November 16, 2009 4:15pm ET


* Volvo chooses Westport as tier 1 development supplier
* Westport stock rises as much as 13 pct
* "Meaningful" sales expected in 2011 (Recasts with stock price rise, CEO interview, analyst's comment)
VANCOUVER, British Columbia, Nov 16 (Reuters) - Shares in Westport Innovations Inc rose 13 percent on Monday after the developer of natural gas-fired engines said it had signed a supply deal with Volvo AB , the world's second biggest truck manufacturer.
Volvo has chosen Westport as a tier 1 development supplier of heavy-duty natural gas engines. As such, the small Canadian-based company will design and develop a clean-burning natural gas engine for the Swedish automaker's fleet of large trucks.
"Volvo power trains doesn't have other natural gas engines ... It is a big deal for the industry that the biggest (diesel truckmakers) are announcing that they are getting into natural gas," Westport Chief Executive David Demers told Reuters in an interview.
The market for natural-gas trucks is still tiny but tighter vehicle emission regulations worldwide, high oil prices and government incentives to go green are encouraging both fleet manufacturers and operators to look at alternatives.
"We view this development as a strong positive for the (Westport) stock," said Ian Tharp, an analyst at Dundee Securities in Toronto.
Westport, which doesn't actually make engines but rather chooses and puts together component suppliers to develop them, already sells natural gas engines in the United States with its partner Cummins Inc , the world's largest independent manufacturer of diesel engines.
Under the Volvo agreement, Westport and Volvo will share program development expenses related to the heavy-duty system. Westport will have to satisfy certain unspecified milestones for the program to continue.
The new natural gas engines are expected to meet future European vehicle emission standards, Westport said.
Asked how long development and design could take, Demers said it takes around two to three years to "get an engine out of the door".
Westport has sold about 200 of its heavy-duty natural gas engines since 2007, Tharp said. "Meaningful volumes" of more than 1,000 are only expected to materialize in 2011, he said.
Westport's shares rose as high as C$13.16 on the Toronto Stock Exchange on Monday. They closed just off their highs at C$13, a gain of C$1.37 or 12 percent.
($1=$1.05 Canadian) (Reporting by Nicole Mordant in Vancouver and Krishna Chaithanya in Bangalore; editing by Peter Galloway)