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Profiting from the Pickens Plan: FAN, Clean Fuels, Fuel Systems

by: Tate Dwinnell July 25, 2008 | about stocks: CLNE / FAN / FSYS    

Tate Dwinnell

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As many of you probably know, oil speculator extraordinaire T Boone Pickens has a plan, a plan to save the world from itself in the form of clean energy (well sorta, more on that later).  Mr. Pickens, I applaud you for your efforts and for stepping up at a time when government agrees to disagree on just about every issue including investments in green energy solutions.

The Pickens Plan was announced a few days ago and its aim is simple, at least on paper.  Decrease our dependence on foreign oil and do it now with the use of wind power and powering vehicles with natural gas, both of which Pickens claims is abundant in our backyard. Pickens calls the US "The Saudi Arabia of Wind Power" and bases that statement on the fact that studies from around the world show that the Great Plains states are home to the greatest wind energy potential in the world, with North Dakota having the potential to power more than a quarter of the country.  Will wind power be to North Dakota what oil has been to Dubai?  Uh, no ... but if Pickens has his way and the government cooperates, wind power barons might just replace the farmers of America.  Pickens says his plan won't interfere with farming and grazing, and that could certainly be possible but I can't imagine it will be all that easy logistically.   

tboonepickensThe 2nd part of the Pickens Plan calls for the use of natural gas as the primary fuel for our  transportation needs.  According to the California Energy Commission, natural gas greenhouse emissions are 23% lower than diesel and 30% lower than gasoline and according to Pickens comes with a much lower price tag of under $1/gallon in places like Utah and Oklahoma.  Unfortunately the infrastructure isn't in place to make this feasible for most people and the $1/gallon is the exception to the rule.  I just checked out a map of natural gas fueling stations around Portland, Oregon and the nearest station is a solid hour away out in the boondocks!  The price: $2.53 gallon.  Not exactly a buck a gallon.  If this plan gains a footing (only 150,000 vehicles in US currently use natural gas) expect those prices to come more in line with what we're paying at the pump now. 

His natural gas transportation plan just doesn't make much sense to me in terms of cost and environmental impact,  but we have to remember that Pickens is a businessman first and the added benefit to the environment would just be icing on the cake.  He did tell the Guardian in April "Don't get the idea that I've turned green.  My business is making money and I think this is going to make a lot of money" (referring to his wind power investments).  There's also the bit about him not putting any wind turbines on his 68,000 acre ranch but preferring to pay royalties to other Texas ranchers (a farmer who gives up a quarter of an acre to a wind farm can earn $10,000 a year from it – some 3 per cent of the value of the electricity it produces. If he planted corn for ethanol he would earn $300).  Kids, pack your bags, we're moving to Sweetwater Texas to build a windfarm! 

I still think that electric cars or a hybrid/electric is the best approach, but many think that electric cars are a bit of a pipe dream and that the battery technology will never allow for 100% electric cars, but this is where the research money should go.  Is natural gas a better approach?  In my opinion, converting infrastructure for natural gas fueling stations is a BIG mistake.    The plan is to harness the power of the wind to generate electricity, which frees up the natural gas for our transportation needs, but last time I checked natural gas is still a scarce resource and emissions are ONLY 30% less.. cleaner but far from clean.

At any rate, while the plan has some problems (yeah most plans do) I do applaud Pickens for having a plan rooted in some reality… and it does create discussion, awareness and ideas for change.  Long Pickens, short Al Gore. 

Now that the rambling out of me is done, let's get into some profitable ideas that may emerge from the Pickens Plan.  Focusing on Wind and Natural Gas transportation there are a few that I can think of, but hopefully this post will bring out the creative genius in some of you and yield a few more ideas.  Here's my take:

There are few, if any pure wind play opportunities out there.  Most of them are overseas, but you're in luck because two Wind ETFs just launched providing diversified exposure to global wind energy companies and I prefer the First Trust Global Wind Energy ETF (FAN).  It's only been trading a month and as you can see it's been mostly down.  In fact most clean energy funds are down big over the past several months and I think that provides a fantastic opportunity for the patient investor over the long haul.  FAN is carving out a large base currently and I'm waiting for it to continue carving out a bottom, then stage some kind of breakout from a cup or double bottom base, although may add an initial small position if it comes back into the 27 range.

