When It Comes to Natural Gas, Cramer Is Full of Hot Air

A couple of days ago, Jim Cramer of CNBC's Mad Money fame, had this to say about Clean Energy Fuels  (NASDAQ: CLNE  ) on his Cramer's Six in 60 segment: 

"This is a spec I've had on [Clean Energy CEO] Andrew Littlefair. This is a call that says they're using the wrong fuel. They've got LNG and people are using ... CNG."

This on the heels of a report from Piper Jaffray, reiterating a "sell" rating based on estimates that the vast majority of NG engines from Cummins and Westport Innovations'  (NASDAQ: WPRT  ) joint venture are configured for CNG, while Clean Energy is investing heavily in LNG stations for trucking. The bottom line is Cramer and Piper Jaffray's analyst are just plain missing the boat here. Let's take a closer look.

Clean Energy Fuels' business is historically CNG
Through the first half of 2013, the company delivered 69.6 million gallons of CNG, and 28.5 million of LNG. So essentially 70% of its fuel deliveries are CNG. Additionally, the company operates over 300 refueling stations across the U.S., the majority of which are CNG stations supporting "return to base" vehicles like public transit, taxis, and refuse vehicles. The company utilizes over 1,500 compressor systems all around the world to prepare and deliver CNG. 

I think it's fair to say they know a little bit about CNG versus LNG. But to leave it there misses the larger point; and this is what both Cramer and Piper Jaffray are missing. 

CNG just doesn't work for over the road trucking
While CNG on a per-gallon equivalent basis is cheaper than its liquid counterpart, the cost of the fuel itself is just part of the equation. Without getting too "sciency," the simple challenge with compressing a gas, is tied to something called the ideal gas law. What this essentially means is when you start to cram all these gas molecules together at high pressure, the friction creates heat. When you're trying to cram a couple hundred gallon-equivalents into a 3,600 PSI space, it makes a lot of heat. So this means the tanks have to be filled at a relatively slow process, because:

  1. The heat is dangerous as it actually increases the pressure in the tank. 
  2. Until the temperature drops, the tank can't actually be filled all the way up. 

How slow are we talking about? The fastest systems fill at about two or three gallons per minute. So a truck holding 200 gallons of fuel could take more than an hour to fill. It gets even better. The systems that can fill at that rate are expensive -- we are talking about $1 million per lane or more for a 4-lane setup. If you're the fifth truck in line, you're gonna be waiting for fuel for two hours. This is fine for "return to base" vehicles that can refuel overnight at low pressures. It doesn't work for truckers. 

Money is money; but so is time
And this is a big part of the equation. LNG acts more like a traditional liquid fuel. It can be fueled as fast as diesel, is more energy-dense than CNG (meaning more miles per tankful,) and saves on weight versus CNG. Simply put, these all add up to things that are worth a lot more to the trucking business. This can be evidenced by several pieces of recent news.

Clean Energy and Raven Transportation issued a press release announcing that Raven would be using two Clean Energy stations to fuel its fleet of 36 trucks running LNG and powered by Westport-Cummins engines, between Florida and Ohio. Based on the 1 million gallons per year Raven will use, it will save between $1.3 million and $1.5 million per year. 

Additionally, UPS announced it will build another nine LNG stations, in addition to the four already in operation. This comes after announcing in May it will purchase more than 700 trucks running LNG over the next two years, and these trucks are expected to feature Westport engines. UPS signed a deal with Clean Energy back in 2011 to service and maintain its LNG stations. 

But at the end of the day, it's still natural gas
Which is why taking a close look at E&P companies like Ultra Petroleum  (NYSE: UPL  ) and Chesapeake Energy  (NYSE: CHK  ) is a good idea. While Ultra has been consistently regarded as the best low-cost producer of natural gas, which made a big difference for it over the past couple of years of unsustainably low prices, Chesapeake Energy has started to turn the corner. With new leadership in place, and a (so far) effective plan to deleverage and make the most out of the best land assets it has, the future looks pretty good, especially when we also factor in the impending exports of LNG, once companies like Cheniere Energy complete their liquefaction facilities. These two producers have tremendous upside. 

Foolish final note
I'll leave you with a snippet from Clean Energy Fuels' Director of IR Tony Kritzer's response to the Piper Jaffray note:

"But, for the sake of argument, let's say the whole thing goes 100% CNG: GREAT!"

To channel Charlie Munger, I have nothing to add.

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Read/Post Comments (11) | Recommend This Article (25)

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 October 11, 2013, at 1:46 PM, dsandman999 wrote:

    Other things being equal, if you have a 70% CGN to LNG and your customer bases is currently 99% CNG and you have no near term prospects to buy that other 30%, you are in trouble. The new 12 cyl LNC/CNG engines WPRT and Cummings are using will lead to fleets of vehicles that can take advantage of either. Over the road trucks need better infrastructure before they can look at doing either. Once the fleet groups like UPS have refueling capability at every location, they will have about 1/3 of their needs covered. The other 2/3rds require the infrastructure to be available where they do not have UPS refueling stations. So in the near term, that 30% LNG is a weight around the near term prospects for CLINE. Cramer is interested in the next 18 months for his advice. There will not be that big of change in usage over that period.

