fracturing, or fracking, making a strong push toward more "friendly" methods of sourcing fuel is a smart play. Add in the financial advantages of starting out in a market like California, with its historical record of supporting technologies aimed at reducing pollution, and where tax breaks will make it more costly to source biomethane cost competitive with traditional NG. 

While this is a good start, 15 million gallons is barely a drop in the oil can. Clean Energy is best known for its "America's Natural Gas Highway" buildout, with the aim to expand access to natural gas for truckers and capture a large slice of the diesel market. The north American diesel market is 25 billion gallons annually; that's good perspective on just how small 15 million gallons actually is. 

And since biogas requires waste...
It's worth noting that Waste Management  (NYSE: WM  ) has been in the biogas business for some time, with more than 130 of its landfill sites producing natural gas used to generate electricity already. Add in the fact that the company operates more than 32,000 vehicles, which it has started replacing with natural gas powered ones, and one has to wonder if the company has wider interests. With 18 of its 50 natural gas fueling stations open to the public, and the technology in place to generate biomethane, this could be a challenge to Clean Energy. 

Not so fast -- Clean Energy Fuels and Waste Management are partners. In 2011, the companies signed a deal for Clean Energy to maintain and repair Waste Management's natural gas stations. It's more likely that this could grow into a larger partnership, with Clean Energy buying landfill gas to process and sell at retail. But it's most likely that Waste Management will want to use the majority of what it can produce in-house for the foreseeable future. 

Another kind of redemption
As Fool contributor Arjun Sreekumar recently discussed, new Chesapeake Energy  (NYSE: CHK  ) CEO Doug Lawler and team have done a remarkable job of both cutting costs and more effectively allocating resources toward production. A big part of this process includes selling off underutilized assets, including unloading 22 million shares of Clean Energy in June, selling to co-founder T. Boone Pickens for around $60 million. The company still has plans to sell more than $1 billion in assets before the end of the fiscal year. 

As of the second quarter earnings report, efforts were paying off. $1.4 billion in EBITDA was well-received, and shares have steadily climbed. And while EBITDA factors out expenses the company is incurring now (some of which management is telling us will be much less once restructuring is complete), net earnings are down about half from last year's quarter. However, balancing both the "real" and adjusted earnings results points to management leading the company forward. The company just announced its next earnings call, scheduled for November 6. 

Final thoughts
While biogas is a tiny part of the answer today, companies like Clean Energy are demonstrating that it can be commercially viable. As technology improves, expect it to become a larger piece of the energy pie. Simply put, as global demand grows, diverse sources -- both alternative like biogas, and traditional like those produced by Chesapeake -- will be needed to bridge the gap. There's a solid chance that all three of these companies will be a "redeeming" part of the energy future. 

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Related Tickers

9/23/2016 4:00 PM
CLNE $4.30 Down -0.12 -2.71%
Clean Energy Fuels CAPS Rating: ****
CHK $6.63 Down -0.24 -3.49%
Chesapeake Energy CAPS Rating: ***
WM $63.36 Down -0.65 -1.02%
Waste Management CAPS Rating: *****