Bang on with this article from SA..
Clean Energy Fuels Set To Surge Higher
Oct. 11, 2016 2:57 PM ET
About: Clean Energy Fuels Corp. (CLNE)
Fundamental Investing
?Following (2,226 followers)
Long/short equity, value, growth
•CLNE has risen rapidly in the past three months on the back of a rise in the price of natural gas.
•CLNE’s revenue and stock price performance are closely related to natural gas pricing, which is good news for investors as the commodity will continue rising.
•Natural gas pricing will continue to rise on the back of higher consumption in electricity generation and industrial sectors, which is leading to a decline in inventory levels.
•An increase in coal plant retirements will lead to a 25% increase in the demand for natural gas in the long run, allowing CLNE to benefit from better pricing.
•The World Bank anticipates that natural gas prices in the U.S. will go up to almost $4.00/MMBtu by the end of the decade, indicating more upside at CLNE.
The past three months have been outstanding for Clean Energy Fuels (NASDAQ:CLNE) on the market as its shares have risen in excess of 30%. This rapid rise in Clean Energy shares of late has been driven by a rapid rise in natural gas prices, which have risen over 18% in the past three months to more than $3.20/MMBtu. As a result of this increase in the price of natural gas, Clean Energy Fuels is all set to receive a shot in the arm as it will be able to report higher revenue and earnings as its volumes delivered are continuously increasing.
For instance, in the last reported quarter, Clean Energy Fuels had delivered tremendous results by beating both top and bottom line estimates as its gallons delivered had increased 11%. But, despite this double-digit increase in gallons delivered, Clean Energy was unable to improve its top line, which fell 9.7% from the year-ago quarter. But, on a rolling quarter basis, Clean Energy Fuels has been able to improve both its revenue and margins due to better natural gas prices, as shown below:
Another thing to note in the chart above is that Clean Energy Fuels' stock price moves in tandem with natural gas pricing. Of late, the stock has picked up pace as natural gas prices have improved, as visible from the chart above. So, the direction that natural gas prices take going forward will play a key role in enhancing Clean Energy Fuels' performance.
Where are natural gas prices heading?
In my opinion, the recent rally in the price of natural gas is all set to continue going forward. I'm saying this because the consumption of natural gas is all set to increase in the future due to the use of the commodity in electricity generation at the expense of coal. In fact, this is the year when the use of natural gas for the generation of electricity will be exceeding coal, with the former accounting for 33% of power generation in the United States as shown in the chart below:
Source: EIA
This increase in natural gas consumption in the U.S. has led to a decline in inventories, which has ultimately led to an increase in the price of the commodity. As reported by Oil Voice last week, natural gas inventories in the U.S. have increased at lower than expected rates for the past 21 consecutive weeks. This is shown in the chart given below:
Source
As a result of the robust natural gas demand, the inventory glut in the industry has come down, thereby leading to an improvement in prices. Looking ahead, the inventory glut in the natural gas market should come down further as a colder winter this year could lead to an increase in heating requirements, which will result in the consumption of more natural gas. According to NGSA:
“
"NGSA projects overall demand will rise 3.2 Bcf/d, or 3.6%, to a record average of 92.3 Bcf/d in the coming season as a winter that is forecast to be 12% colder than the year-ago period boosts demand from the residential and commercial sectors by a combined 4 Bcf/d, the group said in its winter 2016-17 outlook."
Hence, the strength in natural gas pricing will continue going forward as the year progresses, which is good news for Clean Energy Fuels.
Expect long-term strength in natural gas pricing
More importantly, the improvement in natural gas prices is expected to continue in the long run as well as the consumption of the commodity will continue to remain robust. I'm saying this because coal plants will continue to be retired across the U.S. as more electricity generation shifts to natural gas.
This year itself, there will be coal plant retirements to the tune of 7,300 MW in the U.S. as the move to cleaner sources of electricity generation continues. Additionally, going forward, coal plant retirements in the U.S. will continue to gather more pace as 46,000 MW of capacity is expected to be retired in the coming seven years.
In fact, over the coming two decades, the consumption of natural gas will increase across all sectors, especially industrial and electricity. This is shown below:
Source: EIA
In all, the total consumption of natural gas in the U.S. will grow from m 27.5 trillion cubic feet (Tcf) in 2015 to 34.4 Tcf in 2040, according to the EIA's Annual Energy Outlook 2016, which is a rise of more than 25%. Due to this robust demand, Clean Energy Fuels investors can expect the rise in natural gas prices to continue, which bodes well for the company due to reasons discussed in the earlier part of the article.
In fact, even the World Bank forecasts that the price of natural gas will continue to rise in the long run, as shown in the chart below:
Source
Conclusion
Thus, due to a positive demand-supply environment that is emerging in the natural gas market, the price of the commodity should continue to pick up pace in the long run. This will lead to an improvement in the performance of Clean Energy Fuels as it is already witnessing growth in its volumes delivered on account of the increasing adoption of natural gas vehicles. So, in my opinion, it will be a good idea to continue holding Clean Energy shares going forward as its recent break-out on the stock market will continue.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
