Clean Energy Fuels: A bright future

I see compelling long-term fundamentals behind Clean Energy Fuels Corp. (CLNE); notable are the firm's excellent vertical integration and its prospects for a leadership position in providing natural gas to long-haul truckers across America.

Currently priced signi?cantly less than diesel or gasoline, American natural gas produces up to 30% lower greenhouse gas emissions in light-duty vehicles and 23% lower emissions in medium to heavy-duty vehicles.

According to EPA data, replacing just 10% of diesel engines used in heavy-duty transportation with clean-burning natural gas engines could cut nitrogen oxide emissions (NOx) by as much as 200,000 tons per year, reducing air pollution.

Two roadblocks appeared that could derail CLNE�s upward ascent: 4Q 2011 earnings below consensus expectations and failure to pass the The NAT GAS Act (New Alternative Transportation to Give Americans Solutions Act) in the U.S. Senate. I think both issues are temporary.
While passage of the bill would have been a positive �political� vote of con?dence, Clean Energy Fuels Corp. does not need the tax incentives to survive.

Rather, the company has elected along with a few partners to move forward with building LNG/CNG (lique?ed natural gas and compressed natural gas) stations across major U.S. trucking transportation arteries.

LNG fuels heavy duty trucks, while the CNG is better suited for light-truck and automobile vehicles. That�s called building or believing in your future and not waiting for government economic handouts.

Clean Energy Fuels Corp. is targeting to build as many as 75 stations by the end of 2012 and 150 or more by the end of 2013. The company has raised $450 million of committed capital to help fund this infrastructure expansion project.

• Clean Energy Fuels Corp. has partnered with Pilot Flying J, a major truck highway station owner with 450 truck stops that sell roughly eight billion gallons of diesel.
• The company has also signed up Coral�s Petroleum, a mid-Atlantic truck fueling station with 180 locations.
• It built a compressor company and two LNG fabrication construction companies with a nationwide network of construction people to build more and operate them.
• Additionally, the company has entered the waste transportation market, targeting to initially build 12 or 15 refuse fueling stations in 2012, with both Republic Services and Waste Management Inc. Waste Management has stated that roughly 80% of the trucks it intends to buy in 2012 will be natural gas-fueled.
• The CEO of Swift Transportation, the largest trucking company in the U.S., has said that he believes natural gas ?eet penetration could reach 40% in just four years� time.
• Clean Energy Fuels Corp. has formed an exclusive strategic relationship with Navistar, one of the country�s largest truck builders to do joint marketing/fueling arrangements.

On balance, the future looks bright for CLNE. The company has clearly seized the ?rst mover advantage in an energy fueling story that becomes more compelling each day as natural gas prices sink lower and crude oil/gasoline prices move higher.

The question facing the growth of mechanized vehicles powered by natural gas is not when, but to what extent, and to what point do we think it will be a transformative event. Our price target is $28 over the next three months.




Related articles:

• Solazyme: Fuel from algae?
• Delta Natural Gas: A 2-for-1 buy
• Devon Energy: 'In control of its destiny'
• Ultrapar: Brazilian energy