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Union Pacific Corporation (UNP), Clean Energy Fuels Corp (CLNE): Will Buffett’s Newest Move Challenge the Competition?

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Union Pacific Corporation (NYSE:UNP) has the type of one-year stock chart that dreams are made of, marching steadily higher with very little volatility. Moving stuff around the country is a great business, and one that appears to produce the type of steady returns we’d all like to see in our portfolios. Unfortunately for holders of Union Pacific stock, Warren Buffett may be angling to spoil all of that.

A few weeks ago, Berkshire Hathaway Inc. (NYSE:BRK.B)‘s BNSF Railway Co. announced that it would be launching a pilot program to test the viability of transitioning locomotives from burning diesel to running on liquefied natural gas, or LNG. Despite the significant cost of retrofitting BNSF’s 6900 engines to accept the alternate fuel source, the comparable amount of energy available from LNG to a gallon of diesel is dramatically less expensive. Such a change would completely upend the rail industry and force holders of Union Pacific Corporation (NYSE:UNP) stock to evaluate how such a change might impact their shares.

The week ahead
The company is scheduled to release earnings on Thursday and the street is expecting a 9.5% rise in first quarter EPS to $1.96 per share, and a 2% uptick in revenues to $5.22 billion. Both statistics should keep Union Pacific stock moving higher an “on track,” but the industry shakeup is not likely to occur in the near-term.

Union Pacific Corporation (NYSE:UNP)Kansas City Southern (NYSE:KSU) is reporting on Friday. The street expects Kansas Southern to report EPS of $0.88, a 17% bump on a revenue increase of 4.4% to $571.3 million. One of the primary catalysts for the increase is the shale oil boom that is most likely to shake up the industry. Where Union Pacific Corporation (NYSE:UNP) is benefiting from increased coal shipments, largely on the West Coast, Kansas Southern transports oil.

The shale boom in North Dakota and other places – a significant source of the oil for Kansas Southern to transport – has produced the supply of LNG to make it an increasingly viable fuel source. At some point soon, Union Pacific stock will be deeply affected by LNG.

The LNG highway
LNG is not only impacting rail, but trucking as well. Clean Energy Fuels Corp (NASDAQ:CLNE) is championing America’s Natural Gas Highway to build LNG fueling stations across the country to allow truck freight to move solely on the alternate fuel. While Union Pacific stock is not heavily reliant on intermodal – shipping containers that can move by ship, rail, or truck – the appeal for intermodal is obvious. As companies become less reliant of diesel and more reliant on LNG, Clean Energy Fuels Corp (NASDAQ:CLNE) may be able to expand to supply major railroads as well. The interconnectedness between rail and trucking is long-established and should not be overlooked.

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