A Play on the Nat Gas Fairy

 | Aug 16, 2012 | 7:28 AM EDT
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I'm torn about Westport Energy (WPRT). There's no doubt that it is a terrific speculative trade -- just a great one -- as long as natural gas remains low. Judging by the glut here, that's going to be a multiyear forecast. Even if nat gas goes $2 higher, it will still have the edge on diesel.

Plus, I think CEO David Demers has done a remarkable job getting the company to establish a joint venture with the right guys -- Volvo, Caterpillar (CAT) and, of course, Cummins (CMI). His deals with General Motors (GM) and Ford (F) are remarkable, as well.

But I think it's a bit fanciful to think the marketplace will shift to natural gas engines on its own. The U.S. doesn't have enough filling stations. Not enough incentives are offered, given the high upfront costs. Plus, nat gas doesn't have the support that the government gives electric and ethanol -- support so monstrous and demonstrable that everyone in every part of the food chain has to be on board for it.

Instead, we have the gradual conversion of a couple of truck stops and the building of as many stations as one small capitalized company, Clean Energy (CLNE), can do.

This shift has to be a national purpose. It has to be a national goal to become a reality. It's just unrealistic right now for anything wholesale to come of this. We aren't seeing anywhere near the level of change in infrastructure or the amount of short-term incentives to switch.

Plus, we know neither presidential candidate endorses any subsidies for the fuel -- even ones that should pay for themselves, as the Natural Gas Act that Boone Pickens fathered would have done.

Regardless, it is true that Westport could still make it big. Further, despite mild protestations from Demers that things are happening fast here and that it will work sooner than I think, it is China that seems to have the all-out government support for cleaning the skies and kicking the OPEC habit -- and you wonder why they are such a threat to us. They aren't going to let their country be hostage to OPEC -- and us?

I don't think either candidate even thinks it is possible that we could break OPEC's hold on things. I know that, because isn't possible without nat gas as our surface fuel.

So, understand this: As much as I was behind Westport all the way, I now recognize that it has to be bought on one of these pullbacks that affect all speculative plays. It can't just be bought on the hope that the natural gas fairy will one day buy several hundred thousand truck engines using Westport technology.



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