What Happens With Russia and Ukraine Matters to Clean Energy Fuels, Chart Industries

The situation in Ukraine and Crimea is ugly, complicated, and disturbing. It's moving to see the Ukrainian people fight for a more free and open society, even as Russia looks to be breaking international laws and muscling in on Crimea -- which has been part of Ukraine for more than 60 years. While I don't think it's fair for me -- or 99% of Americans -- to weigh in on what should happen, beyond letting the people of Crimea -- all of them, not just ethnic Russians -- have a voice in their destiny, the fact is, whatever happens will probably have far-reaching implications even here in America. 

One only has to look at two companies tied to the natural gas transportation business to see the potential for harm. Both Chart Industries  (NASDAQ: GTLS  ) and Clean Energy Fuels  (NASDAQ: CLNE  ) are set up to lose if Russia keeps down a path that leads to international sanctions. 

Images by Ivan Bandura via Flickr

Just getting traction in a huge market
Last May, Russian Prime Minister Dmitry Medvedev issued a decree to convert 50% of public transit and fleet vehicles in cities of more than 1 million people to natural gas by 2020. This amounts to potentially hundreds of thousands of natural-gas vehicles, including taxis, buses, and other support vehicles used in fleets. Not only does Russia hold some of the world's largest natural-gas reserves, it has very few natural gas refueling stations -- only around 200 or so -- in place to support new vehicles. 

Clean Energy Fuels announced a partnership with Russian Machines Corp just last month, naming the company as exclusive distributor and service provider of its IMW brand of compressors and compressor-filling systems in Russia. The two companies already work together in six other countries in Eastern Europe and the Middle East. 

For Chart Industries, the company has just attained GOST R certification (a Russian government standard) for its LNG vehicle-fuel systems, meaning it would have access to this massive market as well. In addition to vehicle-fuel systems, Chart has plans to sell its permanent and mobile refueling stations as well as its L/CNG refueling systems in Russia in the near future. 

Sanctions coming?

Unidentified gunmen on patrol at Simferopol Airport in Ukraine's Crimea peninsula, Feb. 28, 2014 Source: Voice of America

The risk, of course, is potential economic sanctions. If the situation around Crimea and Ukraine continues, economic sanctions would likely exclude or limit American businesses from doing business in Russia. The anti-U.S. backlash from Russians, if indeed sanctions of any kind to occur, could very well limit business dealings -- no matter what the eventual outcome is. The thing is, Russia has Europe over a barrel -- or more accurately, over a natural-gas pipeline, so it's really hard to say what, exactly, will happen. But the risk is very real. 

What's the opportunity?
One only has to look at Chart's strong business growth in China in recent years to see the potential for the Russian market. In 2013, Chart signed one deal with PetroChina alone that was worth $50 million and announced an $80 million expansion of its manufacturing facility in the country that will double production capacity when complete. The Asian market is simply massive; Chart's Distribution and Storage business grew 66% in Asia last year. Russia should be a significant part of Chart's growth in Asia for years to come. 


President Barack Obama speaking with Vladimir Putin. Source; White House

For Clean Energy Fuels, CEO Andrew Littlefair wouldn't project any numbers for the deal with Russian Machines. But the IMW deal in 2013 with China Gas should give some indication: That deal called for as many as 416 compressors at 310 stations and could amount to $150 million in revenue over three years. Considering Clean Energy did around $350 million in total sales in 2013, $50 million per year is a significant amount of upside. The deal with Russian Machines could offer similar potential. The possibility of sanctions alters that potential in a real way. 

Final thoughts: Human lives are at stake and this matters more right now
Let me be clear about one thing: The loss of any upside for these companies pales in comparison to the potential for armed conflict and loss of lives should this situation escalate. But investors should at least keep an eye on this and be aware that there could be impacts -- if not to the near-term potential -- to the opportunity for these companies to expand into the Russian market. While it will have limited impact in 2014 no matter what happens, it's a reminder how conflicts a world away can impact us in ways we don't expect. 

No matter what happens with Ukraine, it's still about the long-term outlook
And nobody understands this better than Warren Buffett. Through the years, Buffett has offered up investing tips and advice that really can make you a better investor. Now you can tap into the best of Warren Buffett's wisdom in a new special report from The Motley Fool. Click here now for a free copy of this invaluable report.


Read/Post Comments (1) | Recommend This Article (4)

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 March 08, 2014, at 2:18 AM, foolishlycuriose wrote:

    Good article with good advice especially as I am a shareholder of CLNE. Something to keep in mind, however, is that the US does not have a great deal of economic leverage to use in this instance. By way of trade, the US does about 40 billion US (import/export) with Russia. Europe, on the other hand, does over 450 billion US. Without the support of the EU, and from the reaction of many of its leaders it appears that no one wants to take a decision that will negatively impact the anemic growth within the EU, President Obama would probably end up with egg on his face if he tried to go it alone. Let's hope that the rhetoric stoked by the mass media takes a collective breath to give calmer diplomatic voices a chance to speak.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2868573, ~/Articles/ArticleHandler.aspx, 8/23/2014 1:43:10 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement