You would be forgiven for rolling your eyes every time you heard or read about the coming transportation revolution in natural gas fuels, especially considering the relatively limited visibility of the energy boom, the absence of vehicles running on natural gas fuels, and the media's tendency to hype every new technology -- whether it's commercially viable or not. Since most shale gas production occurs in rural or moderately populated geographic regions and most vehicles capable of running on natural gas fuels are part of commercial fleets, I sense that the majority of investors in this sector are probably taking a leap of faith when it comes to throwing money behind compressed natural gas, or CNG, vehicles and the supporting infrastructure.
Well, I'm here to tell you that transportation in natural gas-rich regions really is being transformed. The story on the ground in my hometown of Pittsburgh -- in the heart of the Marcellus shale in the Appalachian Basin -- paints a pretty optimistic long-term picture for shareholders in EQT, Chesapeake Energy, and Southwestern Energy. All three companies are providing the infrastructure for the coming revolution.
This Marcellus shale city proves it
Pittsburgh-based EQT enjoys easy access to the Marcellus shale -- America's most productive natural gas play -- which allowed it to open its first public-access natural gas fueling station in the city in 2011. The facility is strategically located in the Strip District, an area that supports a robust combination of commercial operations and young professionals just north of downtown. It has become a great tool for the company and city, as many commercial fleets operating in the area have transitioned to CNG fuel. The $14 billion company has also helped several Pittsburgh nonprofits make the transition to lower-cost natural gas fuels supplied from the Marcellus shale. It's not all talk, either: 15% of the station owner's light-duty vehicle fleet will operate on CNG by the end of this year.
Increased interest in CNG forced the station to add four more fueling nozzles in 2013, but future additions will be much larger -- and they'll likely occur sooner rather than later. The city, various organizations, and EQT are working together to expand fueling infrastructure and encourage CNG vehicle adoption in the region. Meanwhile, Chesapeake Energy plans to invest over $1 billion by 2021 to advance CNG vehicles and infrastructure, while Southwestern Energy -- the nation's fourth-largest natural gas producer -- also has key assets to monetize in the Marcellus shale. What better way is there for a company to leverage its natural gas reserves than to build out a massive alternative market to heating fuel?
For the company, the region, and investors, the trend is certainly friendly. Consider that Pennsylvania ranked 10th among all 50 states in employment level in the oil and natural gas industry in 2007. Over the next five years the state rode a 260% increase in industry jobs -- the only state other than North Dakota to witness more than 40% growth in the period -- to sixth in the nation (Allegheny County, where Pittsburgh is located, saw a 287% increase in the same period). The largest city in the Marcellus shale not only proves that natural gas vehicles are for real, but provides an optimistic view of the market's potential. However, there is plenty of work left.
Long road ahead
Today there are only about 250,000 natural gas vehicles in the United States, although the opportunity for investors of companies providing CNG fuel or fueling stations -- or both -- will only continue to expand as automakers expand their vehicle manufacturing capacity and offerings. Remember, as of this summer only two natural gas-powered cars were sold nationwide. While the expansion may appear to be moving at a snail's pace, it's important to note the positive feedback mechanism built into the industry (one attempting to compete with a widely successful incumbent). More fueling stations will be built as more automakers produce natural gas vehicles, which will be manufactured in greater numbers as more fueling stations emerge.
More vehicles on the road will certainly help, but regions such as western Pennsylvania can leverage vast natural resources to become early adopters and leaders in the new industry. In several years CNG vehicles will no longer be so closely associated with commercial truck and transit fleets. You may even have one in your driveway, but only if companies such as EQT, Chesapeake Energy, and Southwestern Energy continue to execute their visions for infrastructure expansion that will enable a national fleet. So far, so good.
Maxx Chatsko has no position in any stocks mentioned. Check out his personal portfolio, CAPS page, previous writing for The Motley Fool, or his work for SynBioBeta to keep up with developments in the synthetic biology industry.
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