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.
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.
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.
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.