We Need a Replacement
Callum is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The problem with being dependent on oil imports is that your economy is now at the mercy of geo-political risks overseas that are hard to control. We import almost 12 million barrels a day, and 37% of that comes from the Middle East and Africa. These are not stable regions, and if Iran and Israel go to war, expect a huge spike in the price of oil. A large spike in the price of oil can cause our economy to go into a recession, like it did in the early 1990's when Saddam Hussein decided to attack Kuwait.
The other option
The U.S. government predicts that there could be as much as 750 trillion cubic feet of natural gas in the U.S., and we now have the technology to fully recover almost all of that. We can use that natural gas to replace oil and reap the benefits.
This is why we need to think about natural gas as an alternative to oil. One, we won’t go into a recession every time Iran gets mad or Saudi Arabia decides not to increase production. Two, we will have a smaller trade deficit, as we import almost 12 million barrels of oil a day, which is draining America of $1.2 billion a day, or $438 billion annually (at $100 a barrel). Three, there will be less pollution! We will have cleaner air and we don’t need to recklessly lend out money to companies like Solyndra or throw billions of subsidies into possibilities, we can just sit back and breathe the nice crisp air of free-market capitalism at its finest. Four, jobs in America. We don’t need to pay $100,000 for oil engineers to drill and operate overseas; we can create those 6 figure jobs back home and help get this economy started again. Finally, number five, natural gas is cheaper than oil, so inflation will come down and we can start seeing real wage growth. Middle and moderate income families will no longer have to worry if they have to choose between gas and food, they can have both with money to spare!
How to get started
Cummins (NYSE: CMI) and Westport Innovations (NASDAQ: WPRT) have teamed up through a joint venture to produce natural gas engines, primarily for trucks. Some of their models include the ISX12 G and the ISL G engines. What they want is for natural gas engines to become the trucking industry standard. Is this possible? Well right now gas prices are around $4 a gallon, but T Boone Pickens said he could fill up his car on $1.50 a gallon with natural gas, which gives a big incentive to trucking companies to switch to natural gas for their energy needs to lower costs. But the problem is the "chicken and the egg" conundrum. In order for stations to want to sell natural gas as fuel, they need cars and trucks with NG engines. But in order for cars and trucks to have NG engines, you need stations that will fill you up with NG. Luckily, Clean Energy Fuels Corp (NASDAQ: CLNE) is trying to chance that, setting up natural gas stations that will cater primarily to trucks on the major shipping highways trucks use to transport goods up and down America. This will encourage companies to buy more engines from Cummins and Westport, because those trucks will have the necessary infrastructure built out to utilize a much cheaper source of energy. Cummins and Westport will use that extra cash to boost R&D spending to make even better engines, which will make them even more attractive for trucking companies looking to become more cost efficient. CLNE is also a huge beneficiary, because as more trucks start using NG engines, the more compressed gas they will sell. The more gas they sell, the more money they make. So far CLNE has about 300 stations up in 23 states to help service their clients, with some of those station clients are owned by their clients.
Natural Gas Pricing
Right now natural gas is trading at $2.944 (for mmBtu), which is much lower than its pre-financial crisis level of $12. To put that in perspective, United States Natural Gas Fund (NYSEMKT: UNG) was trading at $252.80 on July 4, 2008. Now it is at $20, and has a 52-week low of $14.25. Quite a drop, but that has given an incentive for companies to make use of this cheap energy. For instance numerous coal plants have been shut down and natural gas plants rose up it their place, because as long as natural gas is trading at or below $3, it is cheaper than coal. Another example is the ramp up of NG engine production and the creation of a natural gas station highway, which I talked about above.
We need to end our addiction to oil imports, and do it in a way that is cheaper than our current system. These companies are some of the current innovators that could offer great returns over the next several years and will help turn this economy around. All three of those companies are worth taking a closer look at, and I am bullish on NG engines and NG to power our cars in the future. I expect to see NG stations popping up all over the place over the next 10 years.
callumturcan has no positions in the stocks mentioned above. The Motley Fool owns shares of Clean Energy Fuels, Cummins, and Westport Innovations. Motley Fool newsletter services recommend Clean Energy Fuels, Cummins, 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.