  • Report this Comment On October 11, 2013, at 1:53 PM, RAAndre02445 wrote:

    Check out the Clean Energy website for a video on the advantages of LNG over CNG for long haul trucks. They chose LNG due to its advantages but mention that LNG can be converted to CNG if desired.

  • Report this Comment On October 11, 2013, at 1:58 PM, TMFVelvetHammer wrote:

    >>Other things being equal, if you have a 70% CGN to LNG and your customer bases is currently 99% CNG and you have no near term prospects to buy that other 30%, you are in trouble.<<

    Um, you're missing something. 30% of Clean Energy's SALES are LNG. It's selling the LNG. Because there is big demand. It's not like the company is buying or producing LNG and not selling it. Those numbers I quoted are sales figures.

    >>Over the road trucks need better infrastructure before they can look at doing either.<<

    Right. Hence Clean Energy building out said infrastructure, because the Cummins Westport engines are now shipping. UPS and the Raven announcement are a clear indication that the shippers get it.

    Cramer is just plain wrong, as is Piper Jaffray.

  • Report this Comment On October 11, 2013, at 2:19 PM, gasblogger wrote:

    Great article. You may like References for the Natural Gas Revolution: https://docs.google.com/document/d/19Yf0MWpo91vrlu-mmJtjB1ER...

  • Report this Comment On October 11, 2013, at 3:47 PM, revjimbo wrote:

    alexander potter is entitled to his opinion, but he's not entitled to be wrong in his facts. he should be held accountable for his assault on a great company with charges of libel (with malice) brought against him and his mild-boy company. I hope CLNE sues the soles off their Allen Edmunds & removes the last molecule of credibility from their [goodnameNOT!]. potter n' piper are scum and should pay for their despicabIe and senseless anal-ysis, as well as their cowardly motives.

  • Report this Comment On October 11, 2013, at 4:29 PM, KayakerRW wrote:

    Jason,

    Thanks for the scientific analysis of the issue. It’s very helpful. On the CLNE boards, I had wondered if the CNG vs. LNG debate was something to be concerned about, or if the price drop represented a good time to buy and pick up a bargain. Your analysis suggests that for the long term, this would be a good entry point for a viable company.

    Piper Jaffray’s report fails to mention that CLNE is set to handle CNG business as well as LNG. This seems like an important (and misleading) omission.

    If the writer does have a strong (undisclosed) financial interest in seeing the stock price drop, then it borders on fraud and should be investigated. At best, it’s pretty incompetent.

  • Report this Comment On October 11, 2013, at 4:37 PM, addis3363 wrote:

    Sure amazing how people will react to news that is totally false and untrue. SHAME ON THEM !!!

  • Report this Comment On October 12, 2013, at 3:26 PM, GEForman wrote:

    CLNE indeed will use LNG for truck stops on the open road far from urban centers. CNG filling stations work most efficiently when connected to a gas pipeline. Pipelines do not extend into the countryside. And the compressors themselves draw an incredible amount of electricity not needed for LNG. But LNG requires protective clothing to protect the person filling the tank. LNG needs to be used rather than sitting over night because as the temperature of the tanks rise the liquid begins to vent as gas. But for most long haul jobs, the trucks run without stopping for much time. The cost, as I understand it, on an energy density basis, is about the same between LNG and CNG. That is, you get more miles per volume for LNG than CNG but the cost per volume is a bit more for LNG due to the liquification process. Trucks can use either LNG or CNG or Biomethane. CLNE is ramping up its biomethane production and will receive clean air credits for this in the state of California.

    For me the net net is management. The people at CLNE have been at this longer than anyone else and have the experience of Boone Pickens as well.

    I predict that if X percentage of trucking companies begin to outfit trucks with compressed gas storage instead of insulated tanks for liquiified gas, CLNE will be right there to service those long haul trucks as well. Remember CLNE owns a company the builds natural gas compressors.

  • Report this Comment On October 15, 2013, at 9:11 AM, BenThereB4 wrote:

    ".. the ideal gas law. What this essentially means is when you start to cram all these gas molecules together at high pressure, the friction creates heat. When you're trying to cram a couple hundred gallon-equivalents into a 3,600 PSI space,"

    No, it is not 'friction' that creates heat. The heating is unavoidable, even when there is no friction. Heating happens no matter how slowly you compress the gas.

  • Report this Comment On October 15, 2013, at 9:39 AM, Schneidku40 wrote:

    Does anybody else see this and get reminded of the AC/DC electricity debate of 130 years ago?

  • Report this Comment On October 19, 2013, at 11:59 AM, tblakeslee wrote:

    One disadvantage of LNG you didn't mention: It evaporates so it's no good for cars that sit idle. Like a slow leak.

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