Natural Gas Trucks: Who Benefits in 2013?

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Natural gas prices are the lowest they’ve been in a decade, driving companies in a wide swath of industries to consider it as an alternative to more costly petroleum fuels. Numerous challenges — and vocal detractors — await, but as we noted in a piece over the holidays on the emergence of natural gas drilling rigs, a significant shift is undeniably underway. One of the most eager adopters has been the transportation industry, which sees natural gas as cleaner than petroleum on top of being as much as 25% cheaper. Savvy investors will be watching a number of companies in this space to see who might start seeing benefits as the new year rolls on.

Developers and Distributors

Royal Dutch Shell (NYSE: RDS-A) is not giving up on oil any time soon. But the energy giant is also moving full speed into the realm of Liquefied Natural Gas, or LNG, driven by its increasing appeal to those operating long-haul heavy-duty trucks. The infrastructure in North America is not yet adequate to transport this fuel everywhere it might potentially go, of course, but this is one company that doesn’t plan on waiting around until it is. Among its initiatives Shell is working with Westport Innovations (NASDAQ: WPRT) — widely considered the most advanced gas-injection engine designer in the field — to market the fuel to the transportation industry. It has also partnered with a private company to develop improved LNG engine technology, and with General Electric on duel-fuel railroad locomotive engines that can operate on either diesel or LNG.

Clean Energy Fuels (NASDAQ: CLNE) is already the largest provider of natural gas to the transportation industry, and it is preparing to ride the wave even higher as demand grows. The company currently operates more than 70 LNG fueling stations in 33 states, and plans to soon have approximately 150 as it builds out a “natural gas highway” on interstates connecting major cities across North America. It is also buying two LNG plants from GE to process the fuel so it can be delivered to these stations, and the two companies say that when in operation within two to three years these facilities alone will supply enough fuel for 28,000 trucks a day.

Truck Makers and Consumers

A number of major manufacturers have announced plans to introduce 12-liter LNG engines for North American 18-wheelers in 2013. Among them is Navistar International (NYSE: NAV), a once mighty player whose integrated truck-and-engine operation has suffered huge share declines over the past several years. The company has also partnered with Clean Energy Fuels to promote LNG within the heavy-duty trucking industry. PACCAR (NASDAQ: PCAR), which currently holds the lead in this segment with 40% of the market, is offering six new LNG trucks in its Kenworth and Peterbilt lines. Westport has also teamed with Cummins to produce a co-branded line of clean burning natural gas engines. Freightliner Trucks, the largest division of Daimler Trucks North America, is offering several trucks and tractors that run on LNG.

While Liquefied Natural Gas works most effectively in the largest trucks, Compressed Natural Gas or CNG is finding fans among some major operators of smaller vehicles. Federal Express and United Parcel Service are among the biggest in the field transitioning to CNG. Waste Management recently said it plans to use CNG in more than three-quarters of all its new haul trucks.

Bottom Line

No one will be surprised to learn that Shell is not only actively promoting natural gas, but is aggressively increasing its production — and, in fact, in 2012 its natural gas production passed its oil production for the first time in company history. Shell sees this growth continuing, and projects global demand for LNG alone will double to 400 million tons by 2020, and possibly to 500 million tons just five years later. CNG is also picking up big-time support in the smaller vehicle transportation field, and even railroads are increasingly getting into the act. The companies above are among those leading the way, and investors could start to see benefits as early as the coming year.

Fool blogger Howard Rothman does not own shares in any of the companies mentioned in this entry. The Motley Fool owns shares of Clean Energy Fuels, Paccar, and Westport Innovations. Motley Fool newsletter services recommend Clean Energy Fuels, Paccar, 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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