Studies Boost On-Road, Off-Road Natural Gas Chances
Howard is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
A pair of studies released at the end of February project U.S. natural gas production will grow for the next 30 years, putting enough downward pressure on prices to boost demand in the on-road and off-road transportation markets. These sectors are seeing plenty of new products that use the fuel. But they’ve only tentatively embraced them so far, even though it is cleaner than petroleum fuels and as much as 25% cheaper.
However, the promise of an ongoing, low-cost natural gas supply could change that.
This would be good news for a handful of companies that are aggressively building leadership positions in various development, distribution and end-use markets serving the transportation industry. With natural gas prices already the lowest they’ve been in a decade, the time may soon be right for the array of products and services they’re offering.
I offer my take on the top on-road and off-road players below. For a look at some leading companies in production, delivery and design in this space, and details on a pair of new studies suggesting a bright future for U.S. natural gas, click over to this post.
Four companies positioned to benefit
A number of major Class 8 truck manufacturers have announced plans to introduce Liquid Natural Gas, or LNG, engines for North American 18-wheelers in 2013. The leader among them continues to be PACCAR (NASDAQ: PCAR). This company has been making natural gas-powered vehicles since 1996 and currently claims 40% of the market. In its fourth-quarter earnings report in late January it said it produced over 1,400 of these vehicles in 2012. It also said this year it is offering six new models in its Kenworth and Peterbilt lines, available with either 9-liter or 15-liter natural gas engines.
Another company to watch in this segment is Navistar International (NYSE: NAV). Navistar’s integrated truck-and-engine business has struggled in the marketplace and with investors over the past several years. But one was it is trying to pull itself back up is by introducing several new LNG models this year. It has also partnered with Clean Energy Fuels, the leading operator of highway-based natural gas filling stations in the U.S., to promote the fuel within the heavy-duty trucking industry. Freightliner Trucks, the largest division of Daimler Trucks North America, is also offering several new trucks and tractors that run on LNG in 2013.
Turning to the off-road market, Caterpillar (NYSE: CAT) is probably the firm banking the most on a move away from traditional petroleum fuels — and probably the one that stands to benefit most as a result. Its upcoming natural gas products range from giant haul trucks to railroad locomotive engines. This lineup includes three of Cat’s most popular off-highway mining trucks, as well as kits to convert existing diesel-powered oilrigs, trucks and locomotives to LNG.
In addition, Cat has partnered with Westport Innovations, a designer of advanced gas-injection engines. The goal is incorporating the latter’s acclaimed “high-pressure direct injection” technology into Caterpillar LNG products. Most of these, the company projects, will be available in three to five years.
One other engine maker worth keeping an eye on is Cummins (NYSE: CMI). This company supplies new engines for oilrigs, Class 8 trucks and other vehicles ranging from trash trucks to tractors. It announced last year that it would be offering LNG conversion kits for its own diesel-powered oilrig engines. It also unveiled a partnership with Westport to design a co-branded line of natural gas engines.
The bottom line
Those pushing for increased natural gas use in the transportation industry still have a number of roadblocks to hurdle. These include high initial costs to obtain the technology and merge it with existing operations, relatively few outlets where vehicles on the go can be fueled up, and the national debate that hangs over the primary route to production: fracking.
The two biggest worries, though, have been positively addressed by these new studies by the University of Texas and RBC. If prices stay low and production remains high, natural gas should become more and more appealing to those buying and operating on-road and off-road vehicles.
If that does happen, Caterpillar should be positioned very well. It has jumped into the fray early and aggressively. And it has a presence in many different industries including construction, mining, railroads, marine, power-generation and even the engines used for natural gas drilling rigs. Cummins should also fare well thanks to its international positioning, particularly in China, where natural gas use has strong government support.
TheChiefToo has no position in any stocks mentioned. The Motley Fool recommends Cummins and Paccar. The Motley Fool owns shares of Cummins and Paccar. 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!