It's not uncommon to see eyes roll at the mention of alternative fuel vehicles. Perhaps, it's because people relegate these vehicles to a distant future with images of silent highways populated by whizzing electric cars. The reality, however, is that alternative fuel vehicles are becoming increasingly popular among car buyers. For some, it's the financial benefit, for others it's the environmental, and for a small number it's the convenience. But, in the end, it may be the last reason, which is the tipping point in the widespread adoption of, specifically, natural gas powered vehicles.
All of this is not to mention the financial benefits of natural gas over gasoline. A recent report from the Department of Energy addresses the financial benefits of natural gas as a fuel source over gasoline for vehicle owners. According to the report, natural gas is the least expensive fuel for vehicles.
Source: U.S. Department of Energy
Certainly, this will not be a rapid adoption, as there are only four 2014 natural gas vehicle models. But if the convenience of owning one of these cars is so much greater than other cars, things may change sooner rather than later.
So, if one of the factors inhibiting the widespread adoption of natural gas vehicles is the lack of fueling stations, then the answer seems simple: provide more fueling stations. Although most companies are not jumping at this opportunity, there is one that recognizes the potential.
Leading the way
Clean Energy Fuels prides itself as being the largest provider of natural gas fuel for transportation. Offering compressed natural gas, or CNG, and liquefied natural gas, or LNG, to its customers, Clean Energy has over 400 fueling stations in the U.S. Primarily, Clean Energy is in the business of fueling the commercial and municipal vehicles. For example, the company recently announced a multi-year bulk fueling agreement to supply LNG to two private UPS stations located in Mesquite and Houston, Texas.
Source: Clean Energy Fuels
In addition to providing fueling stations for fleets of vehicles, Clean Energy Fuels is looking to tap into the inter-state trucking market by developing America's Natural Gas Highway -- a network of LNG fueling stations, coast to coast, along major trucking routes. Any fears that the stations are going underutilized should be assuaged by the company's most recent earnings report. For the third quarter of 2013, Clean Energy deliveries totaled 56.4 million gallons, compared to 50.9 million gallons delivered in the same period a year ago. This demonstrates the growing acceptance of natural gas vehicles.
Home, sweet home
Clean Energy Fuels is successfully addressing the commercial market, but what about the drivers who are interested in converting to natural gas vehicles who aren't driving along major interstate routes, commuters traveling to and from work, or people just driving around town? They won't have to worry about new stations being constructed in their vicinity. The answer will be found in their backyard.
Several companies are developing at-home fueling stations. In 2012, Eaton Corporation (ETN -0.53%) announced that it was developing a home-fueling station. Funded in part by a $3.4 million grant from the Department of Energy, the home fueling station would utilize existing natural gas sources in the home. Eaton is attempting to develop a production prototype that will retail for about one tenth of the cost of currently available systems, which cost between $5,000 and $10,000. Eaton currently offers electric vehicle charging stations for the home, so an entrance into this market will not be unfamiliar ground.
A little give and take
Earlier in the year, Chesapeake Energy (CHKA.Q) and GE (GE 1.30%) teamed up to offer CNG In a Box. Offering fleet vehicles and passenger vehicles the ability to fuel their natural gas vehicles, CNG In a Box is capable of being connected to municipal or transit lines nearly anywhere, according to GE. As of October, there were seven units operating in the U.S., but GE claims that they are delivering a new system for installation nearly every week. Demand for the solution is not limited to the U.S; China's Endurance Industry ordered 260 units, and Canada's Chelsea Natural Gas ordered 20.
Last year Chesapeake Energy said that it was working with GE and Whirlpool on developing a home fueling station, which would tap into the home's existing natural gas line and dispense the CNG directly into the car. According to former Chesapeake Energy CEO Aubrey McClendon offering the home fueling station would be the catalyst that leads to widespread production of natural gas vehicles.
Chesapeake's new management doesn't share the same sentiment though. Since taking over as CEO, Doug Lawler has decided to no longer pursue the development of natural gas vehicle projects. This suggests that Eaton has a de facto lead in the race to offer the home fueling solution.
The Foolish takeaway...
With about 66,000 natural gas vehicles on the road, this is not, at the moment, a large market opportunity by any stretch of the imagination; however, the potential is there. In fact, the transition to natural gas vehicles may be closer than we think. General Motors announced that its 2015 Chevrolet Impala will run on gasoline and natural gas. This bi-fuel vehicles is able to switch between the two fuels, which are each contained in separate tanks, without disruption.
Buying and holding onto Eaton Corporation seems like a worthy investment -- it's up 37% for the past year and over 200% over the past five years. In the end, this may prove to be a significant growth opportunity for the company. Clean Energy is much more of a pure-play on the acceptance of natural gas vehicles. Although not yet profitable, I find that Clean Energy's long-term picture is promising -- so much so, that I am personally invested in the company.
