This Company Wants to Be the Exxon of Natural Gas

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Clean Energy (NASDAQ: CLNE) has been working on building a natural gas fueling network for long-haul truckers. At the same time, it has been converting gasoline powered vehicles to run on natural gas. It's selling that business to focus on its fueling network.

More Natural Gas

The introduction of hydraulic fracturing released a massive store of natural gas that was locked underneath the United States. With so much new gas, the price of the commodity plummeted to all time lows.

Utilities were quick to increase their use of natural gas to save on fuel costs. However, that's not the only business that sees value. Clean Energy has been pitching the fuel as a replacement for gasoline and diesel, switching vehicles to natural gas and creating a natural gas fueling network.

It has around 400 fueling stations that it owns, operates, or supplies with natural gas. That's a pretty good start, but doesn't come anywhere close to the number of gasoline stations owned by ExxonMobil (NYSE: XOM). The oil and gas giant has around 9,000 stations in the United States.

Refocusing

Clean Energy just announced a deal with Westport Innovations (NASDAQ: WPRT) to sell its vehicle conversion businesses. Clean Energy will get $25 million in Westport stock, and the pair will work together to promote natural gas as a fuel alternative for vehicles.

On the surface, that seems like a good deal for Westport, which doesn't have to pay out any cash to acquire what was, despite the pair's prior partnership, effectively a competing business. Not spending any money is a good thing since Westport has been losing money for the past decade. And its around $150 million in revenues is around half the size of Clean Energy's top-line.

However, looking a bit deeper, Clean Energy earned only about 7% of its 2012 revenues from the two divisions that it sold to Westport. The rest basically came from selling natural gas as a fuel. So, Clean Energy appears to have gotten rid of what had become a distraction to its real growth business. While Westport has interesting technology, most investors should avoid the money-losing business until it starts to turn a profit.

How Much Growth?

Clean Energy is working on serving four major markets, buses, airport vehicles, garbage trucks, and heavy duty trucks. The first three are projected to be a $5.5 billion market opportunity combined. Clean Energy believes heavy duty trucks alone represent a $25 billion market. That's huge, so it makes sense that it would want to focus on its fuel business.

That's particularly true now that an increasing number of trucks are set to be offered with natural gas powered engines. However, virtually no trucks are sold with these engines today. But, if you consider the adoption rate in garbage trucks, the potential is massive. In 2008 only 3% of garbage trucks sold were natural gas powered, in 2013 60% of the trucks sold used natural gas. By 2017, Clean Energy expects 35% of the long-haul trucks sold to be powered by natural gas.

With a money-losing operation and the costs of continuing the build out of its natural gas fuel stations, however, Clean Energy is something of a high risk bet on the conversion of the U.S. trucking fleet to natural gas.

Competitors

ExxonMobil has a huge leg up on Clean Energy on this front. People know its name and it has a collection of highly valuable locations on the country's highways that could be converted to offer natural gas.

The company's purchase of XTO Energy quickly created a massive natural gas business within Exxon. Although it bought XTO when natural gas prices were high, with prices coming off of their lows, Exxon's investment could quickly turn from a drag into a growth driver.

The company's top and bottom lines tend to be a bit volatile because of the commodity based businesses it's in, but its dividend has been increased annually for decades. With a yield of around 2.7%, it's a good option for more conservative investors looking to participate in the natural gas revolution in this country.

Another option is Royal Dutch Shell (NYSE: RDS-B). The company is nearly as large as Exxon and has an equally strong brand name. It, too, invested heavily in natural gas when prices were higher. That's been a drag on its shares and, coupled with a large European business, has led to a dividend yield of around 5.3%. That's notably higher than Exxon's yield, which should interest income investors.

The company doesn't have as impressive a history of annual dividend increases, but has regularly upped the disbursement. Plus, it has notable experience with liquefied natural gas in Europe. And Clean Energy notes Shell's efforts to partner with truck stop operator TravelCenters of America as a major competitive threat. Of course, Shell also has its own gas stations, too.

A Natural Gas Future

Clean Energy is a high risk play on natural gas taking over the highways and is a better way to play the space than Westport. That said, safer options include Exxon and Shell, which are both big natural gas producers and have an existing network of gasoline fuel stations. Shell is the top choice for the income inclined.

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Reuben Brewer has no position in any stocks mentioned. The Motley Fool recommends Clean Energy Fuels and Westport Innovations. The Motley Fool owns shares of 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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