The two clearest natural gas vehicle plays, Clean Energy Fuels (NASDAQ:CLNE) and Westport Innovations (NASDAQ:WPRT) have lost traction and languished since early summer. CLNE has suffered heavily and is down around 38% or so from its highs in May. Westport has broadly moved sideways over the same period.
CLNE is of course the T. Boone Pickens-backed provider of natural gas refueling infrastructure. In its early operations CLNE prudently focused on servicing captive fleets such as public transit. However, the prize for CLNE would be natural gas adoption amongst trucking fleets. To this end, the company recently agreed on a deal with truck stop operator Pilot Travel Centers (which also owns Flying J) to offer natural gas refueling across PTC’s nationwide travel centers. CEO Andrew Littlefair suggests that some regional and national trucking operators are close to diversifying their fleets towards natural gas engines.
Meanwhile, Westport Innovations holds the leading natural gas engine technology.
The disappointing price action for these stocks has been driven by the loss of political momentum behind measures to support the switch to natural gas engines for trucking fleets. A raft of new measures were on their way in the earlier part of the year. However, the BP (NYSE:BP) oil spill had a strangely negative impact on this process – i.e. the measures were tied into the wider legislation on oil-spill related issues. When those became politically controversial the whole effort hit a brick wall. The thinking has been that the coming mid-term elections and ‘lame duck’ session would prevent any renewed attempt at progress. That is precisely what is priced in with CLNE at current prices.
And it may not be correct.
The political environment has now led President Obama to publicly admit that an all-encompassing Climate Change Act is no longer politically feasible. This is clearly a loss for anyone who sees the need for widespread change. However, the shift in tactics from the President could also be a clever move in that the adjustment in strategy also opens the door for smaller, piecemeal measures to be floated. Perhaps this may make some progress, albeit targeted, easier.
Two initiatives will be before the ‘lame duck’ session –
- The Bingaman-Brownback plan for a Renewable Energy Standard (RES) requiring utilities to supply 15% of power from renewables by 2021 (with a component allowed via smart grid / efficiency style savings). This would put life back into Wind, further support the current rally in Solar and would be a boon for Smart Grid investments. However, success here is perhaps wishful thinking.
In my opinion, the dark horse, perhaps with a chance of success, relates to alternative transport. Senate Majority Leader Harry Reid introduced legislation under the Natural Gas Act just before the recess on $4.5bn of incentives to aid the deployment of natural gas–fueled vehicles and refueling stations (there are also some incentives for the electric car). These are the measures that were lost when the debacle over the oil-spill related legislation jammed up any further progress. A key procedural vote on the Natural Gas Act has been slated for November 17th – two days after Congress returns from recess.
With Congress in a ‘lame-duck’ mentality, this legislation may just be limited enough – or focused enough depending on your take – to garner bi-partisan support. After all, will Congress be doing much else?
Moreover, replacing foreign oil with domestic natural gas should meet a range of objectives across the spectrum from those with Climate Change concerns to others focused on national security issues. And of course many share both concerns.
Purists in the climate change community are often skeptical of natural gas. However, this mainly relates to the debate over the future of electricity generation. There is a genuine risk that cheap natural gas will prevent the development of the use of renewables such as Wind and Solar on any meaningful basis. My own view is that if we are going to win the Climate Change battle, we are going to have to pragmatically accept that we need both approaches. The answer is no doubt to further replace coal-fired power stations with natural gas – whilst ensuring the medium-term development of renewables with a Renewable Energy Standard such as that being floated in the Bingaman-Brownback plan.
There are arguments on both sides when it comes to electricity generation. However, with the current lack of progress on Clean Tech legislation, what surely cannot be at issue is that moving the trucking industry off of foreign oil and onto cleaner U.S. natural gas would be a great step forward.
This is one area where bi-partisan support could conceivably be generated.
Talk appears to suggest that Republicans are uncomfortable with the fact that the proposed incentives would be paid for with an increase in the tax on imported oil. However, T Boone Pickens has suggested that Republican Senators are looking for palatable funding alternatives. This search may well make progress.
A hopeful interpretation could suggest that it just may be the case that the one major achievement for Clean Tech before year end is the provision of incentives to the trucking industry to begin the switch to natural gas – and the approach of a complimentary build out of refueling stations by Clean Energy Fuels. If that is the case, CLNE will fly from current depressed levels following the summer’s sell-off and Westport Innovations will start to make renewed headway.
Handicapping the likelihood of success this time around is no easy task. However, it’s certainly not unrealistic to suggest that from these oversold levels CLNE should at least now start to price in a chance of progress ahead of the November 17th vote. From that perspective the risk-reward looks worthwhile.
Disclosure: Long CLNE, WPRT.