Our natural gas abundance continues to be the gift that keeps on giving. Since the energy industry began fracking North America’s shale rock formations and unearthed a virtual ocean of fuel, a variety of market pundits and government officials have touted it as a way to wean our addiction off foreign oil.
So far, utilities have embraced natural gas to generate low cost electricity, as has the chemical industry to produce basic commodity chemicals. Analysts predict that usage by these two sectors will continue to grow immensely over time.
Another growing use of natural gas is for propulsion fuel. Compressed natural gas (CNG) automobile adoption is quickly growing among fleet and light duty vehicles. And given just how big the potential is, forward thinking investors playing this shift could see some big portfolio profits in the years ahead.
Big Growth Ahead
As gasoline and oil prices continue to rise, the idea of using various alternatives continues to gain steam. While many investors and consumers have embraced all-electric vehicles and plug-in hybrid vehicles (PHEV) like Tesla Motors' (NASDAQ: TSLA) cars, the opportunity for natural gas to contribute is great, especially considering our vast resources.
Investors may not have to wait long for the opportunity to play out. Already, natural gas has made inroads as a transportation fuel- especially for truck fleets, buses and taxis- as the average “cost per gallon” is about $1 cheaper than regular gasoline. Firms like Waste Management (NYSE: WM) and UPS (NYSE: UPS) –along with various local governments- have begun switching their fleets over to CNG or liquefied natural gas (LNG) for propulsion in order to take advantage of this cost savings. That’s helped sales of both light duty and heavy duty natural gas vehicles to steadily increase over the last few years.
Nonetheless, the future continues to look bright for natural gas powered cars and trucks. According to cleantech think-tank Navigant Research, global annual light duty natural gas vehicle sales will grow from 2.3 million vehicles this year to reach nearly 3.8 million in 2023.
At the same time, heavy duty CNG/LNG vehicle usage is set to explode in the U.S. sooner as more logistics and service firms switch over to realize the cost savings. The National Petroleum Council estimates that 40% of all new heavy trucks in the U.S. will run on natural gas by 2045 if diesel prices increase at current rates. However, if they jump faster than expected, that 40% number will arrive by 2025.
All in all, that creates a pretty bullish demand picture for CNG/LNG powered vehicles.
Playing The Push
Given the potential for more natural gas powered vehicles in the future, investors may want to cash in on the trend. While funds like the First Trust ISE-Revere Natural Gas Index (NYSE: FCG) make ideal plays to hone the E&P firms associated with natural gas production, they do little to provide an “in” for natural gas vehicles. For that, investors need to do a little individual stock digging.
The first stop could be billionaire T. Boone Pickens' Clean Energy Fuels (NASDAQ: CLNE). The firm operates nearly 475 different CNG/LNG fueling stations, serving approximately 779 fleet customers. CLNE continues to rack-up new contracts and has grown massively over the past several years- jumping from 101 million gallons delivered in 2009 to reach 214 million last year. Given its first mover status and size, CLNE is prime infrastructure play on natural gas vehicles.
While Clean Energy Fuels has been focusing on the large fleet operators, both Integrys Energy Group (NYSE: TEG) and General Electric (NYSE: GE) have shifted their attentions to smaller fleets and public users of natural gas. TEG has plans to open around 100 public CNG stations, while GE’s CNG-In-A-Box makes it easy for gasoline service stations to add CNG capacity to their offerings.
Finally, the key for making this work is designing new engines able to handle the compressed natural gas. The joint venture between Westport Innovations (NASDAQ: WPRT) and Cummins (NYSE: CMI) continues to bear fruit. The pair have introduced new larger capacity engines that make freight hauling easier. As such, both expect demand for their heavy duty truck parts to surge this year.
The Bottom Line
Natural gas vehicles are finally beginning to take off in a big way. Fleet sales and heavy duty truck demand is growing and analysts predict big things in the future. For investors, betting on the trend could mean some serious bucks. The previous picks- along with Fuel Systems Solutions (NASDAQ: FSYS) –make ideal plays on the trend.