Lies, Damned Lies, and Statistics: Clean Energy Fuels Responds to Negative Reports

 "There are three kinds of lies: lies, damned lies, and statistics."
-- Popularized by Mark Twain

Recent reports have called Clean Energy Fuels'  (NASDAQ: CLNE  ) decision to invest heavily in liquefied natural gas (LNG) into question, painting a picture of statistics that makes it sound like the company is doomed. While the authors of these reports are both anonymous and hold short positions in the company, they have largely contributed to sending shares down a painful 25% in 2014. 

These reports were targeted at the investor community, and not the shipping, trucking, public transit, and waste removal companies that are largely Clean Energy's customers, so a direct response wasn't really necessary. However, CEO Andrew Littlefair held a conference call on February 10 to give investors an "update of natural gas for the trucking industry." In short, Littlefair put the company's own data out there to dispute the statistics used by detractors.

Who has it right? Only time will answer that question, but here's a look at what Littlefair has to say. 

My numbers are better than your numbers
Statistics can be (and usually are) used to support both sides of any argument, and both sides of this argument have a number of valid points, or so it seems on the surface. However, when two sets of statistics clash, one must decide whose data to trust. In the case of exactly how many of the so-far delivered class-8 NG-powered trucks are featuring LNG, Clean Energy's detractors put the number at below 20%. Littlefair pegs the number at closer to 40%.

Additionally, he pointed out that Cummins' and Westport Innovations' joint CWI ISX12 G 400hp engine -- key to trucking -- didn't start production until August of 2013. Considering that it can take up to four months for these engines to make it from the factory to the end user, we are essentially still in the first few months of trucks actually hitting the road. Here are a couple of key statistics from the call:

  • Of the 1,442 trucks delivered (of 2,500 total ordered) with ISX12G in 2013, 42% were LNG. 
  • Clean Energy's data from customers, OEMs, and dealers indicates 3,500 deliveries already scheduled for 2014, with 57% of these configured for LNG.
  • According to Littlefair, they have submitted 1,100 trucks for financing with General Electric (NYSE: GE  )  subsidiary GE Capital, 50% of which are configured for LNG.
  • Clean Energy is still projecting "10,000, perhaps a bit more" heavy-duty LNG or CNG truck orders for 2014, according to Littlefair, or about 5% of total class-8 truck sales. 

There's more to the cost than just the price of fuel
The key sticking point that detractors of LNG have used is that it's more expensive than CNG, and that for most truckers and shippers this additional cost just didn't add up, even with the limitations in range, etc. However, Littlefair pointed out that there's a lot more to factor in than just the price at the pump. 

On the call, Littlefair gave one simple, and common, example: Due to the additional weight -- easily another 2,000 pounds for the CNG tanks -- trucks hauling heavy loads could potentially need to make 100 extra trips every single year just to move the same amount of cargo. That's essentially 100 free loads. The labor and lost time alone would add about 40 cents per gallon to the "at the pump" cost of CNG, not even considering the lost business for those 100 "free" trips.

Most importantly, and Littlefair stressed this on the call, it's about making sure that the right fuel is used for the specific application, and whether it's LNG or CNG doesn't matter to Clean Energy Fuels. 

Partnerships still important
GE Capital and GE Oil and Gas are both key partners for the company going forward. Clean Energy has more than 1,100 trucks in the application process with GE Capital for financing, and a large percentage of these are smaller and mid-sized fleet owners and trucking companies. With GE set to IPO 20% of the consumer finance division of GE Capital this year, the company could use part of the proceeds to expand financing within the transportation sector, a boon for both the trucking industry and Clean Energy. 

Clean Energy has acquired 54 of GE's "CNG in a Box" systems from Chesapeake Energy. The plan is to use this product to support the ready-mix cement truck market, and if this deployment goes well, GE and Clean Energy could find further ways to partner, on top of the planned deployment of LNG plants over the next several years. 

The Mansfield Oil partnership sometimes gets overlooked as well. Mansfield is the largest private oil services company in the U.S. and serves several billion gallons of fuel "behind the gate." Clean Energy will be supplying natural gas to these customers as they add CNG and LNG to their fleets. 

