The shift towards natural gas powered vehicles should not be encouraged by any government regulation. This is a tough strategic choice with many pros and cons.
Pros
- The Peak in natural gas is also “around the corner”. There is no point in strategically shifting our transportation sector right into the next peak crisis.
- The price of natural gas is tied to oil and shifting transportation from oil to natural gas will not improve the nation’s security. The unprecedented transfer of wealth to countries that “don’t like us” will continue if we shift to natural gas.
- The natural gas market is global and increasing demand pressure on natural gas will work against all four goals of the energy policy.
- We may be running out of natural gas if we use it in transportation (considering also other uses of natural gas that are more critical). We will need natural gas for other critical applications (such as electricity and chemical industry).
- Use of natural gas for electricity production is expected to grow because of lower pollution, lower level of GHG (compared to coal) and flexibility. Natural gas is a required component to enable stable electricity generation while using renewable sources like solar and wind.
- We need natural gas to replace oil use in industry and maybe for home heating (as a bridge for the next decades).
Cons
- There is good natural gas delivery infrastructure throughout the U.S.
- It is one of the less polluting transportation solutions. Although it is not clean as electricity.
This is not an easy decision and perhaps an exception should be made: Use of natural gas should be encouraged but limited to heavy municipal vehicles. It is a toss-up between natural gas and bio-diesel. The market should play itself out.
The top natural gas exporters – Russia, Iran, Qatar and Algeria – are already in discussions about the formation of an OPEC-like natural gas cartel.
Increased worldwide consumption/production of natural gas is inevitable because it is the cleanest burning of the fossil fuels. The large worldwide reserves of natural gas used to supply natural gas vehicles will create less pressure on world oil supplies and result in lower transportation fuel prices. This should be part of a larger context in which alternative-fuel vehicles of various types are used, and there is also a substitution away from individual vehicle transportation to public transportation systems and increased use of advanced telecommunications.
Because of the higher costs of importing LNG, the U.S. will be focused on obtaining its natural gas supplies from domestic, Canadian, and Mexican sources by pipelines.
North American gas production will be ramped up from conventional and non-conventional sources when natural gas takes a greater role as a transportation fuel substitute for gasoline. As renewable (wind, solar, geothermal) sources are added to generate a sizeable portion of the nation’s electricity supply, a significant amount of natural gas used for electricity generation can be diverted for transportation use.
The U.S. should not rely on one transportation fuel option. Different fuels will serve different consumer demands and create a more competitive market for all transportation fuel options. The country needs to modernize its service station infrastrucutre to multi-fuel service stations that dispense gasoline, natural gas, biofuels, hydrogen, and provide charging stations for hybrid and electric vehicles. This should be part of an overall infrastructure investment strategy, which is discussed in the article “Creating an American Infrastructure Investment Strategy” in the Resources section under the Policy Principles area.
This statement is wrong. It is based on outdated assumptions. In 1990, the Colorado School of Mines’ Potential Gas Committee (PGC) estimated that, in the US, we had 1,100 trillion cubic feet (Tcf) of gas resources (i.e., gas that could be produced economically at that time). We produce a little over 19 Tcf per year in the US each year. From 1990 to 2006, we produced and consumed about 300 Tcf. In 2007, the Potential Gas Agency estimated that we had 1,500 Tcf in gas resources. How did this happen? Simple. Technology had improved and economics had changed. And this continues to occur. Studies in 2009 by the PGC and the Department of Energy’s (DOE) Energy Information Administration (EIA) report significant increases in domestic resources. The PGC report states that America’s natural gas resource base is now 1,836 Tcf. In other words, the U.S. now has a 90-plus year resource base of natural gas instead of the 65 year resource base believed to exist in 2006. Importantly, some analysts believe that the potential natural gas supply may be much larger. MIT’s Technology Review devoted its November/December 2009 cover story to discussing the remarkable turn of events in the U.S. The article describes how some analysts believe the assessments of the production capabilities of the northeast’s Marcellus Shale are much larger than estimated by PGC. The article describes how the Marcellus could be the second largest natural gas field in the world — second only to a massive offshore field shared by Iran and Qatar. Daniel Yergin and Robert Ineson of the respected Cambridge Energy Research Associates recently authored an article for the Wall Street Journal, entitled, “America’s Natural Gas Revolution – A ‘shale gale of unconventional and abundant U.S. gas is transforming the energy market.’” The article claims that the biggest energy innovation of the decade is the development of unconventional natural gas. The article also indicates that “shale gas plays around the world could be equivalent to — or even greater than — current proven natural gas reserves.” The conclusion of that article is that natural gas is likely to play a much larger role in the world’s energy mix in future years.
