Siemens AG (ADR) (SI), Caterpillar Inc. (CAT) and Westport Innovations Inc. (USA) (WPRT): Will These Big Engines Stay on Track?

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When people think of revolutions in transportation, they probably don’t think of the railroads. But, that might be changing sooner rather than later.

All Aboard!

Last week Amtrak revealed a plan to replace 70 of its older locomotives with newer, more efficient models. Utilizing a braking system that converts 100% of the energy it uses back to the electric grid, the new engines, built by Siemens AG (ADR) (NYSE:SI) will potentially result in savings of up to $300 million over 20 years.

Joseph Boardman, Amtrak President and CEO, believes that “[t]he new Amtrak locomotives will help power the economic future of the Northeast region, provide more reliable and efficient service for passengers and support the rebirth of rail manufacturing in America.”

Siemens AG (ADR) (NYSE:SI)Siemens AG (ADR) (NYSE:SI)’ commitment to the railways is also demonstrated in their acquisition of Invensys Rail, a leading global supplier of signaling and control equipment. Roland Bush, CEO of Siemens’ Infrastructure and Cities sector stated that the acquisition is important because, “[t]his business will ensure profitable growth opportunities worldwide for the Siemens Infrastructure and Cities Sector and create a truly global player.”

Although the Amtrak deal and Invensys Rail acquisition are both promising developments, Siemens AG (ADR) (NYSE:SI) reported a 90% year over year decrease in its Infrastructure and Cities Sector profits to $35.66 million (€27 million). Siemens attributed the drop due to higher project charges in the Transportation & Logistics division.

Freight Trains

As the natural gas production boom continues in the U.S., several trucking companies have been converting to natural gas engines. But, the trucking industry is not the only one that is experimenting with the conversion.

Canadian National Railway (USA) (NYSE:CNI), for example, is committed to testing the viability of natural gas-powered locomotives. It has retrofitted two diesel locomotives and is testing them on a 300 mile stretch between Edmonton and Fort McMurray, Alberta. In addition, CN plans, next year, to begin testing two 4,300 horsepower natural gas locomotives produced by Electro-Motive Diesel, a subsidiary of the Caterpillar Inc. (NYSE:CAT) company, Progress Rail Service.

According to Billy Ainsworth, a vice president of Caterpillar and president and CEO of Progress Rail and its subsidiaries, development of the natural gas locomotives should be completed in less than five years. Caterpillar Inc. (NYSE:CAT) will also be partnering with the worldwide leader in natural gas engine technology, Westport Innovations Inc. (USA) (NASDAQ:WPRT), who will contribute its high pressure direct injection (HPDI) technology, which according to Westport is “the only engine technology that maximizes natural gas use while maintaining equal horsepower, torque and efficiency characteristics of a diesel-fueled engine.”

It’s no secret that Warren Buffett believes strongly in the value of the railroads. In 2009, Berkshire Hathaway Inc. (NYSE:BRK.A) bought Burlington Northern Santa Fe in what he called an“”all-in wager on the economic future of the United States.” As natural gas production in the U.S. continues to boom, he is increasing that wager. According to Buffett, in the third quarter of this year, BNSF will begin testing natural gas locomotives, and, if all goes well, they will begin to retrofit locomotives next year. “The use of liquefied natural gas as an alternative fuel is a potential transformational change for our railroad and for our industry,” said BNSF Railway chairman and CEO Matthew Rose. BNSF is working with General Electric Company (NYSE:GE) and Electro-Motive Diesel to develop the technology.

Who else could profit?

BNSF and CN are not the only railroads that are examining the conversion to natural gas locomotives—so are Union Pacific Corporation (NYSE:UNP), Norfolk Southern Corp. (NYSE:NSC), and CSX Corporation (NYSE:CSX). Provided that some, if not all, of these companies proceed with the switch to natural gas locomotives, a new infrastructure will be needed to support it, and Clean Energy Fuels Corp (NASDAQ:CLNE) looks like the company best suited to handle this. They already have experience in developing America’s Natural Gas Highway—a nationwide network of natural gas fueling stations situated along popular trucking routes. Currently, the Natural Gas Highway is comprised of 70 stations, but Clean Energy hopes to add another 80 stations by the end of 2013. Additionally, in 2012, Clean Energy completed 127 new station projects for its refuse, transit, and airport core businesses.—an 87% increase in overall station construction over 2011.

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