72308_fan

My second trade idea for profiting from the Pickens Plan happens to be on the short  side, in Fuel Systems Solutions (FSYS).  This is a company that provides the necessary components for a car to run on natural gas, so if the Pickens Plan proliferates, FSYS stands to benefit in a big way.  Ah, but there is a problem.  Not in the company itself.  This is a company that has seen a huge surge in revenue and profit as overseas customers convert their vehicles to the cheaper natural gas fuel. If that trend catches on in the US, expect FSYS to continue to profit big.  However, this is a stock that has quadrupled in just a few months and from a technical standpoint, this is a mighty bearish looking double top (full disclosure: yes I am short on this).  It's a short right here with a stop above 42.50.  If it fills the gap around 20, I'm a believer on the long side in this Pickens Plan play.

72308_fsys  

The other play in this space is Clean Energy Fuels (CLNE), which happens to be controlled by… you guessed it,  Mr. Pickens!  See, he really does have a plan and it includes profits.  CLNE provides compressed natural gas [CNG] and liquefied natural gas [LNG] for use in vehicles.  Where FSYS provides the conversion, CLNE is there with the fuel.  Some kind of relationship between the two companies seems likely at some point, but that's for another article. 

This is a stock that has run up 40% in the past month right into major resistance (much of  that after the Pickens Plan was announced).  Wait for the euphoria to wear off and the stock to come back to earth for a longer term play or trade the breakout once it clears the downtrend above 14.

72308_clne

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This article has 49 comments:

  •  
    Jul 25 05:30 PM
    FSYS should benefit from the following including Picken Plan:

    A Visible Path To $600 Million In Revenue And $2.40 In EPS
    Even Without U.S. Adoption – With the leading market position, a
    large number of key OEM and distributor relationships, and a big
    macro tailwind, we believe Fuel Systems can become a $600 million
    revenue company generating $78+ million of EBITDA and EPS of
    roughly $2.40 even without U.S. adoption.


    CALIFORNIA BALLOT INITIATIVE COULD BE A CATALYST
    In addition to overall favorable macro conditions for alternative fuels, we
    think a pending ballot initiative in California could be a significant catalyst
    for alternative fueled vehicles and would benefit Fuel Systems. The
    California Renewable Energy Clean Alternative Fuel Act will be on the
    November 2008 ballot and would invest $5 billion in projects and incentive
    programs to promote renewable energy and alternative fueled vehicles. This
    initiative would allocate $2.9 billion (58% of the total) to cash incentives for
    the purchase alternative fueled vehicles, as detailed in figure 6, and $550
    million to develop and qualify alternative fueled vehicles.

    Reply
  •  
    Jul 25 05:37 PM
    Trade oil for wind? Ludicrous!
    Imagine two competing economies. One based on oil, the other on wind. Which do think would have the advantage? I am sick of these lucky billionaire fools who come up with these moronic green schemes to fleece the sheeple. I would have a little more respect for the guy if he was pushing nuclear energy. These globalist shysters have pissed away the wealth of the world and now they want to keep us in poverty forever.
    Reply
  •  
    Jul 25 06:42 PM
    debtacid, and what do you propose? Complaining about those who had been smart enough to make a buck, while the rest of us stood around with our finger, uh........in the wind, doesn't cut it with me. The PickensPlan may not have it all right, but then which plan does? It is a start, and a smart start IMHO' the man has already said that it will take everything we can put together to replace just one small part of foriegn oil. We could do, and have done in the past, a whole lot worse! In fact, we have done absolutely nothing, and it is time to get started. We don't need more talk!
    Reply
  •  
    Jul 25 07:56 PM
    I think we should continue to rely on the middle east for most of our energy needs. These guys have consistently delivered adequate supplies worldwide, many oil companies continue to enjoy large profits and we are just beginning to catch up to Europe in terms of gasoline and diesel prices. I agree with the oil guys. There is no need for energy independence when we have friendly, reliable sources of oil and natural gas from Iran, Russia, Chavez, Iraq and Nigeria.

