Clean Energy Trifecta: Trucks, Tweaked Engines and a Tycoon’s Natural Gas

Includes: CLNE, CMI, WPRT
by: Carol Flake Chapman

You know something’s afoot (or in this case, ready to rev) when a Texas oil tycoon like T. Boone Pickens calls one of his companies Clean Energy (NASDAQ:CLNE). That is, when he’s not trying to corner the market on water or harness the strong winds in the Texas panhandle.

Pickens has become a true believer in natural gas as a fuel for transport. He controls a majority of shares of Clean Energy, which provides CNG (compressed natural gas) and LNG (liquefied natural gas) for use in refuse, transit, ports, shuttle, taxi, trucking, airport and municipal fleet markets. He even has a fuel terminal named after him.

There are plenty of reasons, from high diesel prices to global warming, to look to natural gas as an alternative fuel in certain niches, and some cities and companies are remaking their truck and bus fleets to run on natural gas. Some 20% of new transit buses on order will have natural-gas-powered engines.

Waste Management (WMI) operates a fleet of nearly 500 gas-powered trash trucks, and UPS (NYSE:UPS) just announced a new order for 300 new CNG vehicles. Pickens’ CLNE fuel will fill the tanks of many of these vehicles. Pickens is also invested heavily in Westport Innovations (WPIVF.PK), a Vancouver company that makes “proprietary solutions” allowing engines to operate on clean-burning fuels such as CLNE’s compressed natural gas [CNG] and liquefied natural gas [LNG], as well as hydrogen and biofuels such as landfill gas.

Westport’s flagship product is its high-pressure direct-injection technology, or HPDI, which turns natural gas into a viable fuel for heavy-duty engines. Like gasoline, natural gas needs an ignition source to burn, while diesel engines rely on the heat and pressure derived from the upstroke of the piston. Westport has managed to combine these two technologies with its innovative HPDI.

Pickens’ interest in Westport is shared by Cummins (NYSE:CMI), another unlikely but increasingly convincing addition to the clean energy crowd. Cummins-Westport is a joint venture, using Westport’s modifications to tweak Cummins engines into clean machines. The tweaking allows Cummins’ diesel engines to operate on natural gas, without the usual nasty particulates spewn out by a typical diesel engine. (We’ve all been in the smelly wake of a typical diesel.) The Cummins-Westport system works by compressing a small amount of diesel fuel, then, at the point of ignition, injecting natural gas directly into the cylinder, at high pressure. The result is plenty of power sans pollutants.

Westport-Cummins is collaborating with Sterling, Daimler’s (DAI) U.S. division, which just announced the launch of its first natural gas-powered vehicle, the Sterling Set-Back 113, featuring the Cummins-Westport ISL G engine. The company is also working with Peterbilt in a number of projects, including a natural gas version of Peterbilt’s Model 386 for Wal-Mart (NYSE:WMT). The trucks, which will meet 2008 EPA and CARB emission levels, will be eligible for federal tax credits as well as state-specific emission credits.

Tweaked trucks might seem to be a limited niche, but demand for the Cummins-Westport engine has been fueled by such clean-energy initiatives as California’s Clean Air Action Plan [CAAP], which focuses on alternative fuel use to reduce the heavy truck-created pollution around its ports. The CAAP seeks to reduce diesel fuel pollutants from port sources by nearly 50 percent in five years and anticipates the replacement of more than 16,000 old diesel trucks with new LNG trucks as well as new or converted diesel trucks that meet standards for reduced particulate emissions.

In March, Southern Counties Express [SCE] placed an initial order for 50 Kenworth LNG T800 Class trucks, representing a value of $4 million to go to Westport. The trucks, to become part of SCE’s GreenFleet, were purchased with financial support from the San Pedro Bay Ports’ Clean Trucks Program, led by the Port of Los Angeles, the Port of Long Beach and the South Coast Air Quality Management District. All this makes for a nice three-way play on clean energy, with Cummins in the driver’s seat.

Cummins, which you could have gotten at the bargain-basement price of $50 a share just a month ago, has already surpassed the price target set by some analysts. But its recent earnings report and an upbeat statement by its CEO indicate considerable upside, at least in the long term.

Cummins showed strength across all its business segments, both in the U.S. and international market, including China and India, and it increased its market share substantially for its medium-duty and heavy-duty truck engines. (Note: Westport’s price jumped initially with the announcement of the CAAP initiative, but has settled in the mid 3.50 range.)

One drawback is that its trading volume in the U.S. is light (it’s traded over-the-counter, with stock ticker WPIVF.PK in the U.S., WPT on the TSE). Clean Energy meanwhile continues to add to its garbage-truck fueling business, with the cities of Brookhaven, New York, and Fresno added to its list of customers. It will also be fueling taxis near the Golden Gate Bridge, as part of San Francisco’s Green Taxi program.

Disclosure: Author holds long positions in the above-mentioned securities