None of this includes renewable natural gas or biomethane. DOE did a preliminary study a number of years ago that concluded that from animal waste, sewage and landfill gas alone, America could reasonable produce 1.25 quadrillion Btus of biomethane PER YEAR. That’s equivalent to about 6 percent of the natural gas we use in this country (and since almost ¼ of all the primary energy we used is natural gas, that’s a lot) or about 10 billion gallons of gasoline equivalent. Since American’s are world-class at producing sewage, garbage, and animal waste, that number probably has grown and will continue to grow. This estimate doesn’t include food and other commercial and industrial wastes, which would add to biomethane production. Added to that is the huge potential of cellulosic biomethane. The Europeans – led by Sweden — are very high on this potential. In fact, Sweden’s goal is to displace ALL the natural gas used in the country with biomethane, as well as a large portion of petroleum for vehicles. The Swedes say that making biomethane from energy crops is much more energy productive per hectare than making any other biofuel – and they say that it’s much less expensive, too. That might change if there are big breakthroughs in cellulosic ethanol enzymes, but it’s true for the foreseeable future.
There also is the potential of methane hydrates. This is methane (which makes up about 90 percent of natural gas) trapped in ice structures found off of every continent (and in permafrost areas). It is estimated by the US Geological Survey that there icould be twice as much energy trapped in methane hydrates than in all the oil, coal and natural gas in the world combined. The problem is that we don’t know how to mine it — yet. But, keep in mind, we didn’t know now to mine gas from shale 15 years ago, and now it’s a significant part of America’s economically recoverable natural gas resource base. The Japanese government forecasts that it will producing commercially economic methane from hydrates within 15 years.
In short, any concern about “peak natural gas” is not based on any of the facts.
The first part of this assertion once was true, but it’s not true anymore. The second part was never true. Historically, natural gas traded in an 8-or-9 to 1 price ratio with oil (price per barrel of oil versus price per thousand cubic feet or Mcf of natural gas). Today (1/28/10), oil is $72.40 per barrel and gas is $5.18 per Mcf. That’s a ratio of about 14-to-1. The huge supplies of gas shale coming onto the market has kept the price of gas low. And, because of the economics of gas shale production, America can have just about all the gas it can use at $8/Mcf (probably closer to $6.50, but we’ll just use $8). As America continues to emerge from recession, the demand for natural gas will increase — as will the price. But the huge supply response from gas shale at $8 means that, once the price of gas reaches $8, it will stay in the $6-$8 band well into the future. The U.S. Energy Information Administration forecasts that natural gas prices won’t exceed $8 until 2030. Meanwhile, when the worldwide recession is over, oil prices are expected to climb significantly again. At $150 per barrel for oil and $8 per Mcf for natural gas, the ratio is almost 19-to-1. The tie between oil and natural gas prices has now been broken.
As to the second part of the assertion, namely that shifting transportation from oil to gas will not improve our nation’s security, it is difficult to imagine how anyone with any knowledge of energy issues could make such a statement. We import about two-third of the petroleum we use – much of it from parts of the world which do not have America’s best interests at heart. Meanwhile, the US currently produces about 85 percent of the natural gas used in the US, and all but a few percent of the rest is produced in Canada. As to the future, the US EIA forecasts that, by 2030, America will be producing 98 percent of the natural gas used here. It is hard to construct a scenario where increased use of natural gas to displace petroleum would not increase of energy security.
This statement is wrong. It is true that there is a growing world trade in natural gas. However, unlike with oil, the US is not tied to world natural gas prices. With oil, the US is a price taker. We pay the global clearing price. For natural gas, it is supply and demand for natural gas in America that determines the natural gas price in America – not the global natural gas trade. Here’s why.
