A few weeks ago, President Obama highlighted the nation's abundance of natural gas, citing its ability to create jobs, fuel trucks and power factories, while at the same time being a cheaper, cleaner, domestic fuel. These few sentences were a signal to some that perhaps the NAT GAS act would be passed this year, adding government incentives to help speed the adoption of natural gas as a transportation fuel.
While the price of natural gas has continued to languish, some investors seem to have taken President Obama's message to heart, judging by the performance of the companies who stand to benefit the most from further adoption of natural gas in trucks and automobiles.
Since Jan 23, 2012, when reports on what would be in the State of the Union began to leak out, the stocks of Fuel Systems Solutions (FSYS), Westport Innovations (WPRT), and Clean Energy Fuels (CLNE) have all handily outperformed the 3.19% rise in the S&P 500. In the last 4 weeks, Fuel Systems Solutions, which manufactures and supplies components and systems for the engines that would be used in new natural gas powered trucks, is up a staggering 51%. Westport Innovations, which provides the fuel systems for the natural gas engines, both alone and in partnership with Cummins (CMI), is up 27%. Clean Energy Fuels, which is building out a nationwide network of natural gas fueling stations, is up 15%. Even Chesapeake Energy (CHK), the second largest producer of natural gas in the US, is up 6.7%, likely helped by that firm's large investments last year in Clean Energy Fuels bonds as well as 50% stake in a company that will be converting natural gas into liquid fuel.
Even with the strong moves in these stocks, investors can still get into these names, as the natural gas conversion in the US is still in its infancy. It took about 5 years in the 1970s for the trucking industry to move towards lower priced diesel over high priced gasoline, and I think that time frame is applicable today. With CNG prices around cities like Philadelphia going for half of what diesel costs, and the fueling infrastructure being built out, it's only a matter of time before more trucking fleets convert to natural gas to take advantage of the lower price.
It will be until at least 2015 before the US begins exporting natural gas, meaning there will be no foreign buyers to take away the massive supply of natural gas in North America. That will help keep prices depressed, and the pressure on truckers to switch to natural gas.
With or without the US government, natural gas will be the fuel of the future in the US. The State of the Union has helped push the issue back to the forefront, and gotten the stocks of the companies who stand to benefit most moving higher. But this is just the beginnings of a multi-year shift in demand, and investors still have time to get in for the ride.
Disclosure: I am long FSYS.
Additional disclosure: Long FSYS Calls.