Climate Bill Stalls Natural Gas Vehicle Stock

The stalled climate bill in Washington D.C. stalls the rally in stocks tied to the natural gas vehicle market.
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SEAL BEACH, Calif. (


) -- Politics is always a volatile factor when it comes to moving stocks either up or down, and

Clean Energy Fuels

(CLNE) - Get Report

was feeling the negative pressure on Monday.

The stalled climate bill in Washington D.C. was the reason for the volatile trading in Clean Energy Fuels shares.

Clean Energy Fuels is a supplier of natural gas and natural gas fueling stations for natural gas powered vehicles. Clean Energy Fuels is a notable alternative energy play of T. Boone Pickens, who is the largest shareholder in the stock.

Shares of Clean Energy Fuels were down close to 9% at midday Monday. Trading in Clean Energy Fuels shares had already passed its average volume of just under two million shares by the midday mark on Monday also.

On last Thursday and Friday, shares of Clean Energy Fuels ran up as it looked like a climate bill was set to be debuted by the Senate this week. The bill is expected to include a subsidy for public and private vehicle fleets that make the move to natural-gas powered vehicles.

Yet over the weekend, the major Republic sponsor of the bill, Sen. Linsdey Graham (R-S.C.), said he was pulling his support as a result of Senate majority leader Harry Reid's decision to put immigration at the top of the Senate's agenda.

The political chess game in Washington D.C. hit shares of Clean Energy Fuels hard as its rally last week was predicated on the quick introduction of a climate bill including a subsidy for natural gas vehicles. T. Boone Pickens had previously stated that a bill would be passed before Memorial Day, helping to fuel a run up in natural gas vehicle stocks.

A bill with 140 co-sponsors that would provide a subsidy for natural gas vehicles making the vehicles as inexpensive as conventional fuel vehicles was expected to be added to the climate bill as a way to get the political powers-that-be to stomach the cost of subsidizing the natural gas vehicle market. Otherwise, a stand-alone natural gas vehicle subsidy would encounter resistance in a federal political atmosphere dominated by the rhetoric of cutting costs.

Currently, a natural gas-powered truck costs $180,000, versus $120,000 for a conventional fuel truck. The current federal subsidy for natural gas vehicles is $30,000, cutting into the difference in the price between nat gas vehicles and conventional vehicles, but not providing the quick trigger for a major migration to natural gas-powered public and private fleets of cars and trucks. The natural gas subsidy expected to be tacked onto the climate bill would double the $30,000 subsidy, making the price of natural gas vehicles equivalent to conventional vehicles.

Coupled with the lower price for natural gas -- $1 less than the diesel fueling most truck fleets -- the increased natural gas subsidy is being viewed as an important driver for the migration to natural gas vehicles by both private corporations and the government fleets.

In Italy, where a similar subsidy had been in place for natural gas and propane powered cars over the past several years, the market for these alternative energy vehicles had grown to 30%.

John Roy, an analyst at Janney Montgomery Scott who covers alternative energy and Clean Energy Fuels, said that the prospects for the natural gas subsidiary being attached to the climate bill made the 30% of the market number materialize for stocks like Clean Energy Fuels. Roy believes that the natural gas vehicles market is going to grow over the next three years regardless of the subsidy being increased, but the doubling of the subsidy could have gotten this market to the 30% that occurred in Italy's vehicles market more quickly.

"The thinking is that if you pass a subsidy in the U.S. like they have had in Italy, you will reach the 30% mark, and getting the heavy duty trucks off diesel and onto nat gas is the big part," Roy said.

Westport Innovations

(WPRT) - Get Report

is another stock focused on transitioning diesel engines to natural gas as a fuel source, and was also trading down on Monday. Trading in Westport Innovation shares was also ahead of its average daily volume on Monday, though its 2% loss on Monday at midday was much smaller than the 9% dip in shares of Clean Energy Fuels.

Roy takes Monday's dip in shares of Clean Energy Fuels as a buying opportunity.

"I look at the fundamentals and I think natural gas vehicle adoption will accelerate and doesn't need the subsidies. Fundamentally, I still think we get to a much bigger market for natural gas powered vehicles in three years, regardless of the subsidy," the analyst said.

However, the Janney Montgomery analyst conceded that with the expectation that a climate bill would be passed, and the natural gas subsidies take effect soon, inevitably the stocks were caught up in the issue of politically-linked frothiness. "If nothing else, the climate bill stall reminds investors about the legislative risk and some may prefer to wait until this risk closes to invest," Roy said. On the other hand, "legislative risk never closes," the analyst quipped.

What's more, if the typical back-and-forth in Washington D.C. results in the climate bill being back on track tomorrow, then Monday's 9% dip in shares of Clean Energy Fuels will have provided a good entry point, the Janney Montgomery analyst said.

On Monday, though, the only call that could be made for certain was that political volatility gasses stocks up as often as it leads them to stall out.

-- Reported by Eric Rosenbaum in New York.


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