Final thoughts: Consider the source
Clean Energy's management has given us a lot of new information, and much of it counters the argument that LNG will have a minor role to play in heavy-duty transportation. Additionally, the company is heavily investing in both forms of natural gas, and its core business is still CNG. It's worth considering that those who have argued that LNG is a losing bet have published anonymously, and have financial incentive to push the share price lower. 

If you are a shareholder (as I am, though it makes up only 2% of my portfolio) or are considering buying shares, take a hard look at the sources: Are you willing to trust anonymous authors with a clear motivation for a price drop, or transparent and accountable sources like a co-founder with more than $5 million invested in the stock? That's up to you. 

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Read/Post Comments (10) | Recommend This Article (15)

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  • Report this Comment On February 11, 2014, at 1:07 PM, chzmnia wrote:

    What an enlightening 'battle royale' of contending views on Clean Energy we have witnessed.

    I was privileged to hear evidence from knowledgeable people on both bull and bear sides of the case, as well as people with experience in the trucking industry.

    My conclusion is that the argument has changed.

    We are no longer in the chicken and egg scenario, where the product cannot be supported without the infrastructure, and the infrastructure cannot survive without the product.

    The product, the Westport Cummins natural gas engine, whether fueled by LNG, or CNG, is in production. It's out there. Orders are flowing in. The rate of production is yet to be determined by the market, but the innovators have been testing the product in real time for a few years, and are ordering more.

    If the product is to be successful, and given the macroeconomics of energy in the USA, it appears the opportunity is there, the adoption of the product, or its subsequent iterations, is likely to experience something similar to the Rogers Bell curve below.

    http://bit.ly/LSh33z

    A particularly important question for investors, at this point, is whether we are still in the phase of adoption by Innovators, or on the cusp of the Early Adopters.

    And of course, timing and execution (and lucky guesses), are always utmost in the success and survival of an individual company. The continuing discussion of the merits of CNG vs LNG has brought to light the tremendous innovation going on in the infrastructure side. Improved fuel tanks and novel solutions to technological problems have and will contribute to the success of the natural gas engine.

    As far as Clean Energy goes, they made an early, and expensive bet on LNG with their ANGH. Is it a “niche”, to be obscured by advances in the range of CNG vehicles, and relegated to “small niche”, as some contend ? It seems to me that they have savvy management, with substantial experience with both CNG and LNG. They do a large amount of business in both areas. They have a substantial amount of capital at their disposal, and in my opinion, the stock is cheap enough that I would not sell in a panic at this point.

    If CNG wins the day, they will be a strong competitor. If LNG finds a strong base, they will be a big winner.

    And finally on the “niche” argument, even a niche, in a large economic sector, can prove quite profitable.

    The most exciting, and reassuring point of all the give and take, for me however, is my own conclusion that Westport Innovations, (WPRT), contrary to the gut wrenching price activity of the stock over the last two years, stands on the cusp of something very big. Certainly there are bumps in the road (pun intended) ahead. They seem to have a “moat” around their nascent business, with their 'IP', and their alliances with significant industry players. Without a doubt management must prove their worth over the next few years, and financing may prove critical, but if they get past 2014 without substantial dilution, or financial hemorrhage , investment at these levels may prove quite rewarding.

    I am long both WPRT and CLNE.

    Charlie

  • Report this Comment On February 11, 2014, at 2:18 PM, mnatural wrote:

    America's Natural Gas Stations for Trucks = ANGST

    It really 'works' much better than ANGH, which is not only unpronounceable, but is easily confused with ANGA, who're already too confused on this debate to begin with.

    This thread Upside at Seeking Alpha started last Wednesday has, so far, over-looked this aspect:

    http://ecosakh.ru/data/im_docs_62_vzryv_avtocisterny_origina...

    It requires the US reader do some unit conversions, but I advise doing them. Whistling past the graveyard is dumb re. both govt policy/regs and business plans. The problem's LNG haulers (CLNE's own units), more than those units fueled by LNG, carrying <200 gallons.

    ...or... America's NG Station 'Trail' = ANGST ha

  • Report this Comment On February 11, 2014, at 3:08 PM, TMFVelvetHammer wrote:

    mnatural,

    The article you've linked to is:

    From 2004; a decade ago.

    Specifically deals with Spain.

    I'm not sure exactly what your point is, but LNG is actually less explosive and dangerous for transport than diesel, gasoline, and CNG due to the super-cooled nature of the fuel.

