Clean Energy Fuels: Benefiting From Stricter Environmental Regulation

Investments in alternative energy have been a no brainer in recent times in the wake of the crude rally. PowerShares WilderHill Clean Energy ETF, which has made a gain of 25.4% in the past one year while S&P 500 clocked a gain of 2.8%. Clean Energy Fuels Corp.(NASDAQ:CLNE), which provides vehicular natural gas for fleets in US, and related services including financing, grant preparation and fueling station design and maintenance, has made a gain of more than 50% between its listing in late July '07 and the high made in mid October '07. The stock has been on a decline recently, declining almost 25% in the past month. From the high of $20.7 made on October 17, the stock has closed at $15.4 on November 21. CLNE appears to be a great story to buy at declines.

Clean Energy has been witnessing a favorable regulatory environment, especially in its home state, the state of California. With almost 75 years of domestic reserves, and not all alternative fuels well-suited for medium to heavy duty fleets, regulators look forward to natural gas as a fuel that has a key role to play in the espoused energy security of the country. The oil prices touching $99 has increased the spread between natural gas and oil, making it a compelling proposition for users to switch to natural gas. On October 14, Governor Schwarzenegger signed the Assembly Bill 118, which will provide an estimated $210M as annual subsidies in R&D and deployment of alternative fuels to improve the air quality in the State. We believe that this program, expected to start in 2008, will prove to be a revenue driver for CLNE. The port of LA and Long Beach, which contribute to almost 25% of the air pollution in Southern California, is progressively banning old diesel trucks. It is estimated that the ban will result in the replacement of approximately 9000 diesel trucks through the coming five years. An estimated 5,300 of these replacements will be run on LNG. The ports of LA and Long Beach and the South Coast Air Quality Management District announced that 158 new LNG port trucks has been ordered to be purchased out of a $27M awarded to 10 trucking fleets.

With companies aiming for carbon neutrality, the shift for less emissions in the supply chain becomes obvious. Wal-Mart, which owns 7000 trucks in the United States, has promised to improve its logistics efficiency by 25% through 2008. Nike and Converse, had announced their intention to shift a significant portion of their container hauling fleet to LNG vehicles at the ports of LA and Long Beach. With almost 14 states in US assessing climate change legislation - following the footsteps of California, it becomes certain that the regulatory environment on emissions can only get stricter across the states. CLNE, who has operations in more states than its competitors, thus has an advantage.

CLNE is gearing up to meet up the additional demand. Its LNG production plant in Mojave Desert, located 75 miles NE of LA, is said to begin commercial shipment in the second half of 2008. It has an initial production capacity of 160,000 LNG gallons per day and can be expanded to a production capacity of 240,000 gallons per day. Also, by the end of 2007, the company expects to have upgraded or built 27 station projects. This is in addition to the 8-10 projects that the company expects to finish shortly after the year end. CLNE also has a substantial infrastructure backbone - its fuels more than 14,000 vehicles daily through 173 natural gas fueling station. The broader indexes might appear bearish on sub prime concerns, but CLNE looks more attractive with the fall.

Disclosure: none

Comments

[lefty:]

Very true article. Which is why I've invested in wpivf

2007 Nov 24 05:33 AM