General Electric (GE) has announced that it will be opening an Innovation Center for Alternative Fuel Vehicles and Solutions. The facility will be located at GE Capital Fleet Services' headquarters in Eden Prairie, Minnesota. The center allows GE's clients to view new research and development projects the company is developing in the alternative fuel vehicles that are powered by liquefied natural gas (LNG) such as propane, methane, hydrogen, electric, compressed natural gas (CNG) and natural gas.
The new center is committed to finding new technologies that further the adaptation of alternative fuel vehicles that would provide cheaper and more efficient forms of energy for transportation companies. It should be welcomed by natural gas drillers such as Chesapeake Energy (CHK), Exxon Mobil (XOM), Devon Energy (DVN), ConocoPhillips (COP) and Anadarko Energy (APC) because there could be huge benefits going forward if there could be collaboration between private industry, the government and natural gas producers.
President's or T. Boone Pickens Plan?
President Obama produced a plan in January 2012 that encouraged transportation and trucking companies to convert over to alternative fuel vehicles, primarily LNG or CNG. The President has talked openly about moving forward in providing tax breaks and subsidies to help construct more LNG service stations.
Yes, it would several years if not decades to construct enough LNG service stations, but this action would certainly benefit larger corporations like United Parcel Services (UPS), DHL (DHL) and FedEx (FDX). But it also makes sense to start with larger transportation and trucking companies because there would be a noticeable difference in foreign oil imports. In addition, at current natural gas prices, big-wheelers could pay 42% less than the price of diesel. In February, a gallon of diesel cost $4 and the equivalent in LNG or CNG was roughly $2.60.
T. Boone Pickens has bought into the idea of LNG service stations. In fact, much of what President Obama has been pushing is very similar to T. Boone Pickens; Pickens Plan. Pickens, who owns Clean Energy Fuel (CLNE), has personally met with the White House seven times to promote clean energy and the use of LNG. Clean Energy Fuel is growing and the company believes it will have some 70 LNG service stations in 33 states by the end of 2012 in full operation. Countrywide, there are only 45 LNG service stations and well over 5,000 diesel truck service stations.
One drawback has been the cost of developing and manufacturing natural gas powered trucks. It is estimated that a diesel truck can be constructed for about $100,000 compared with costs of $50,000-$100,000 added to the price tag of a natural gas truck. Most of the big name truck manufactures such as Kenworth, Freightliner and Peterbilt, are producing natural gas trucks as well as a few smaller companies like Westport.
But this is where GE comes into play again with the engineering minds and the capital to fund research and development projects. Sure, it seems simple enough, but GE is in a position to capitalize on something the company can sell to the public. Look, we know the feel-good television commercials GE likes to produce, and producing technology that could further the reduction in green house gases allows GE to capitalize with a green attitude.
Currently, UPS is conducting a pilot program utilizing 48 natural gas trucks that are traveling from Las Vegas to Utah and the West coast. Wal-Mart (WMT) in California have also been running between distribution centers and retail outlets as well as Ryder Systems (R) has 35 natural gas vehicles available for users in Southern California. In addition, Waste Management (WM) has instituted a new policy that going forward 80% of new fleet acquisitions will be natural gas vehicles. But again, the problem is long distances, with most fleet conversions taking place are with transportation companies that trucks return to a home base where central fuel stations are available.
There is a lot of upside potential in LNG vehicles and for natural gas companies to have a secure and viable outlet for their natural gas products, whether it's CNG or LNG. But the bigger winners could be natural gas producers in the U.S. The largest producer of natural gas in the U.S. is Exxon Mobile followed by Chesapeake and then Devon Energy. All three of these companies would be in a prime position to supply the expected 100-year reserve of natural gas that has been speculated the U.S. contains in the ground.
Okay, so we are in the middle of a terrible cycle for natural gas providers and natural gas prices are hovering around $2.50 per unit. But I think there is tremendous value in the future to produce long-term earnings from LNG and alternative fuel vehicles and with every round of higher oil prices, trucking and transportation companies will be searching for ways to lower costs. With new LNG service stations opening everyday, the outlook going forward is positive for manufacturers as well as natural gas providers.
I believe GE is a manufacturer that fits well with the future growth of LNG vehicles and LNG service stations and GE has the capacity to fund research and development fully in order to achieve its goals.
For this strategy to work the country would need an aggressive build out of LNG and CNG service stations at a national level. GE is in good position to accomplish this, with GE Fleet Services and GE Capital providing financing or bridge loans to complete the build out. GE is a strong and diversified company that has made strides in clean energy equipment production.
Recently, GE Capital CEO recently said that the problems in Europe were manageable and earnings might feel pinched, but GE planned for the worse. Europe is as bad as anticipated, but 85% of the loans are secured by property of some sort. GE has steadily climbed no matter what the news out of Europe does to the overall market.
I believe the stock will break out above $21and make headways for a new 52-week high when fears of Europe cease to exist. Most analysts have a target price of GE around $23 - which would be a 20% gain from the $19 level. GE also has an attractive dividend of $0.68 per share that can keep you in the game until Europe turns around.
GE has shown over the last month that investors understand that the product and service lines of GE are strong, even in a down economy. I think a person should park some money into GE and watch it grow with every LNG service station constructed in the future.