The Toyota Natural Gas/Electric Hybrid - A Superior Car Architecture
Gasoline prices were up $0.17/gallon last week. Not surprisingly the DJIA was down -2.1% and the S&P500 was off -1.7%. Events in North Africa reminded Americans their economy and equity markets are directly tied to the price of oil. Since the United States imports 60% of its petroleum at a cost of over $1 billion a day, it would certainly seem that now is the time to take dead aim at this problem, hit the bull’s-eye, and solve it. The way to solve our dangerous addiction to foreign oil is by adopting natural gas transportation.
Natural gas is the only domestic fuel capable of significantly reducing foreign oil imports over the next 5-10 years. Transitioning half the cars and trucks in the U.S. to natural gas transportation over that timeframe could reduce foreign oil imports by 5,000,000 barrels every day. Natural gas is abundant, clean and cheap. More importantly, it is ours. Since the transportation sector uses 70% of total U.S. oil consumption, logically natural gas should be used in the transportation sector to directly replace and reduce gasoline derived from foreign oil.
How can this be done? How can we solve the chicken-and-egg problem of a lack of natural gas refueling stations and a lack of natural gas vehicles (NGVs)? While it would seem to be a daunting task, it need not be. According to NGV Global, countries like Brazil, Iran, Italy, Pakistan and Singapore have very successfully adopted natural gas transportation. Why can’t the U.S.? The problem is certainly not of a technical nature. Clearly countries that have made a political decision to invest and deploy natural gas transportation have done so very easily.
NGVs have been around for nearly 100 years. According to NGV America, there are over 12,000,000 NGVs worldwide but only 110,000 in the United States. One reason for this sad statistic is that both GM (NYSE:GM) and Ford (NYSE:F) make NGVs but chose not to sell them in the United States. The Honda (NYSE:HMC) Civic GX (the only NGV available to U.S. consumers and repeat winner of the ACEEE Green List) has been so successful Honda predicts it will double GX sales in the U.S. this year after doubling them in 2009. Utah, Oklahoma and California have been very successful in building out natural gas infrastructure and deploying NGVs that are refueling with natural gas. Today, natural gas is selling at an average price over one third cheaper than gasoline. Even better, natural gas is on average 42% cheaper than diesel.
According to NGV America, the International Association of Natural Gas Vehicles estimates there will be more than 50 million NGVs worldwide with in the next 10 years, or about 9% of the world’s transportation fleet. Considering the U.S. has the most advanced and extensive natural gas pipeline distribution network and huge natural gas reserves (combined, the two are America’s No. 1 competitive advantage over all other countries on earth), the only intelligent thing to do is to utilize this advantage and adopt natural gas in the transportation sector to reduce foreign oil imports.
So how do we do it? The first step in solving any problem is to acknowledge the problem. We will start here and continue in a logical fashion:
- Acknowledge our addiction to foreign oil imports are a threat to our economic and national security interests.
- Adopt a strategic long-term comprehensive energy policy with the goal of significantly reducing foreign oil imports.
- Build out a strategic natural gas refueling network on the cross-country interstate highway system such that a driver could go coast-to-coast or north-to-south in an NGV. The stations should be prioritized around metropolitan areas.
- Support and deploy natural gas home refueling appliances so that Americans can own an NGV as a second car/truck for the 95% of all daily trips that are less than 100 miles and refuel in their garages while they sleep.
- Support cars like the concept vehicle Toyota (NYSE:TM) unveiled years ago: a natural gas/electric hybrid vehicle. The natural gas/electric engine is superior to electric cars in that the battery pack is much smaller, it is cheaper, and it is a proven technology. Think a Prius that burns domestically produced natural gas instead of gasoline from foreign oil.
- Appeal to Ford’s and GM’s patriotic and financial interests to begin selling their NGVs in America.
