While electric cars may seem the latest fad, with Tesla, Inc. (TSLA) and Elon Musk, the new Thomas Edison infused with Jules Verne's tales, these vehicles are pretty much "coal cars" since 30% of the U.S. electricity generation is powered by dirty, pollutant thermal coal.
While the U.S. is in the slow process to phase out of coal-fired power generation, it will still be some years before that coal-fired electricity supply can be replaced by cleaner fuels, such as natural gas. The U.S. is still the second largest consumer of coal after China.
The Race of Electricity vs. Natural Gas-Powered Vehicles Is On
For those already long Tesla shares, we recommend hedging exposure with long positions in Clean Energy Fuels Corp. (CLNE) , a $575 million market-cap provider of compressed natural gas solutions (CNG) for the transportation industry. What we like about CLNE is its partnership with Total S.A. (TOT) , France's national oil company, to drive deployment of new natural gas heavy-duty trucks. TOT owns 25% of CLNE shares.
CLNE has also deployed technology for passenger vehicles, primarily fleet services in airport stations. We believe it is just a matter of time until conventional car manufacturers adopt or partner with CNLE to deploy its technology to upgrade their engines to run on natural gas.
Just a few weeks ago, CLNE launched its Zero Now Financing program, which makes the cost of leasing or purchasing a new natural gas heavy-duty truck equipped with natural gas, equal to the price or even lower than that of a truck equipped with a diesel engine. This is a major milestone for the trucking market since the fuel supply infrastructure is being built by CLNE (compared to the dreams of Musk's electric truck, Semi).
In the Permian in West Texas and New Mexico, where pipelines filled to capacity threaten to curtail further drilling for both crude oil and its byproduct, natural gas, CNG and small-scale LNG transportation and power generation is a break-through solution.
Using Natural Gas to Power Drills, Newest Push to Ease Permian Bottlenecks
The most recent technological trend in the industry is driving producers to liquefy natural gas into a truck (called "micro LNG"), which may help the Permian Basin deal with its growing gas excess. Trucking it lets producers power their drilling operations with cheap, abundant and accessible natural gas, which could save as much as 30% in costs versus diesel. Another bullish signal for CLNE.
Large LNG players such as Siemens AG (SIEGY) and Baker Hughes (BHGE) are in discussions with producers to build multiple small LNG production plants in major U.S. shale basins, seeking to create a new outlet for natural gas production at a time when producers are urging regulators to let them burn it off into the air.
Most recently, BHGE entered in discussions with Snam S.p.A, an Italian natural gas transmission system operator, to develop micro-liquefaction infrastructure to boost heavy-duty trucks and maritime transportation in Italy. On its part, Siemens's Dresser-Rand business recently commissioned an LNG micro-scale natural gas liquefaction system for Altagas Ltd. (ATGFF) in Dawson Creek, British Columbia, Canada. The modular technology is designed to enable efficient installation in demanding environments.As natural gas becomes more abundant as a consequence of oil production in the Permian Basin and other major Basins, gas prices will remain low until enough infrastructure is built to reduce the spread between global LNG prices and U.S. prices.