    Wind and solar is not connected to commodity markets and we begin to lose control when an independent wind farm or solar array provides energy leaving out the middle man! I would rather see the US continue a strong and lasting military presence in the middle east, secure our oil interests and drill, drill, drill. Oil is the only solution for our energy needs and we need to do what is necessary (even drastic miltary action if required) to secure our energy needs. Even though numerous advanced scientists throughout the world are warning about the ill effects of human activity with the burning of fossil fuels and the renewable supply of solar and wind is relatively inexhaustible, I still feel that we need to supply as much oil to markets as possible and stop funding anything renewable. At this point it is about supply and more supply. Use the military wherever necessary and drill, drill, drill until there is nothing left.
    Reply
  •  
    Jul 25 08:08 PM
    Here are a few more which will benefit from alternative energy:

    SATC: Solar inverters, no matter what kind of solar panels are made, there going to need inverters and SATC is in on the big projects...still a whisper play

    BCON: A cleaner solution to grid back up and stability; again still a whisper play

    VRNM: biomass fuel, not from corn or sugar but by products that are normal trashed. Their technology is already being used overseas. Again, a whisper play

    So legitimate question to ask, if these are really such great ideas why are these stocks wallowing in the low digits? Answer is we are in a transition phase from old to new technology and it is not clear to many that this transition is going to happen. Similar past transitions in recent memory was the transition from the mainframe to the PC.

    So yes, there is no amount of speculation involved here. Do your own research. I would be interested to hear in others ideas on these or other cos.
    Reply
  •  
    Jul 25 10:19 PM
    Boon Picken is placing his wind farms in high risk places for tornados....those blades will be flying through the air like swords of the Arabian Knights.
    Reply
  •  
    Jul 26 01:31 AM
    bullishbankers.com has good articles on the energy problem in America.
    Reply
  •  
    Jul 26 03:26 AM
    the conversion to natural gas powered cars sounds like an excellent temporary fix for reducing the import of oil. the supplies are here. the spare capacity is here. the economic effect could begin to be felt in months (not years or decades). the technology is here. and the manufacturing capability is relatively easy to ramp up.

    all power generating solutions take time to put in place. we should not be stupid enough to put all of our eggs in one basket. we should give incentives to all forms of non-hydrocarbon forms of power generation but not to the point where the investor is not sharing the risk of economic success.
    Reply
  •  
    Jul 26 09:44 AM
    Pickens boone doggles are what I call them. Debtacid is right. Its ludicrous!

    Nuclear power is cheap, safe and clean.
    Reply
  •  
    Jul 26 09:55 AM
    the apparent lack of appreciation in Boone"s wind farm is the downtrend in CLNE's stock price which has run up by 40% in the last month but is still 1/3 rd lower than 8 months ago.

    I say Use everything because the United States is too big for any one technology. Brazil's oil discovery will destroy the opponents of drilling who believe it takes up to 7 years to bring a field into production. Brazil will show that absent the Environmental regs and Green litigation, such a discovery can produce within 3 years or less.

    Drill, drill, drill but meanwhile Buy as much from overseas as you can and stop wasting what resources we still have.
    Reply
  •  
    Jul 26 09:59 AM
    I agree that electric cars are going to be the future, however the point Pickens is making is that heavy transportation (18 wheelers) can't run on electric. They can run on nat gas. 38% of our imported oil goes toward this heavy transportation.

