Clean Energy's Commercial Vision for Renewable Natural Gas Fuel Stations

For more than 20 years, Clean Energy Fuels (CLNE 8.00%) has targeted commercial businesses to convert their diesel or gasoline-based fleets to renewable natural gas. 

In this segment of "The High Energy Show" on Motley Fool Live, recorded on Feb. 1, Fool contributors  Jason Hall, Travis Hoium, and John Bromels discuss the current state of affairs for the company and its plans for the future. 

Jason Hall: Here's Clean Energy Fuels. For the RNG supply, their long-term existence as a business, this is a company that's been around since the late 1990s, T. Boone Pickens and Andrew Littlefair were the co-founders, Andrew Littlefair is still the CEO of the company.

Their business historically has been just taking natural gas and using it to replace diesel or gasoline for transportation customers, and these are not people with a natural gas car in their driveway, these are commercial users, so a taxi fleet operator, a transit bus operator, over-the-road trucking companies, solid waste removal companies. Those are the companies that they're making a financial decision to move from diesel to natural gas. It's a lower cost for the fuel. Go ahead, Travis.

Travis Hoium: This was particularly attractive when natural gas was extremely cheap and seemed to be when we talked about the shale boom. The byproduct of the shale boom, one of them was that natural gas was abundant and very inexpensive, that's what made this a financial decision for Clean Energy Fuels customers.

John Bromels: It bears saying you can't just fill up your regular truck that was getting diesel with natural gas fuel, you would have to specifically convert the engine into something that can accept either liquid or natural gas-based fuel.

Hall: A lot of changes that have to happen. Again, the addressable market has never been personal transportation, because the sacrifices and performance reduced mileage. There's a lot of reasons why that's never been the target. It's always been a financial decision and it's been targeted at commercial customers.

The company has grown its fuel volumes consistently between 5 and 15% every year for a long time and now delivers more than 400 million gallons of fuel a year, has over 550 stations that it either owns or operates, private stations and public stations like Pilot Flying J, for example, the largest truck stop operator in the U.S. There's about 100 of Clean Energy Fuels stations that are at Pilot Flying J. So very attractively located for over-the-road trucking.

Anyway, what's the plan here? Is to take their vertically integrated business and continue to transition away from hydrocarbon natural gas. They've done a really good job here in California where they're based because so many carbon initiatives have been focused on it. You think about the ports of Los Angeles, the ports of Long Beach, where a massive amount of goods are shipped into and out of the United States happens.

It's in the middle of one of the largest urban areas in the U.S. and you have these diesel trucks coming in and out dumping all of the nitrogen sulfide and all of these particulates into the air and the environment. There have been a lot of initiatives to reduce the environmental impact of the ports in those communities that they operate in. The company's done a good job of transitioning a lot of companies away from diesel to natural gas in general.

Let's look a little bit more at the picture here. Again, you see a major concentration of stations on the West Coast. A lot of this expansion here happened in the six or seven years prior under what they called initially the America's Natural Gas Highway, which was a big speculative bet that management made, took on a bunch of debts to build a bunch of stations that was really painful for shareholders.

I'm not going to beat around the bush because it didn't result in the kind of growth the company was expecting to deliver. We talked about a lot of this already. What's that, John?

Bromels: If we build it, they will come philosophy, the idea that if we have a cross-country network of natural gas-based fuel stations so that a truck could conceivably drive across the country filling up only with natural gas, that will encourage more people to convert their fleets.

Hall: Nobody was going to adopt natural gas trucks if there weren't stations, nobody was building stations because there weren't natural gas trucks. It did result in growth, but it was brutal and then the timing happened about the same time, remember that oil falling from $114 a barrel to $30 a barrel, worst timing in the world because they launched that right when all of that was happening. Needless to say, you fast-forward to now and it's paid off for the business. It's been painful for shareholders.