There's no denying that natural gas transportation fuels leader Clean Energy Fuels (NASDAQ:CLNE) is in its best position in years to deliver on its promise. A series of difficult decisions -- epic dilution to pay down debt, selling off a major chunk of its business to BP, and slashing operating costs, among others -- are now behind it. Profitable growth may very well lie ahead.

That said, Clean Energy Fuels stock growth is no sure thing. While the market opportunity for natural gas transportation fuels remains largely untapped, the recent moves by one key customer highlight a looming obstacle management faces.

A gas pump being held to face an electric plug.

Image source: Getty Images.

One obstacle looms large

The bull case for Clean Energy Fuels is stronger than it has been in quite some time. As fellow Fool Jason Hall has pointed out, there are more than a few reasons for optimism. The company has consistently grown the volume of fuel sold, slashed capital expenditures and expenses, cleaned up its balance sheet, and should be done diluting shareholders. The most difficult decisions really do appear to be behind the company.

Importantly, in the first quarter of 2017, the volume of fuels sold increased 10% from the year-ago period. That has been and will continue to be, the driver of top-line growth for Clean Energy Fuels. Assuming expenses are sufficiently controlled in subsequent periods, sales volume growth also has the potential to usher in profitable operations.

Volume growth will be largely driven by growth in another key metric: the number of refueling stations available to supply. At the end of the first quarter of 2017 Clean Energy Fuels owned, operated, or supplied 575 natural gas fueling stations -- a significant number of all public and private liquefied natural gas (LNG) and compressed natural gas (CNG) stations in the United States. The Alternative Fuels Data Center, part of the U.S. Department of Energy, estimates there are roughly 1,028 public stations available in the nation. 

CLNE Chart

CLNE data by YCharts

That demonstrates how important Clean Energy Fuels has been to jump-starting growth for natural gas transportation fuels adoption. While in the past its strategy focused on building public stations that would allow long-haul truck fleets to refuel along highway routes -- called America's Natural Gas Highway initiative -- management has since pivoted its focus to building private stations for customers seeking to refuel their fleets locally.

With this strategy, the company generates revenue for station construction and long-term fuel supply -- encouraging and incentivizing more intimate customer relationships. It's better than rolling out an expensive, public nationwide network and hoping customers emerge out of thin air by converting their fleets to run on natural gas fuels. Indeed, Clean Energy Fuels reports that 38 completed stations in its highway network remain offline due to a lack of customers.

Just as before, the private station strategy has been largely driven by environmental advantages. Namely, that natural gas fuels result in greatly reduced emissions compared to diesel fuels, and cities are increasingly taking action against air pollution and emissions.

A city bus driving down the street.

Some cities have raced to power their fleets with natural gas fuels, but there may be a catch. Image source: Getty Images.

But here's the obstacle that ensures the stock's growth is no sure thing: Electric vehicles emit even fewer emissions than natural gas-powered vehicles (and most emissions don't occur locally). Furthermore, it's easier to build and supply electric recharging stations than natural gas refueling stations -- the electric grid touches all corners of the country.

Moves by one of the company's largest customers highlight the obstacle. A few months ago Clean Energy Fuels announced it was awarded a multi-year contract by LA Metro to supply bio-methane fuel called Redeem to one of its 11 CNG stations.

Execution of an additional option could allow the company to supply up to 38 million gasoline gallon equivalents of Redeem per year for the entire 2,200 transit bus fleet. While the company already supplies non-renewable fuels to these 11 refueling stations, Redeem qualifies for additional federal and state credits that increase its value significantly.

That's good news for the short term, but LA Metro has long-term plans that don't seem to include Clean Energy Fuels. At the end of July, it announced an ambitious plan to electrify its entire bus transit fleet by 2030. Renewable natural gas is merely a stepping stone, apparently.

What does it mean for investors?

It's important to note that the wholesale transition to electric fleets is still many years away. There are technological hurdles that electric buses need to overcome, such as range, reliability, and cost. LA Metro is the first city in the country to commit to an electric fleet. Whether or not other major cities follow its footsteps may depend on how quickly electric fleets prove their mettle.

Even with that potentially awful news, there are still opportunities for Clean Energy Fuels to grow in the near- and medium-term, but major metros may rather wait to invest in electric fleets than invest in both alternative fueling technologies years apart, as LA Metro is doing. That poses a major risk to the long-term growth of the company's business that management will need to address soon.

Maxx Chatsko has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Clean Energy Fuels. The Motley Fool has a disclosure policy.