    Wake up people - we need to get off foreign oil now. Wind, solar, nuclear, more drilling, wave power....we need it all and we need it now!
    Reply
  •  
    Jul 26 10:08 AM
    If you took the time to really read his plan the use of natural gas to power cars is the very small part of his plan. In fact his plan for using natural gas is about changing the transportation industrys use of oil to deliver the countries goods should come to an end. by converting the countries transportation industry to natural gas not only will we keep the dollars here in america but will create more jobs here in america.One unit of measure of natural gas is running about $ 10.00 which is the equivelent of 8 gallons of gasoline.The infrastructure for providing natural gas for transportation strches from california to new york and south to florida. CLNE also provides funding for conversion to natural gas powered 18 wheelers. This plan has to do with the trucking industry and very little to do with automobiles which can help from this plan.
    Reply
  •  
    Jul 26 10:14 AM
    After our athletes lose at the Bejing olympics, gasping for air, the order of the day will be electric hybrids. R&D will prevail for long lasting batteries and solar panelled rooftops. Buy SQM for the largest supplier of Lithium in the world. "Fan" is a political football.
    By the way, isn't Australia largely road powered by natural gas. You convert your engine and travel 50% or more cheaper. China will run the price of oil much higher, making nat gas a logical in the long run.Pickens is an innovator and he is right. We have to approach self sufficiency from all angles, including nuclear.
    Reply
  •  
    Jul 26 10:21 AM
    Honda makes a production Civic NGV that comes from the factory set up to burn Natural Gas and Fuelmaker Corp. in Canada makes a Natural Gas Compressor that hangs on your garages wall and is no more dangerous than your water heater and makes the same amount of noise that your clothes dryer. You fill up every evening and drive 200 miles during the day and never go to a gas station. How could things be any easier than that?
    Reply
  •  
    Jul 26 10:23 AM
    We need to follow the lead of the Europeans.

    - France is almost 100% on nuclear.
    - Spain is getting 25% from renewables and will have 30% by 2010.
    - Germany went from 5% renewables to 15% renewables in 10 years ahead of schedule. The new target is 27% in the next 10 years.
    - Denmark is 20% wind and growing.

    We have excellent wind and solar resources and a lot of land and coastline. We need to set a goal and make it happen. Every other developed country is.

    Reply
  •  
    Jul 26 10:29 AM
    For more on what Europe is doing:

    www.solarfeeds.com/

    That's right...they're going to use the Sahara to supply solar, wind, and geothermal power.
    Reply
  •  
    Jul 26 10:43 AM
    Please bear in mind, when discussing electric cars, that the electricity is not a power source (fuel) but an energy conversion conduit.

    The power source for the electric car has to come from somewhere, presently the power mains for overnight charging, which generally comes from a (coal, LNG, Oil, Nuclear etc) power-plant. The total power consumed also contains transmission line losses, which are not insignificant.

    Pollutants are not eliminated, just moved from the point of energy use (the car), to the power-plant.

    Likewise the Fuel (gas, diesel, NG)/electric hybrid is just an ingenious method to raise efficiency, where the electric energy portion we get back by scraping up the crumbs left by braking energy, which normally goes to waste as heat.
    Reply
  •  
    Jul 26 11:10 AM
    Spending 100's of Billions of Dollars protecting our oil suppliers around the world is a much better investment than building, wind, solar and hydro power plants here in the USA.

    :P
    Reply
  •  
    Jul 26 11:27 AM
    John Pseudonym and Oreo, I very much hope that your responses were meant to be funny. Nobody, but complete idiots could think that is the way things should be!
    Reply
  •  
    Jul 26 11:48 AM
    Westport Innovations in Canada (TSX-WPT) is a manufacturer of natural gas conversion systems that rework the Cumings diesel to burn natural gas. This is what is working for the Port of LA. It reduces the particulates and NG is more economical to run then diesel by almost 30%. A big saving in fuel costs.
    Reply
  •  
    Jul 26 11:56 AM
    America must continue to push/fight to disconnect from foreign Oil.. Alternatives, all of them must be explored and used in all forms possible...

