Caterpillar Partnership With Westport Will Provide A Competitive Advantage

Tue, 06/12/2012 - 03:56 EDT - Seeking Alpha

By Trefis:
Caterpillar Inc (NYSE:CAT) has signed an agreement with Westport Inc (WPRT), a global leader in natural gas powered engines, to co-develop natural gas technology for Caterpillar's engines. The company will incur R&D costs under the agreement, and the commercial production is expected to start within the next five years. It competes with other global industrial equipment and engine manufacturers such as CNH Global NV (NYSE:CNH), Komatsu (KMTUY.PK) and Volvo AB (VOLVY.PK).We currently have a Trefis price estimate of $108 for Caterpillar's Stock, which is 20% above its current market price.
Enhanced customer offering to provide a competitive advantage
Natural gas offers a significant price differential compared to diesel, which is presently used in the majority of Caterpillar's engines, and therefore Caterpillar's clients stand to benefit from fuel cost savings with natural gas-powered engines. Moreover, the natural gas powered engines are targeted to offer similar levels of operational effectiveness asComplete Story »

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Using natural gas
Here's a promising story for the U.S. economy. The figure below plots the price of crude oil in dollars per barrel and the price of natural gas on an equivalent BTU basis. Historically, the two prices had tended to stay fairly close together. But they began to diverge significantly in 2006. Even with the recent easing in oil prices, today you'd have to pay over $14 to get a million BTU in the form of crude oil, but only $2.30 if you were willing to use natural gas as an alternative.
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Caterpillar Partnership With Westport Will Provide A Competitive Advantage

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