What Every Investor Must Know About Natural Gas Vehicles
Arthur is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
With General Motors (NYSE: GM) and Chrysler introducing new natural gas powered vehicles into their fleet, investing in the alternative energy trend is expected to generate significant returns. In some of my previous pieces – Positive Outlook on Clean Energy Fuels and Clean Energy Fuels: A Great Short & Long Term Buy I argue that Clean Energy Fuels (NASDAQ: CLNE) the maker of natural gas fueling stations is a solid play based on micro and macroeconomic factors. The emerging acceptance of alternative fuel vehicles presents a great investment opportunity which must be carefully analyzed.
Natural Gas is Cheaper
Average gasoline and diesel prices have increased at an average of 6.7% over the last year as pump prices for the two respective fuels are currently $3.77 and $4.08 respectively. Compressed natural gas, on the other hand, can be purchased for significantly less at around $1.50 based on a gallon of gasoline equivalent basis.
U.S. Market Will Expand
Over 13 million natural gas vehicles are currently on the road; of those, U.S. cars only account for less than 1%. Pakistan and Iran are the global leaders in the total market share for alternative fuel automobiles. However, the market is rapidly increasing in North America, especially for commercial use vehicles. FedEx (NYSE: FDX) has recently started utilizing LNG and CNG powered delivery vehicles, adding to the growing list of companies who favor the green alternative.
Naturally, natural gas power vehicles emit significantly less pollutants into the atmosphere. The Honda (NYSE: HON) Civic GX is the cleanest passenger vehicle, producing 75% less nitrogen oxides than standard fuels. Carbon dioxide emissions are reduced by 30% with average gas powered vehicles. Despite increased upfront costs, the clean alternative can save commuters 50% on fuel costs.
Reliance on Domestic Source
70% of U.S. oil is imported from abroad; although Canada is the primary source of the resource, a significant portion of petroleum comes from politically unstable regions such as Nigeria and Iraq. In contrast, domestic natural gas production account for 84% of consumption, with 14% of the remainder imported from NAFTA partners, Canada and Mexico.
Shale gas supports 1.6 million jobs and the transition to expand natural gas use would further improve the frail unemployment situation. According to America’s Natural Gas Alliance, between 2008 and 2006, natural gas reserves increased by 45% as new basins were discovered and technology progressed. At current estimates, the natural gas inventory is sufficient for over 100 years.
Major oil and gas conglomerates are supporting the transition. Although smaller players such as Westport Innovations (NASDAQ: WPRT) and Clean Energy Fuels are the dominant pure plays on the industry, Chesapeake and Apache have been advocating the movement. Large caps who enter the space may engage in acquisitions to acquire rapid scale and technological know-how.
As the world changes its view of transportation fuel sources, natural gas technology is making significant inroads into broad acceptance. Market leading equipment manufacturers such as Cummins (NYSE: CMI) are aligning themselves with Westport to create natural gas engines while Chesapeake is partnered with Clean Energy Fuels to create America’s Natural Gas Highway. With momentum in its corner and numerous economic and financial benefits, it may not be too long before natural gas vehicles fully penetrate the market.
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