How to Profit from the Natural Gas Revolution
Andrés is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The US has discovered enormous amounts of natural gas lately, shale gas, combined with more discoveries of conventional gas from traditional wells. These discoveries have radically transformed the energy equation in the United States and many other countries for years to come. This energy revolution will have dramatic economic implications in the middle and long term, and investors should pay close attention to investment opportunities surging from the new energy paradigm.
Gas is becoming more abundant than ever before, and that has produced historically low prices which make it a more competitive alternative to other fossil fuels like oil or coal. According to The Economist, quoting a study by IEA, natural gas usage could rise by a spectacular 50% through 2035.
It’s not just a matter of prices and availability, in the same way technological advancement has increased availability via new exploration and extraction methods, uses for natural gas have been increasing rapidly due to technological innovation. Combined cycle gas turbines make power generation much more efficient using gas and the resource is flexible enough to be used in heating, fueling industrial boilers, and providing feedstock for the petrochemical industry, where it’s converted into other products like plastics and fertilizer.
One company highly exposed to a growing natural gas industry is Clean Energy Fuels (NASDAQ: CLNE) which provides natural gas as an alternative fuel for vehicle fleets in the United States and Canada. The company designs, builds, operates, and maintains fueling stations, as well as supplies compressed natural gas (CNG) and liquefied natural gas (LNG) fuel for medium and heavy-duty vehicles. Its CNG is used in automobiles, light to medium-duty vehicles, refuse trucks, and transit buses as an alternative to gasoline and diesel.
Clean Energy is investing heavily to build a comprehensive network of natural gas fueling stations along the country’s major interstates, called Natural Gas Highway, which is a project providing tremendous leverage to increasing natural gas usage in transportation.
The company was founded by oil tycoon T. Boone Pickens, a man who clearly understands the energy business, and has been one of the strongest public voices for natural gas. Chesapeake Energy (NYSE: CHK) has recently made new investments in Clean Energy Fuels, which shows there is strong support for the company and its ambitious project.
If vehicles are going to work on natural gas, they are going to need special engines, and Westport Innovations (NASDAQ: WPRT) is a much focused candidate in that area. The company provides technologies for natural gas engines, and works closely with different partners to develop the engines needed to ride the natural gas revolution.
Investors in Westport have been concerned about the fact that Cummins’ (NYSE: CMI), one of its major partners, has plans to develop its own heavy-duty truck offering. But Westport is still working side by side with Cummins on several products, and the company has a big portfolio of patents for different applications in its industry.
In fact, last month Westport announced a new deal with General Motors (NYSE: GM) to work together in natural gas engines for light-duty vehicles such as sedans, pickup trucks, and SUVs. This is not only an important business opportunity for Westport, but also another show of support for natural gas by the big players.
Companies like Clean Energy and Westport are facing the first stages of what could be a tremendous growth opportunity for the next years. These companies are certainly quite risky and volatile, but investors who believe in the natural gas revolution should be able to capture extraordinary returns from these stocks if things go as expected for the industry.
acardenal has no positions in the stocks mentioned above. The Motley Fool owns shares of Clean Energy Fuels, Cummins, and Westport Innovations and has the following options: long JAN 2013 $16.00 calls on Chesapeake Energy, long JAN 2013 $25.00 calls on Chesapeake Energy, long JAN 2014 $20.00 calls on Chesapeake Energy, and long JAN 2014 $30.00 calls on Chesapeake Energy. Motley Fool newsletter services recommend Clean Energy Fuels, Cummins, General Motors Company, and Westport Innovations. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.