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Long Ideas

UPS Leading Natural Gas Revolution

The brown van that brings your (NASDAQ: AMZN) order to your doorstep could be running on natural gas. UPS (NYSE: UPS), the company formerly known as United Parcel Service, is now the largest user of natural gas-powered vehicles in the shipping industry.

UPS revealed that it now operates a fleet of 2,500 medium- and heavy-duty vehicles that run on natural gas. These vehicles range from the familiar brown delivery van to semi tractors that UPS is operating in the United Kingdom, a press release indicates.

What’s truly interesting is that some of these vehicles are operating on biomethane, natural gas made from sources like garbage and manure. The idea is to be able to manufacture gas from waste. Older people might remember methane gas as the fuel the bad guys used in the classic post-apocalyptic film Mad Max: Beyond Thunderdome.

 Big Brown Loves Natural Gas

UPS’s fleet is about to get bigger because it is planning to add 1,400 new vehicles powered by compressed natural gas, or CNG, in the next year. That will increase the company’s natural gas fleet by 30% to 5,088 vehicles.

To service those vehicles, the package giant will build 15 new CNG filling stations in the United States. The company already operates eight CNG filling stations in the United States. Three of the new stations will replace existing stations. The rest will allow UPS to deploy natural gas-burning vehicles in 12 new cities.


UPS’s moves show that natural gas is a serious vehicle fuel and that those looking for a long-term energy play should take a good look at natural producers. Some of my favorite plays in that sector include Chesapeake Energy (NYSE: CHK), Devon Energy (NYSE: DVN) and EOG Resources (NYSE: EOG). The recent increase in gasoline and diesel fuel prices is certain to convince many more companies to look into natural gas as a fuel.

The reason for this the relatively low price of the fuel in the United States right now. The average commercial price for 1,000 cubic feet of natural gas in the United States was $71.20 in February 2015 compared to $89.70 in 1987, according to the U.S. Energy Information Agency. The Value in Natural Gas Unfortunately, some natural gas companies are pretty expensive right now. Devon Energy was trading at $67.50 a share on May 6, 2015. Yet Chesapeake is still fairly cheap, trading at $14.78 a share on the same day.


The demand for natural gas and revenue at natural gas producers is certainly increasing. Chesapeake’s revenue went from $17.51 billion in December 2013 to $20.95 billion in December 2014. Devon’s revenue grew even faster, going from $10.4 billion in December 2013 to $19.11 billion in December 2014. EOG’s revenue went from $15.21 billion in March 2014 to $16.27 billion in March 2015.

Natural gas is a growing industry with or without vehicles, and it stands poised to grow even more in the years ahead. My prediction is that there is going to be a big demand for natural gas as a nonpolluting vehicle fuel and as a fuel for onsite generation of electricity at homes and in businesses. It can run both fuel cells and generators. Fuel cells in particular hold promise because they can be used to make both heat and electricity.

Tesla Could Drive Natural Gas

Natural gas poses a real challenge to Elon Musk and his Tesla Motors (NASDAQ: TSLA). Tesla has succeeded in creating a growing market for electric cars but not commercial vehicles. Musk needs to start tapping that market if he wants to build a serious automaker.

Interestingly enough, Musk’s Powerwall battery backup technology unveiled last week could help natural gas producers. Consumers could tap natural gas generators or fuel cells to generate power for homes and businesses and store what they generate in Tesla’s batteries.

Natural gas, it seems, has a very bright future. It is likely to become America’s commercial fuel of choice at some point in the next 10 years, making natural gas producers a good value play.

Disclosure: The blogger and author of this piece owns shares of Chesapeake Energy and plans to hold them for a long time.