Clean Energy Fuels (NASDAQ:CLNE) stock has plummeted from 10.27 (May 1, 2015) to the 6.20's as of this writing on June 26, 2015. That represents over one-third of the company's value going down the drain, due apparently to the end of a short-scare. Shorts seem certain that the price of oil will put a lid on CLNE revenues.
CLNE Andrew Littlefair assured investors that as long as the price of oil does not remain in the $40 range for a protracted length of time, that the company's clockwork expansion will continue, ticking along at 20% per year (or closer to 30%, as indicated by recent quarters).
But let's put the price of oil aside momentarily. CLNE, through its fully-owned subsidiary IMW, has a natural gas station equipment supply agreement with China Gas Holdings, chaired by Chinese billionaire Liu Ming Hui.
According to Forbes, China Gas Holdings was recently awarded loans totaling $300 million to build natural gas fueling stations in China.
"IFC's support provides us with the necessary capital to pursue our expansion plans, including investment in more than 30 new city-gas projects and the construction of 200 natural gas stations every year," said China Gas Chairman Liu Ming Hui said in a statement.
This was reported at Forbes.com on May 2, the day after CLNE's recent high.
If IMW were to supply 200 natural gas stations every year for China Gas Holdings, the revenues would go a long ways to fulfilling the $160 million potential value of the contract between IMW and China Gas Holdings. For context, trailing twelve months revenue for CLNE was less than $420 million. It is not clear how much revenue each station represents for CLNE.
It would seem, though, that after a lackluster Q1 for IMW (which brought earnings below expectations) Q2 through Q4 this year may prove quite lustrous, considering the IFC announcement was made in May.
Meanwhile, climate change surges forth at light-speed, in geological terms. Shellfish in the northwest United States are unable to reproduce, prompting seafood businesses to become mussel lovemeisters. A bizarre heatwave kills several hundred in Pakistan. Coral reefs -- the rainforests of the oceans -- are dying off.
And yet, in the United States, Clean Energy Fuels is starting to pump trucks full of what many government bodies consider to be zero-emissions fuel. I speak of Redeem, the natural gas fuel derived from gases emitted by landfills.
United Parcel Service (NYSE:UPS) celebrated a public relations coup in May when it signed a contract to fuel its trucks with millions of gallons of Redeem. This makes UPS the biggest user of what is called renewable natural gas (NYSE:RNG). There are hundreds of landfills in the United States alone, and thousands worldwide. CLNE has proven that it can build RNG plants on top of these landfills, and it sold one of its partially-owned RNG plants for cash in January. At that time, it added 12 RNG sources to its supply chain. Look forward to seeing more Redeem in California and other U.S. states.
Japan's ambitious emissions goals have been considered unrealistic in light of their withdrawal from nuclear energy following the Fukushima disaster. That nation is now considering immediatelyconverting 30,000 heavy-duty trucks to LNG and having a total of 500,000 trucks running on LNG or CNG by 2030. If IMW won a supply agreement there, or if CLNE built stations there, revenues may skyrocket.
For context, only about 3500 LNG trucks operate in the United States.
Of course, if Westport Innovations (NASDAQ:WPRT), through its Cummins partnership, sold 30,000 trucks in Japan in a couple of years, their market cap may multiply.
Back in the United States, Shell Corporation recently made an industry presentation during which it confidently publicized its desire to compete with CLNE in supplying LNG through fueling stations. At first blush, this seems to be a negative for CLNE.
But the one issue holding back the widespread adoption of natural gas trucks in the United States is a full forty-eight state network of filling stations. Shell announced that it may build ten to fifteen stations over the next year; this would add to the America's Natural Gas Highway that CLNE has been building for years now, bolstering the natgas network viability. Who wants to get stuck in an 18-wheeler in the Texas summer with no fuel?
Shell says that the number of LNG trucks in China will triple from 330,000 to about a million, and that the fuel needs for the world will double in the next fifty years. If indeed the world uses double the fuel, and if the world wishes to maintain the current level of carbon emissions (which may already doom the world to runaway warming), then the vast majority of that energy would have to come from natural gas and vehicles fueled by solar, wind and other zero emissions sources.
The mix could look something like 62% natural gas and 38% solar, wind and other zero-emissions fuels. Currently natural gas vehicles emit at least 20% less carbon than diesel. CLNE's Redeem is in the zero-emissions category.
The federal government is priming the industry for a natural gas future. In an effort to reduce emissions, the government last week passed new emissions and fuel standards for large vehicles. Trucks, large pick-ups, buses, and vans must achieve up to 24% lower carbon dioxide emissions and fuel consumption.
While these regulations do not take effect until 2021, truck fleets will certainly have to convert their fleets in the coming years. Perhaps the easiest solution involves buying natural gas trucks, many of which already represent a 23 percent decrease in emissions.
While large vehicles represent only 4% of total vehicles, they create 20% of the carbon emissions in the United States. There is huge room for improvement. Only 6% of sanitation trucks and 1% of buses utilize the cleaner natural gas. Converting 50% of large vehicles to natural gas may reduce emissions from this sector by well over 10%, a massive reversal of the hockey stick rise in carbon emissions.
Make no mistake. The desire for a safer future for us and our children is driving massive political mobilization for lower carbon emissions worldwide.
Voters are voting for a cleaner future.
Over half of the world live in nations with unbearable pollution conditions. I am looking at you, China, India, and others. In China "cancer clusters" have been causing political unrest for a decade now, and the government has announced major reforms to transportation fuels. Investors await the impact on sales of natural gas and electric vehicles.
Shell sees the future, and China is leading it. The United States will follow over the next five years, and Shell wishes to take a larger stake of that natural gas fuel future here. The easiest way would be to swallow up CLNE at a time when their stock price is a third of what it was in Q1 2012.
The longer Shell waits, the more stations CLNE opens, and the more share it gobbles up of the massive new market Shell envisions; CLNE actually accelerated its gas sales expansion even as the price of oil plummeted.
CLNE has stations ready to go. They have them built and simply needs to put in the $10,000 each to start them running. So, Shell can add 10 stations at whatever price they need to build them; or they can add ten stations for $100,000, if they owned CLNE.
CLNE's market cap is about 500 million and Shell's market cap is nearly 200 billion. Shell needs a face-lift; in the eyes of many millennials, it is one of the horsemen of climate apocalypse. If it were to expand zero-emissions fuel to the fifty states (and every state has landfills), it would look so much less, well, Shell-like.
Finally, CLNE's stock price rocket ship from $5 to $10 was likely fueled by short interest quickly covering. And yet, the short interest in this stock remains stubbornly high, at 17.6 million shares (over three weeks' worth of average trade volume).
If rumors for a buyout were to circulate, the stock would once again skyrocket.
If not, 27% annual growth in gallons sold (see last quarter) will quickly bring major profits. After all, the buildout of stations is largely over; increasing gallons sold at existing stations will cause gross margins to balloon rapidly. Despite the drop in oil prices, CLNE saw a 7% increase in margin per gallon in Q1 alone. This, more than anything, was likely the source of the latest short squeeze.
A 50+% increase in stock price from 6.3 to over 10.00 is not a dirty fantasy for Clean Energy Fuels. And with this stock's history, it could happen in the span of a couple of weeks.
Disclosure: I am/we are long CLNE, WPRT.