Clean Energy Fuels Corp (NASDAQ:CLNE) is at the forefront of a push to switch the United States from gasoline to natural gas. While the potential benefits of such a change are huge, so are the risks for a relatively small company focused solely on that potential.
Clean Energy Fuels Corp (NASDAQ:CLNE) is supporting the shift to natural gas fueled vehicles all along the transition. For example, it switches vehicle engines from gasoline to natural gas and, at the other extreme, it owns or supplies fuel to almost 350 natural gas fueling stations.
Basically, the company is betting everything on a switch from gasoline to natural gas. That makes it a highly leveraged play on the success of what appears to be a burgeoning industry.
Growth is expensive
The demand for natural gas as a fuel and the infrastructure to support it are both lacking. That means that someone has to step in and take some risks to push the market forward. Clean Energy Fuels Corp (NASDAQ:CLNE) is doing this. However, it is a small company, with just over a $1 billion market cap.
While the company’s debt level isn’t notably high, it is high enough to be concerning for a company that isn’t making money. In fact, building the business has kept the company in the red for all of its relatively short public life.
The current push to build a liquified natural gas fuel system to support long-haul trucks is an example of what Clean Energy Fuels Corp (NASDAQ:CLNE) is facing. Although the company has built about 70 stations in strategic locations across the country’s interstate system, less than 10 are currently in operation. While this positions the company well for an eventual shift, it built over 60 stations that are just idle assets.
A problem for the company is that it isn’t alone in the market. For example, both Exxon Mobil Corporation (NYSE:XOM) and Royal Dutch Shell plc (ADR) (NYSE:RDS.A) have made natural gas a priority. And both companies have existing fuel station networks and massive cash flows to support a quick build out of natural gas fueling stations. In fact, Bloomberg reports that Shell has plans for at least 100 such stations.
Clearly, a company the size of Shell, which would have control over both the drilling and delivery of natural gas, would be better positioned to finance a build out. It would also have a leg up on profitability, since it wouldn’t have to pay a middle man for the fuel it would sell. Shell would be a better option for conservative investors.
Natural gas is a commodity
Natural gas prices in the Untied States have languished at historical lows for several years. The reason for the low pricing is a glut of natural gas created by new drilling techniques. So-called “fracking” involves pumping water and a propriety chemical and sand mixture into the ground to free up trapped gas.