Clean Energy Fuels Corp (CLNE): The Most Common Alternative Fuel May Surprise You

In a country where corn-based ethanol incites an avalanche of controversy, you may be surprised to know that ethanol isn’t the most common alternative fuel. Well, not by the EIA’s accounting method, anyway. The 134 billion gallons of gasoline that powered our vehicles last year included about 13 billion gallons of ethanol. But the Energy Information Administration doesn’t consider one drop of blended ethanol as a true alternative fuel.

Qualifying for the official tally are electricity, hydrogen, propane, natural gas, and ethanol blends exceeding 85%, or E85. Even without counting blended ethanol, E85 is a relatively common fuel in the country’s heartland and Pacific Northwest. So the fact that it still didn’t top the list was pretty surprising to me. What took the biggest piece of the pie?

Total alternative fuel use grew 13% in 2011 from 2010 to a total of 515.92 million gasoline-equivalent gallons, with growth occurring in nearly every category. However, the annual summary from the EIA isn’t a marginal news story that investors should overlook. Here’s what it means for you.

Natural leader
I knew that Clean Energy Fuels Corp (NASDAQ:CLNE) was pushing full steam ahead into natural gas vehicles and infrastructure, but I was shocked that natural gas was the leading alternative fuel. In 2011, natural gas vehicles consumed 247 million gasoline-equivalent gallons. To put that in perspective, you are 541 times more likely to drive to work on a tank of gasoline than on natural gas.

The long road ahead can be viewed as a negative or an opportunity. It may be painfully slow and incredibly difficult to challenge the monopoly of gasoline-powered vehicles, but changes are happening. One reason for the slow adoption of natural gas vehicles is simple. The EIA admits that currently, natural gas and other alternative fuels are used primarily in heavy-duty vehicles. That’s just fine for Clean Energy Fuels Corp (NASDAQ:CLNE), because it still represents an entire industry worth a-changing. In fact, from 2003 to 2011, the amount of natural gas vehicles on the road grew at an annual rate of 10%! No wonder analysts expect the company to grow at a 20% clip for the next five years, according to Yahoo! Finance.

Consider that municipalities and industrial giants such as Waste Management, Inc. (NYSE:WM) are converting their fleets — in this case garbage trucks — to run on natural gas fuels (link opens a video). It’s a little easier for Waste Management, Inc. (NYSE:WM), since it uses biogas generated from its managed landfills to fuel its own vehicles. Clean Energy Fuels Corp (NASDAQ:CLNE) also sources biomethane from one of its landfills in Dallas. In fact, the facility can produce up to 36,000 gasoline-equivalent gallons each day. It’s like the old saying goes: One man’s trash is another man’s fuel.

That doesn’t mean smaller vehicles aren’t in the race. Energy giant Halliburton Company (NYSE:HAL) is going all-in on a nationwide pilot program testing natural gas vehicles. The company will deploy 100 light-duty trucks to determine the challenges and feasibility facing their wider adoption. Aside from being a potentially huge step forward for bringing the technology mainstream, Halliburton Company (NYSE:HAL) expects the savings to pile up. The company’s estimated annual fuel savings are $5,100 per vehicle.