These initiatives are a good start. Before people fill up the comment section with their concerns, let me address one here. Folks always say we cannot afford a program such as a nationwide natural gas refueling network. Those were probably the same folks that fought against the cross-country interstate highway system, the telegraph and telephone systems as well as the goal of putting a man on the moon. Yet in each of those cases, the investments made by our government were paid back very quickly and then paid dividends to all Americans for decades into the future. At a cost of $1 billion a day for foreign oil, the cost of building out a natural gas refueling infrastructure will be paid back very quickly. Afterwards, the economic benefits of keeping our energy dollars in this country, and the multiplier effect of doing so, will usher in an era of prosperity that few today can even imagine. We could already have paid for such a refueling infrastructure today instead of wasting hundreds of billions of dollars on such wrong-headed initiatives as the “stimulus” package, ethanol mandates and the myth of “clean coal” research and development.
Who would benefit from adopting natural gas transportation? Answer: all Americans and all citizens of the world. Consumers would benefit in many ways:
- Paying less to fill up their cars and trucks.
- Paying less for food and products due to oil based transportation costs.
- Natural gas royalty payments would go to American landowners, farmers and energy companies instead of foreign oil producers.
- Millions of good paying jobs would be created in the energy, industrial and automobile sectors.
- Our air and water would be cleaner.
- Our equity markets would begin to thrive once again helping pension funds, investment returns and fiscal stability.
- The country’s debt would be reduced and our currency strengthened.
From an investment standpoint, there are many U.S. companies that would directly and indirectly benefit from natural gas transportation. The direct plays are:
- Clean Energy Fuels (NASDAQ:CLNE) - Clean Energy is building natural gas refueling infrastructure for fleets and selling fuel under long-term contracts.
- Westport Innovations (NASDAQ:WPRT) - Westport designs and builds natural gas engines.
- Fuel Systems Solutions (NASDAQ:FSYS) - FSYS concentrates on alternative fuel solutions and is the maker of the “Phill" (pictured above), the famous home garage natural gas refueling appliance.
- Honda - Honda makes the Honda Civic GX.
- General Electric (NYSE:GE) - General Electric has been increasing its investments in the energy patch. Its recent acquisition of Dresser Industries and its leading position in building compressors puts GE in the natural gas infrastructure cat-bird seat.
- CLNE, WPRT, and FSYS were all up last week despite the down market. HMC and GE were down a bit. Of the five suggestions, my favorite is FSYS. I just wish they’d quit issuing more shares and stand on their own two feet for awhile.
But one must be a realist, and reality is that U.S. government policy is now geared toward keeping the firmly entrenched coal and oil industry status quo. I’ll never bring myself to invest in coal (although I do believe there are returns to be made there). But how can I not invest in companies like Exxon Mobil (NYSE:XOM), Conoco Phillips (NYSE:COP), Chevron (NYSE:CVX), Marathon (NYSE:MRO), Petrobras (NYSE:PBR) and StatOil (NYSE:STO)? Chevron is suffering more than most from BP’s (NYSE:BP) disaster in the Gulf of Mexico and the resulting lack of drilling permits. However, Chevron is still one of the oiliest firms at around 70% of production. Conoco is a great restructuring and dividend play. Exxon Mobil produces more than twice the oil per day that Libya as a country produces. However, as 2008 taught us, when the high price of oil creates another economic “correction” (for lack of a better word), oil demand plummets and these energy stocks will go down as well. So, we are on an oil price dependent economic yo-yo and the buy and hold days are pretty much a relic of the past. Nothing is secure these days except gold and silver and other precious metals.
It is time the United States learns from the past. We suffered an oil embargo in the 1970s and the resulting economic and inflationary costs. We suffered the effects of $147/barrel oil and the aftershocks starting in 2008. Isn’t it time we make a realistic plan to significantly reduce foreign oil imports? Yes, it is. Natural gas transportation is the solution to our foreign oil crisis.
Disclosure: I am long COP, MRO, PBR, STO.