    I agree with B.Pickens, we can't drill our way out of this 50+ year old nightmare... the time to do something about America's Energy crisis/problems is now !!!

    I own: SATC, CPST, ZOLT...
    Reply
  •  
    Jul 26 12:36 PM
    TRESSEL--

    your comment regards NG use for heavy transport[16 wheelers] is right on. industry from port haulers to refuse ,delivery and bus/taxi fleets are already well on their way with NG. i agree with your other observations for energy options. your one of the few showing grasp of subject/scope of problem.

    AUTHOR--

    Pickens[CLNE] tie in with engine function already present. reference Westport Innovations[TSX-WPT, Vanvouver, BC. Westport/Cummins[WCI]. WPTFF-OTC.

    if NG approach has question/limits, why FSYS so successful in rest of world. what is different there?
    Reply
  •  
    Jul 26 03:22 PM
    what are everyones thoughts on ZOLT? Is its time over? Or a run starting? TIA

    scott
    solarfeeds.com
    windfeeds.com
    Reply
  •  
    Jul 26 04:49 PM
    The most important feature of the Pickens plan is that it can be done far sooner than other oil replacement measures. They already convert vehicles to CNG elsewhere like Americans buy flat panel TVs (and for less cost). Natural gas here is probably going to decouple from global oil pricing because of a rising tide of unconventional gas, although without EROI change, this may be at the expense of added oil use. We may have to engage in bidding in the global LNG trade to make the plan work. But this would be far better than being dependent on imported oil.
    Reply
  •  
    Jul 26 06:13 PM
    Anybody see the article on Pickens' reason for pushing wind power?

    With it he has emminent domain for a electric corridor through which he can run his pipeline to Dallas supplied by all the water rights that he has bought up.

    Wind is a cover for his water play.
    Reply
  •  
    Jul 26 07:38 PM
    I have to laugh when I read stuff like "Wind is a cover for his water play." referring to Boone Pickens' and his investments. Boone sees what needs to be done to save the U.S. from MORE wars in the Middle East (god, I can't believe some of the post above 'hail to the empire') and global warming. Just because he is going to make a buck off his innovative ideas then idiots think there is something nefarious about his plan-like at his age he wants to corner the U.S. energy market for more cash to line his coffin. Hey, he can't spend what he's got.
    Reply
  •  
    Jul 26 07:46 PM
    Texas may have problems with transmission lines?

    www.prosefights.org/wi...


    eid-e- shomah mubarak!

    www.prosefights.org/th...
    Reply
  •  
    Jul 26 08:39 PM
    This is the stupid debate in the history of the world. We need energy- go get it. The problem is self solving. Gas +6$= we're doing something else. Period. Environment be damned. The country shuts down at +6$ per gallon then who's left to worry about the environment. Nat gas has been ready and waiting for decades its the bridge fuel and whether its now or later its what's next. As a matter of fact we'll probably be exporting it globally while the stupid Gov. of New Jersey is touting the benefits of more LNG terminals for imported nat gas. Debating these "plans" is absolutely ludicrous. We need it all. Remember this- the world is a living planet awash with energy we will never- ever run out. Period. You want energy- go get it. You don't like somebodys plan go start your own company. Just get the government out of the way. Let oil companies be oil companies gas companies be gas companies and let them get to work. One barrel of domestic oil is worth 10 from a foreign country from a national security perspective. It's a deriliction of duty that the government has not seen fit to open the artic and offshore for an accurate inventory of out oil and gas resources. The only thing standing in our way are Democrats and the Discovery channel.
    Reply
  •  
    Jul 26 08:49 PM
    The worse written seeking alpha piece yet, are you Mark Krieger?
    Reply
  •  
    Jul 26 08:54 PM
    Are you sure its the worse written? Why don't you correct the grammer and spelling for me professor. Worse written that's a good one.
    Reply
  •  
    Jul 26 10:50 PM
    Bid for LNG? what a laugh.

