Clean Energy Fuels Corp (CLNE): Big Worries For a Natural Gas Liquids Pure Play

Low prices have been great for companies that use natural gas as a fuel source, such as electric utilities, since costs have fallen and remain low. It’s also making the switch to natural gas vehicles financially viable. In fact, Clean Energy Fuels Corp (NASDAQ:CLNE) notes that “economics are the primary driver” of the shift.

As a commodity, however, natural gas prices are subject to often material fluctuation. Energy companies are shifting away from coal fired plants to natural gas in increasing numbers, so vehicles aren’t going to be the only source of demand. Moreover, with low prices, many drillers are actually shifting to more profitable oil wells. That’s not to suggest that Clean Energy won’t benefit from higher natural gas prices, it simply points to some of the dynamics of a complex industry.

Natural gas as a fuel could flounder

Navistar International Corp (NYSE:NAV) has plans to build a line of engines for the long-haul truck segment. Jim Hebe, a senior vice president, noted that, “When the MaxxForce 13L is introduced in mid-2013, customers will have a capable range of natural engines and trucks, from 7.6 liter to 13 liter with horsepower ranging from 200 to 450.”

Increasingly stringent environmental standards for trucks are a tail wind to the natural gas switch, but there are other ways to meet the required metrics. For example, Navistar’s plan to combine its exhaust gas recirculation and selective catalytic reduction systems wouldn’t require a fuel source shift. Buyers might not want to maintain a new engine type if they don’t have to.

Navistar, a pick and shovel way to play the LNG transition, could easily drop its natural gas engines if they don’t take off because of a lack of infrastructure. Clean Energy Fuels Corp (NASDAQ:CLNE), on the other hand, has virtually nothing else to fall back on if natural gas for vehicles proves to be a failed effort.

High risk, high reward

Clean Energy Fuels Corp (NASDAQ:CLNE) isn’t a stock that conservative investors should own. It is, however, a highly leveraged bet on natural gas becoming an important vehicle fuel. More aggressive types who see this in the future should consider an investment.

The article Big Worries For a Natural Gas Liquids Pure Play originally appeared on Fool.com and is written by Reuben Gregg Brewer.

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