There is so much buzz about the move to a natural gas economy. If a natural gas economy even relegated to a secondary role is to come about, distribution of the fuel will need to be created. Not only that, but once it starts catching on it will need to be scaled fast. Companies that start the process early and gain the expertise will benefit most when a trickle turns into a flood.
Clean Energy Fuels Corp. (Nasdaq: CLNE) is my distributor of choice, because it is the one I found first. It really is not easy tracking these companies down. However, more than being the first I like what I see so far. The company is determined to build out their distribution base. Even while focusing on highways the company is fairly aggressive about getting these distribution sites up and running. Only recently has there been rumblings of trucks switching over to natural gas. The United States has every incentive to use as much natural gas as possible, since it is a domestic resource.
The earnings call for Clean Energy was fantastic, because it really gave a broad picture of natural gas. Things like states wishing to convert their fleets to natural gas are pretty important. Someone will need to provide the fuel and refueling stations. FedEx testing out liquefied natural gas is an interesting development as well. Overall, the earnings call contained a lot of excellent information on natural gas developments.
Clean Energy just agreed to buy two liquefied natural gas systems from General Electric Co. (NYSE:GE). It cost $200M and was vendor financed. With both systems the company can produce 500,000 gallons per day. The amount of fuel we use sometimes boggles the mind. That much produced per day seems like overkill, but in reality the company will need far more capacity in the future. The systems it just bought won’t be ready until 2015, and I do not want to guess at cost savings or revenue potential this early. It is something to keep an eye on. For now though, the company is preparing to service all the trucks that plan on converting to LNG, and all the CNG vehicles on the road or will be on the road. It will have 70 stations complete by the end of the year and another 64 in process for next year.
GE also has an agreement to build around 250 natural gas stations with Chesapeake Energy (NYSE: CHK). This presents a nice opportunity for both companies, but I think it means a bit less to GE in the larger context. If you want your natural gas investment to be more effective go with GE’s partners, not GE itself. Though the natural gas pickups present an interesting opportunity. If they catch on, then GE could benefit by being at the forefront. I would choose Clean Energy over Chesapeake, since I think Clean Energy has more potential gains. Chesapeake is in the limelight due to its size, and other less favorable reasons.
Cummins Inc. (NYSE: CMI) is probably one of the larger natural gas companies you could invest in. It builds engines, sells components, sells power equipment, and distribution equipment and services. The company reads like the end-all in natural gas, but obviously that is not the case. However, the company does seem interesting. There is so much to the company that is not natural gas related, and you can read all about it in the earnings transcript. The biggest impact Cummins has made on natural gas is its joint venture with Westport Innovations Inc. (Nasdaq: WPRT), which was to build engines for long-haul trucks. This really has the potential to make a major impact on the United States. So much is made about how trucks keep the U.S. going, and natural gas is shaping up to cut costs and allow the trucks to go further.
Westport aside from its engine is leasing out temporary fuel devices. While all the stations are being built it would be nice to instill within people plying the roads that there is natural gas to be gotten at a location. These units allow some fuel to be available while the station is being completed. I like the idea of leasing out this equipment, because I think it can be a nice cash producer for Westport. It also adds some distribution exposure, and perhaps sets the groundwork to one day have more offerings than engine. That last bit is speculation, but moving into distribution to fuel its engines would not be such a leap.
Cummins will also probably make a deeper foray into natural gas. The point of teaming with Westport is probably to test the waters and not commit fully until the technology was proven. I think that Cummins will take a more active role. It is already plan on building its own engine instead of working with Westport. However, I would like to see something more out of the box than that. Something new and exciting would make it more appealing. If it is a battle of engines I would stick with Westport as the smaller partner with the focused technology.
I am impressed with Clean Energy’s progress thus far building stations on highways, and moving the company is moving into creating the fuel to some extent. Westport has great engines and is making significant progress. More than the numbers or the technology, I find both earnings call transcripts impressive for the snapshot of the big picture and what it means for the companies. I have read a few earnings reports and normally it is just numbers I could find on numerous websites. I am always more interested in management’s take. I like to see the big picture, the company’s place, and the overall strategy. Both Westport and Clean Energy seem like solid ways to get into natural gas. I tend to choose the smaller companies, or at least the smaller partner in a joint venture.
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