The Open Fuel Standard Act of 2011 requires virtually every new vehicle sold to possess flex-fuel capability by 2017. The goal of the bill is to break OPEC's monopoly by offering consumers an alternative to oil.
Faced with the new mandate, car manufacturers will likely produce the lowest-priced flex-fuel vehicle. Flex-fuel vehicles with methanol capability are the most attractive choice.
Methanol flex-fuel vehicles are roughly the same price as gasoline-powered vehicles; whereas, natural gas and electric vehicles are substantially more expensive. In addition, methanol is a cheaper fuel than regular gasoline especially when it's produced from natural gas.
Potential legislation favoring methanol provides some good investment opportunities if you know where to look.
Investing in methanol
And Methanex (Nasdaq: MEOH) is a good place to start. The company is the world's largest supplier of methanol. Methanex posted impressive Q1 results. First-quarter revenue was up 33%, and that's without the help of two new plants that just started production. The company even raised its dividend by 10%.
What's even better is Methanex has plenty of international exposure, so any favorable legislation passed in the U.S is icing on the cake.
The natural gas producers could also benefit from a shift to methanol. Faced with historically low prices, natural gas companies are desperately searching for another use for the abundant resource. Fueling vehicles on methanol made from natural gas is one use.
Natural gas explorers such as Chesapeake Energy (NYSE: CHK), Range Resources (NYSE: RRC), and Southwestern Energy (NYSE: SWN) should benefit if natural-gas-sourced methanol gains traction.
The bottom line
This bill is far from a sure thing. The Open Fuel Standard Act currently has only 11 co-sponsors compared to other energy bills, like the NATGAS Act's 190. However, this legislation does have a big advantage in that it requires no taxpayer support (a major plus in today's political environment).
Do your homework on these methanol-related stocks and look for companies that will benefit from but don't rely solely on legislative support.
- Add Methanex to My Watchlist.
- Add Chesapeake Energy to My Watchlist.
- Add Range Resources to My Watchlist.
- Add Southwestern Energy to My Watchlist.
