The Energy Boom They Won't Talk About
It Hit an All-Time High...
BAM! 150% gains in three days.
Last Thursday I told you about Westport Innovations (NASDAQ: WPRT), a company that makes natural gas truck engines.
I laid out the technical and event-driven arguments for why the stock would take off...
It did. If you took my words to heart, you just doubled your money.
The stock may continue to go up from here, but it is always a good idea to take profits when trading options. (Of course, I'll leave that up to you.)
CNG to LNG
2013 will be the year that natural gas for transportation finally hits the tipping point.
I've been hearing about natural gas since I was knee-high to a grasshopper in the early 70s. Like Brazil, natural gas was always the energy of the future...
The future is here.
The natural gas trucking market in the United States has historically been faced with a chicken-and-egg dilemma. There weren't enough nat gas-powered trucks out there to support building fueling stations across the country, and vice versa.
The solution to that problem is approaching rapidly, due to the massive cost advantages that NG has over diesel.
Assume you drove 50,000 miles a year in a truck that got six miles to the gallon...
Diesel costs about $4.50, and CNG equivalent costs about $1.75 per gallon equivalent. Add in the extra $50k for the price of the NG engine over the diesel, and subtract $32k in government incentives, and you would get a cost savings of $191,898 a year.
The additional NG cost of the truck would pay for itself in 0.94 years. And with economies of scale, the additional cost of a NG engine will drop to around $25k.
That kind of savings speaks for itself... which means NG long-haul trucking is about to accelerate.
There are now 1,190 compressed natural gas (CNG) stations and 78 liquid natural gas (LNG) fueling stations across the country. Clean Energy Fuels (NASDAQ: CLNE) just bought an LNG refinery from GE and is building another 75 stations to sell to long-haul truckers.
What's the Diff?
LNG is better for heavier trucks and locomotives (GE is building these); CNG is better for cars and fleet vehicles, like the kind used by UPS and FedEx and for waste management.
There are a lot of big players pushing this trend. Royal Dutch Shell (NYSE: RDS-A), for one, is betting big that LNG will expand. Shell thinks the use of LNG will double to 400 million tons by 2020 and could hit 500 million tons by 2025. This growth will require a industry investment of $700 billion worldwide.
Both Shell and ExxonMobil (NYSE: XOM) produce more natural gas than they do oil.
Less than one-tenth of 1% of vehicles burn natural gas today.
We're rocking the tip of the iceberg, baby.
Lots of Upside
No one is saying the trucking fleet will change overnight, but you should know the average age of the truck on the road today is older than 11 years. This is the oldest the trucking fleet has been since the 1970s.
When these trucks are replaced, as many as one-third of the new ones will run on natural gas.
Pike Research expects LNG truck sales will grow 17% a year for the next six years, while CNG truck sales will increase 14%. They expect 930,000 NG trucks will be sold between 2012 and 2019.
I think Pike is playing down these numbers...
The infrastructure is reaching the next stage, and the engine technology is there.
For example, General Motors (NYSE: GM) is now offering a dual-fuel Sierra 2500 HD truck, which you can order today (though the cost before government incentives is an extra $11K).
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Transports are on Fire
We have the savings, we have the technology, and now we have the growth.
The Dow Jones Transportation Average just hit an all-time high. It's up 20% since October:
The trucking company JB Hunt Transport (NASDAQ: JBHT) is up 28% over that same time period. It too is at an all-time high.
Furthermore, the need for truck drivers has been growing at more than 8% per year. Salaries are up 9.7% from 2011 to $39,830, and many are getting $5000 signing bonuses.
And still, the industry is 125,000 drivers short of demand. That shortfall is expected to double to 259,000 by the end of 2013.
The For-Hire Truck Tonnage Index hit the second highest point in forty years in December. The highest ever was a year ago December.
Trucking is back — which means the economy will come back in the second half of 2013.
This will create a reinforcing loop where more trucking equals more NG trucks... which means the industry as a whole, up and downstream, is about to take off.
All the best,
Since 1995, Christian DeHaemer has specialized in frontier market opportunities. He has traveled extensively and invested in places as varied as Cuba, Mongolia, and Kenya. Chris believes the best way to make money is to get there first with the most. Christian is the founder of Crisis & Opportunity and Managing Director of Wealth Daily. He is also a contributor for Energy & Capital. For more on Christian, see his editor's page.