BANGALORE/DETROIT As natural gas emerges as a feasible near-term alternative to pricy gasoline, major automakers like General Motors and Chrysler are gearing up to invest in companies that make engines and parts for vehicles that run on the fuel.
Natural gas engine and parts makers such as Westport Innovations and Clean Energy Fuel Corp will be among the gainers as the auto industry looks to reduce its dependence on imported oil, and tap into North America's vast natural gas resources.
"(GM CEO) Dan Akerson has made it pretty transparent this is an area we need to get back into in the North American environment," Micky Bly, the GM executive in charge of electric vehicles, told reporters after a Detroit Economic Club event this week.
Crude oil currently trades at close to $95 a barrel, while natural gas trades at just $4 per million British thermal units (mmBtu).
"Natural gas is clean, it's cheaper, and it provides a domestic source of fuel, so there's energy security involved as well," said ThinkEquity analyst Shawn Severson.
Natural gas-propelled cars are also seen by some as greener than all-electric vehicles, which charge their batteries using electricity often generated by fossil fuel-fired power plants.
Westport, which mostly makes natural gas engines for large trucks, has a project with Caterpillar Inc to develop engines for mining and earthmoving trucks, and this week teamed up with GM to make natural gas engines for lighter vehicles.
"Engines for big trucks cost $200,000-$300,000. Westport, either directly, or indirectly through its partners, will invest about $1 billion in creating such solutions," said Jack Robinson, Chief Investment Officer at Winslow Green Growth Fund, which has a 4 percent stake in the company.
Westport is one of the fund's top-10 holdings, and Robinson expects green-tech companies to grow at an average annual rate of more than 20 percent over the next 3-5 years.
"20 percent looks very good when you're in an economy that's not growing ... at least, the U.S. economy isn't growing."
ThinkEquity's Severson also sees companies such as Fuel Systems Solutions (FSS) and Italy's Landi Renzo benefiting from the auto industry pouring money into these technologies. FSS has tied up with GM to install natural gas engines in its vans.
"We know natural gas has a huge potential in some countries ... You can go to (South) Korea right now, get in a taxi, and you're probably driving in one of our vehicles that are running on CNG," GM's Bly said, referring to compressed natural gas.
Green energy engine and parts makers could also get a major fillip from a new Energy Bill introduced in the United States offering incentives to convert trucks to run on natural gas, which could cost the government up to $4.1 billion.
"The total available market is huge," said Severson. "If you think of how many engines, vehicles, locomotives, mining and garbage trucks are out there, it's all potentially open for natural gas engine systems."
Chrysler is also counting on natural gas as a near-term alternative to gasoline. It is one of the few top-selling automakers in the U.S. market that does not have a hybrid vehicle offering, and is under mounting pressure to improve the fuel economy of its vehicles.
Fund manager Robinson expects green-fuel autos to occupy a mainstream position in the auto industry within 10 years.
"In the case of GM and all the other manufacturers, they will invest whatever is necessary to make green fuel happen, because if they don't, they'll ultimately go out of business."
(Reporting by Gowri Jayakumar in BANGALORE and Ben Klayman in DETROIT, Editing by Viraj Nair and Ian Geoghegan)