Not a chance. Quite the opposite, in fact. AT&T (NYSE:T) recently announced the addition of its 8,000th vehicle running on compressed natural gas (CNG.) This is great news as it represents another milestone for the United States as it slowly shifts to domestically produced natural gas as a vehicle fuel. AT&T estimates that by using CNG and other alternative fuels, it has avoided purchasing 12.4 million gallons of gasoline from 2011 to 2013. Even better, AT&T plans to own a total of 15,000 alternative fuel vehicles by 2019, an investment of $565 million.
For perspective, AT&T operates more than 71,000 vehicles plus 22,200 "wheeled equipment units" in its fleet. It also opened its first CNG fueling station near Los Angeles. This fuel station highlights a major obstacle for Clean Energy Fuels (NASDAQ:CLNE).
Lots of competition
Clean Energy faces competition from a variety of sources. Beyond AT&T, privately held Trillium CNG plans on opening 101 natural gas refueling stations by 2016. IGS Energy will build four stations along the I-79 corridor between West Virginia and southwestern Pennsylvania. The utility South Jersey Industries is partnering with the convenience store chain Wawa to add CNG to Wawa's fueling stations; this is significant as Wawa operates over 330 fueling stations along the Atlantic coast and Florida. Will other natural gas utilities join in? Philadelphia Electric, a subsidiary of Exelon Corporation, already operates five CNG fueling stations in the greater Philadelphia area.
All of this is to say that natural gas has not gone unnoticed as a vehicle fuel. Lots of companies want a piece of the action. One client who also went into the CNG fuel business as a competitor is Waste Management (NYSE:WM). Waste Management generates natural gas, uses it in its own trash trucks, and operates 50 CNG fueling stations; 27 of these are available to the public. Using CNG as vehicle fuel fits with the company's efforts to convert trash to various sources of energy. Clean Energy helps build and maintain the stations, but doesn't necessarily provide the fuel.
Landfills produce natural gas. Waste Management collects that gas and uses it for power instead of letting it vent into the atmosphere. In fact, Waste Management operates 130 such landfill gas to energy projects. Beyond that, the company has four projects going that change a landfill into what it calls a "bioreactor." This is a landfill designed specifically to generate natural gas more efficiently. If these bioreactor efforts work, it will mean more natural gas for the U.S. and for Waste Management's growing number of fueling stations.
What's an investor to do?
Good question. The main thesis for buying Clean Energy is that the company is on the forefront of natural gas as a vehicle fuel. This implies that natural gas in the United States offers an economical, environmentally cleaner fuel than diesel and Clean Energy's focus on vehicle fleets will jump-start the company while it ramps up its sales to interstate trucking on its American Natural Gas Highway. This network of natural gas fueling stations was built, in part, on the premise that heavy-duty natural gas burning engines would be sold this time last year. That didn't happen, though. In fact, the engines rolled out just recently. This adversely affected Clean Energy's earnings.
Another problem is that companies like Waste Management, AT&T, and Wawa don't need to buy natural gas from Clean Energy. Neither do local transit authorities. Clean Energy may help operate fueling stations, but I suspect they make their money from selling gas. Given all the natural gas being produced in the U.S. and there being so many suppliers looking for a market for that gas, competition for local CNG vehicles undermines Clean Energy's business. Put another way, why pay Clean Energy for CNG when you can generate it yourself or use a local supplier?
As the chart below shows, natural gas as a vehicle fuel is increasing, but not explosively so.
In its most recent quarterly earnings report, Clean Energy CEO Andrew Littlefair stated that upcoming capital expenditures will be less than those of 2013. Perhaps he recognizes that the CNG fuel market isn't growing quite as quickly as hoped. Growing competition from local sources of CNG stations compounds the problem.
Final Foolish thoughts
Clean Energy is on to something with respect to CNG as a vehicle fuel. The economics and environmental advantages are there. Slowly, the vehicles are getting there. Unfortunately for Clean Energy, the competitors are there, too. As I see it, it's a race for Clean Energy to generate enough revenue to pay its bills before investors or creditors give up on it. The company's stock price has declined 25% over the past two years, reflecting investor confidence levels. Since March 2014, however, insiders bought 53,000 shares of Clean Energy with no record of insider sales during this time. Someone sees a bright future for the company.
Personally, I find Clean Energy to be a high-risk investment. It could very well pay off, but I would either invest sparingly or wait until either its financial performance improves or it gains a clear advantage over local CNG suppliers.