Open Heart Surgery for America’s Highways – Clean Energy Fuels (CLNE) has the prescription: Chesapeake Energy (CHK)

Clean Energy Fuels (CLNE)Every year 935,000 Americans have a heart attack, attacks that on average are responsible for 1 of every 4 deaths annually.

Like the clogged arteries symptomatic of heart disease, the nation’s highway and rail transport systems are being clogged by an unhealthy (environmentally) and costly fuel source, diesel and gasoline.

The prescription

Clean Energy Fuels Corp (NASDAQ:CLNE) , like a heart surgeon in an operating room, is working to carefully insert a stent into the clogged vein of commercial transport. Clean Energy Fuels sells natural gas as an alternative fuel for both over-the-road trucking and for railroads. In addition to sourcing both compressed natural gas (CNG) and liquefied natural gas (LNG), the company also sells the equipment, engineering, and assists in arranging financing for the infrastructure needed to operate this technology.

Most significantly, Clean Energy is developing “America’s Natural Gas Highway,” a strategically designed program of LNG refilling stations located along interstates across the US. The vision is to create a coast-to-coast network of natural gas infrastructure to drive demand for natural gas fueled vehicles in commercial trucking.

The news is awash in stories about the modern day boom towns in North Dakota as people from across the country race to cash in on the black gold of the Bakken fields. The US is well on its way to energy independence as new fracking technologies open up previously inaccessible fields of gas and oil. The Energy Information Administration calculates that 99% of domestic natural gas consumed in 2012 was supplied from fields in either the US or Canada. As a fuel source, natural gas is proving abundant, and domestic.

The challenge though, is updating the infrastructure in the US to take advantage of natural gas (versus the historical reliance on crude oil, gasoline, and diesel). And that is where Clean Energy Fuels Corp (NASDAQ:CLNE) Fuels differentiates itself from its competitors.

Take Chesapeake Energy (NYSE:CHK) as an example. Chesapeake, with a market capt of $13.8 billion, is a behemoth relative to the $1.24 billion Clean Energy. Chesapeake, despite ongoing distractions caused by mismanagement and activist investors, still produced $12.32 billion in trailing 12 month revenue, gross profit of $2.73 billion, and positive EBITDA of nearly $4.5 billion.

The key difference is that Chesapeake is a producer of natural gas. They are a commodity player who invests in the drilling, rather than the use of the product. This is a key distinction, and one that puts Clean Energy in a position for massive growth over the next 5 years.

A significant risk for Chesapeake is volatility in the commodity pricing for both petroleum and natural gas. The Chesapeake business model only works if the commodity prices are high enough to overcome the massive capital requirements to develop, prospect, drill, and extract the commodity. In the last few years, basic supply and demand have forced prices dramatically lower.