    You want LNG on our shores? Prepare for reality, Natural Gas prices would have to go up by about 50% for anyone to consider shipping here. That's Europe only, Asian LNG is in the $17-18 area.

    Why do you think Cheniere Energy (LNG) has dropped like a rock. They are losing money hand over fist because they built a facility which sits unused.
    Reply
  •  
    Jul 27 04:52 AM
    You guys keep talking about two different things: energy for electrical consumption and energy for transportation. To date, they are unrelated. You cannot replace crude oil with coal -see the difference??

    1) If everyone plugged in their electric cars, we would have to build A LOT more coal or nuclear powered plants. Since nuclear doesn't seem likely (dumb politicians), and coal is our most abundant resource, we will be burning a lot more coal to fuel those green electric cars.

    2) Wind energy is hopeless. Do some research. It would take a wind farm the size of a city to power a city of the same size. Additionally, that city would have lots of power outages when the wind isn't blowing -like 50% of the time.

    3) Natural Gas for electricity consumption has been proven to be a bad idea. Once you build the nat gas power plants, you end up jacking up the price of the natural gas you're using b/c of the demand YOU created. A lot of these plants that were built in the 90's are losing money today.

    4) Nat gas for transportation will have the same affect. Once you increase the demand for the nat gas, the price will skyrocket and no one will use it.

    All of these ideas SOUND good, but they simply wont work. Build a lot of nuclear plants, and increase spending on clean coal technologies b/c COAL is what we will be increasingly using in the near future.
    Reply
  •  
    Jul 27 09:20 AM
    Look. From what I understand, Pickens didn't propose that the whole country should convert to using 100% pure LNG or 100%, but rather a combination of clean, renewable energy sources and fossil fuels. I'm visualizing energy plants that produce solar, energy during the day, and switch over to wind whenever there's wind with LNG or coal on standby whenever solar and winds not available. That's the kind of flexibility regarding energy options that we need in order to reduce our country's dependency on foreign oil.
    Reply
  •  
    Jul 27 09:35 AM
    Who on earth wrote this article. They must have watched a different presentation from Pickens than I did.
    Reply
  •  
    Jul 27 04:11 PM
    Dont be fooled...we have an ample supply of natural gas here in the US and NA...Its easy for XOM CVX COP to put a nat gas outfit in all their stations...for 3k to convert your current vehicle to nat gas..its worth it....FSYS has a chance win big or be bought..I think the latter will happen...
    Reply
  •  
    Jul 27 08:54 PM
    These comments illustrate why we can't get an agreement on a comprehensive energy plan. Pickens is right about the economic problem.We can't have a negative 800B DOLLARS/yr cash flow as measured by the current account out of the country much longer and not have to sell our country. From a cash flow point of view it is still better for the US to produce a kilowat, or 'x' btu's at the same cost as we pay to produce it from imported oil. Moeover,any one solution will not get us there in time to avoid a financial disaster for a good share of our citizens. Wind and solar have a part to play. Copenhagen gets 20% of its electrical energy from 26 windmills in the approach to their port. Near term increases in our domestic oil and gas supplies is a necessity and so is a crash program to get wind power on line with accompanyind infrastructure where it makes the most contribution. By the way does GE have a significany role in wind power?
    Reply
  •  
    Jul 31 11:26 AM
    Westport is a great little company that, is ready to play in the big show. Having Cummins as a partner and more customers in foreign countries such as: China which, they have been working with for over 36 months to desmog the Olympics by changing over the transportation system to both LNG and CNG. Tiwan,Vietnam, and Singapore are also customers of WPT;they have found that with the growth in heavy construction, the smog becomes an issue. WPT helped by retro-fitting the heavy equiptment with their LNG/CNG components and are now slated to do domestic transportation such, as buses and trains.
    Reply
  •  
    Aug 01 12:03 AM
    This is the kind of hybrid we need, fueled by biofuels not natural gas.

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