    Besides any truck carrying thousands of gallons of fuel speeding down a hill, and losing control would result in a major fire and likely explosion of some sort.

    LNG is by most measures the least explosive fuel for transportation.

    -Jason Hall

  • Report this Comment On February 11, 2014, at 3:45 PM, Daniel414 wrote:

    Jason, many thanks for the very well written assessment. Much appreciated, as I'm looking to open a position and have been troubled by the nay-sayers. One question though. You mention the providers of the negative CLNE press as folks who are 'both anonymous and hold short positions in the company.'

    I'm probably missing something, but if they're anonymous, how can we know they hold short positions?

    Daniel in Denver

  • Report this Comment On February 11, 2014, at 6:04 PM, mnatural wrote:

    Mr. Hall,

    Your response strongly suggests you did not read the link. It's got nada to do with Spain. It's about on-highway LNG tankers. Those who read with an open mind will get its point. It's not my point. It's physics.

    All fuel tanker truck crashes are not moral, or destructive energy, equivalents. There’re magnitudes of difference. Do the conversion math. Then compare to the many 9k-gallon gasoline tanker crashes/fires.

    The failure mode, combustion, and explosion size/consequences will be approx. the same given current domestic LNG 18-wheelers. I.E., There have been no changes to cryo-tank tech, truck-brake tech, road grades, or common driver errors, in the last decade.

    Your mostly breezy close and ‘super-cooled' comments, are wrong. Try to find informed, neutral supports for those statements. Then cite them for your readers here, please.

    Perhaps research why Savannah, GA blocked Southern LNG’s planned trucking through their town. Ttbomk, the city council and others read, or were briefed, about the crash in Spain. -- Thanks

  • Report this Comment On February 11, 2014, at 7:08 PM, TMFVelvetHammer wrote:

    >>I'm probably missing something, but if they're anonymous, how can we know they hold short positions?<<

    Daniel in Denver,

    In the most recent article published on Seeking Alpha by an anonymous author called "Upside," he or she disclosed that they were short the stock, and had been establishing short positions since mid-2013.

  • Report this Comment On February 11, 2014, at 7:29 PM, TMFVelvetHammer wrote:

    mnatural,

    You are missing my point.

    Can you present additional studies of further explosions of LNG trucks? Sure, the pressure inherent in a massive tank of super-cooled, combustible liquid like LNG, that is exposed to burning diesel for in excess of 20 minutes, could certainly be a "ticking time bomb."

    But a diesel or gasoline tanker -- burning for 20 minutes -- would also potentially explode or at least burn in a devastating manner; and while not aided by the same extremes in built up pressure as this *singular incident described in the link you shared*, it would be devastating in its danger to those nearby.

    And only when -- as in this extremely rare case of an extended amount of exposure to a burning fuel fire -- would LNG potentially become at risk like this.

    Because it's super-cooled and only the vapors burn, the liquid fuel is less explosive. That's the reality. How many other times has this happened in the dozen years since this one terrible explosion?

  • Report this Comment On February 12, 2014, at 9:57 AM, BenThereB4 wrote:

    I was in a lab when an over-filled size A cylinder of cold SF6 expanded as it warmed to room temperature. There was a rupture diaphragm on the cylinder to prevent the cylinder from exploding. The diaphragm was set to rupture when the pressure inside the tank went over the rated pressure of the cylinder. It ruptured just behind my head, which was very scary. However, it prevented the tank from failing and killing me. This must be standard on cryogenic tanks used in transport. Better to have a slow release of NG vapor, rather than a huge tank explosion and fireball.

  • Report this Comment On February 12, 2014, at 11:14 AM, Daniel414 wrote:

    Thanks, Jason. That's what I was missing, alright!

    Daniel in Denver

  • Report this Comment On February 12, 2014, at 2:41 PM, Otter2u wrote:

    The only thing that will stop this shark attack is a short squeeze of bulls backing up their trucks and buying loads of CLNE at these bargain prices. I'll be watching in two weeks when CLNE's earnings are announced.

    CLNE and WPRT are two very promising little companies that have never come close to showing a profit. The time has come for them to turn this record around or find a whale, like GE with the resources to do it, to buy us investors out. I'm tired of having my investment diluted, especially by WPRT, to raise working capital.

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