Natural gas vehicles, or NGVs, have been in use since the 1930’s, but at the time never gained much traction due to the popularity of gasoline powered vehicles. However, NGVs are starting to make a serious comeback due to a major shift in energy prices in addition to modern engineering advancements in NGV technology.
Are natural gas vehicles ready to take off?
Significant progress has been made with niche fleet applications, but for the NGV industry to really take off, the usage rate of the general population will need to accelerate exponentially in the upcoming years. For this to happen the following must occur:
1). Further widening of the gap between natural gas and oil prices: An improving economy could drive gasoline prices up to $4 to $5 per gallon, whereas natural gas prices are projected to remain relatively stable due to recent natural gas discoveries and technology improvements.
2). The continued development of NGV infrastructure: The expansion of NGV infrastructure has progressed recently and must continue advancing in order to achieve widespread fueling capability.
3). Cost reductions of NGVs: Large scale manufacturing is required in order for NGVs to become feasible for the general public.
4). Increased public awareness of NGV’s: The benefits of NGVs must be communicated to the general public in order to increase comfort levels.
All of these items are critical in order for NGVs to become a viable option for the general public, and progress is being made in each of these areas.
NGV successes
Due to low natural gas prices, it has become very beneficial for a company to utilize NGVs for applications involving a fleet of vehicles that travel consistent routes and a large number of miles. Examples of applications that currently utilize NGVs include garbage trucks, delivery vehicles, and public transportation.
In these cases, it is possible to achieve fuel costs that are 60% to 70% lower than gasoline costs. In the right situation, a company can achieve millions of dollars of savings per year by converting its fleet to NGVs and it can take less than one year to break even.
NGV investment opportunities
Clean Energy Fuels Corp (NASDAQ:CLNE) is a leading developer of natural gas fueling stations and currently owns over 350 fueling stations located throughout the U.S.
Clean Energy Fuels Corp (NASDAQ:CLNE) has a plan to develop “America’s Natural Gas Highway,” which will consist of LNG fueling stations at key locations throughout the major U.S. corridors. The eventual goal is to enable trucking companies to completely operate their fleet on natural gas, resulting in a tremendous boost to their bottom-line. In 2012, Clean Energy made significant progress in this effort by developing 70 LNG stations.
Clean Energy Fuels Corp (NASDAQ:CLNE)’s annual sales have increased from $40 million to $334 million over the last decade. In addition, the annual volume of natural gas supplied by Clean Energy to fuel NGVs has nearly tripled over the last five years.
Clean Energy Fuels Corp (NASDAQ:CLNE) and Westport Innovations Inc. (USA) (NASDAQ:WPRT) recently announced a $5 million joint marketing and sales partnership in an effort to boost the NGV industry.
Westport Innovations Inc. (USA) (NASDAQ:WPRT) is the leading provider of natural gas powered engines and its extensive intellectual property portfolio includes over 300 patents with an additional 700 filed patent applications.
Westport Innovations Inc. (USA) (NASDAQ:WPRT) recently acquired BAF Technologies from Clean Energy. BAF is involved in natural gas vehicle conversions and also sells NGV engine equipment.This acquisition will significantly enhance Westport’s presence in the NGV industry and boost its relationship with Ford. Its Westport WiNG System will be utilized for the Ford F150 NGV products beginning in 2014.
Westport Innovations Inc. (USA) (NASDAQ:WPRT)’s sales have increased from $25 million to $156 million over the last decade. Westport and Clean Energy have yet to achieve profitability, and as such, are still considered to be speculative stocks with enormous reward potential.
A safe and effective way to invest in NGVs and the natural gas industry
Natural gas is a clean, abundant, convenient, and affordable fuel. Recent discoveries and technological advances have significantly increased U.S. natural gas supplies, resulting in very attractive prices. Natural gas prices are projected to remain low for the foreseeable future, resulting in a large boost in demand. If NGVs become a major player in the transportation industry, the demand for natural gas will ramp up even further.
A very effective way to profit from this increased demand is by investing in natural gas pipeline companies. Pipeline companies are not affected by the commodity cost but indirectly benefit from low natural gas prices because it translates into more product flowing through their pipelines due to increased demand levels.
Kinder Morgan Inc (NYSE:KMI) is one of the better investment opportunities in the natural gas pipeline industry. Kinder Morgan owns the largest network of natural gas pipelines in the U.S., consisting of 62,000 miles of pipelines. In addition, Kinder Morgan owns a wide variety of additional assets such as natural gas storage and liquid petroleum pipelines.
Kinder Morgan Inc (NYSE:KMI) is not directly involved in the NGV industry, but the increased demand from NGVs will result in an increase in the volume of product flowing through its pipelines, boosting its bottom-line.
Kinder Morgan is a very popular dividend paying company. Its current dividend yield is 4.2% and it has impressively increased its dividend for seven consecutive quarters, from $0.30 to $0.40.
Patience Fools!
If the NGV industry continues to grow and eventually expands into the general population, investments made in the industry today could lead to enormous, life-changing returns over the next decade. However, there may (or may not be) a significant time lag in the development of the industry and it may take off next month, next year, or the next decade. As always, it is possible that the NGV revolution does not pan out, so invest accordingly.
Westport Innovations and Clean Energy are two excellent opportunities to take advantage of the great potential of NGVs, and Kinder Morgan is a compelling, indirect, and safe way to invest in the NGVs as well as the overall natural gas industry.
Greg Williamson owns shares of Kinder Morgan and Westport Innovations. The Motley Fool recommends Clean Energy Fuels, Kinder Morgan, and Westport Innovations. The Motley Fool owns shares of Kinder Morgan and Westport Innovations.
The article The NGV Industry May Be Ready to Take Off originally appeared on Fool.com and is written by Greg Williamson.
Greg is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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