Liquefying natural gas and shipping it in specially design LNG ships is the only way for US natural gas producers to ship US natural gas outside of North America. However, except for one small plant in Alaska, there is no LNG export capability in the US. We have several LNG terminals in the US to import LNG. But these facilities are not set up for export, and it is highly doubtful (read: politically suicidal) that FERC or Congress would approve shipping US gas overseas. We can export gas to Canada and Mexico via pipeline. But Canada doesn’t need our gas (we import gas from Canada) and we export only a tiny amount to Mexico. So, when US natural gas prices are lower than global LNG prices, American producers can’t participate in global natural gas trade with US gas, and, therefore, supply and demand for natural gas in America determines the natural gas price in America.
In the past, when US natural gas production was constrained (e.g., by price control regulations), we did import LNG via those LNG import terminals. But, as discussed in detail elsewhere on this site, America has a huge natural gas resource base that can satisfy America’s natural gas needs at a comparatively low price (versus the world LNG price). Currently, the US-world price disparity means that it is not economic to import LNG. As an indication of that, these LNG import plants are only operating at about 20 percent capacity – and that’s needed just to keep the terminals from shutting down.
There is no realistic scenario under which US natural gas prices would exceed LNG prices. So, the global trade in natural gas will not put pressure on US natural gas prices.
Two questions are raise here: (1) do we have enough domestic natural gas to serve the transportation market? and (2) what are the “critical” uses of natural gas?
Question (1): The US uses about 200 billion gallons of petroleum for on-road transportation. That’s the equivalent to about 25 Tcf of natural gas, which is more than we use for all the natural gas used for all uses in the US today. If anyone were espousing displacing all petroleum with natural gas, natural gas supply certainly would be an issue. But no one is recommending that. It is the position of the natural gas vehicle advocates that: for the foreseeable future, there is no one silver-bullet panacea technology or alternative fuel that is going to replace petroleum. We have many available options – natural gas, ethanol, methanol, propane, gasoline/diesel hybrids, plug-in hybrids, etc. We have options, but we don’t have choices. If America is to displace a significant percentage of the petroleum we use, we have to use all alternatives – in the applications and in the parts of the country where they make the most sense. We can’t wait to act until the perfect solution comes over the horizon. We should be investing in R&D on all promising fuels and technologies. But, to base our transportation future on the assumption that a miracle technology will be available by some date certain is poor public policy. Miracle technologies should be Plan B. If it happens, wonderful. But we shouldn’t count on it. Plan A should be to displace as much petroleum as we can today with the alternative fuels and advanced technologies that are economically (or, almost economically) available today.
For natural gas, this means focusing on high fuel-use fleet vehicles. This includes trash trucks, transit buses, school buses, shuttle buses, goods delivery vehicles, port (air and water) vehicles and taxis. Most of these vehicles are powered by diesel fuel. According to EIA, America uses about 50 billion gallons of diesel fuel for on-road vehicles. That’s equivalent to 6.9 Tcf of natural gas. If the domestic natural could displace half of that amount, that would only represent a 15 increase in natural gas use, which the natural gas producer community say is easily achievable.
The second question raised is “what are the ‘critical’ uses of natural gas?” Besides natural gas, there are many available options for residential, commercial and industrial thermal energy needs. These include: electricity and propane and, of course, the growing number of renewable options such as solar, wind, geothermal and even wood. For power generation add nuclear and coal. For transportation, however, the currently available and affordable options are more limited. And to displace diesel fuel, the options are very limited – just biodiesel, hybridization (mostly diesel-hybrids) and natural gas. Blending biodiesel with petroleum diesel has merit, and the natural gas vehicle industry advocates the use of biodiesel blends when diesel must be used. But, for warrantee and other reasons, no more than 20 percent biodiesel is recommended, and most biodiesel is used in 5-10 percent blends. Hybridization is a major step forward, but diesel-hybrids are just more efficient diesel vehicles. (Note: the duty cycle of larger high fuel-use trucks and buses makes plug-in hybrids inappropriate.) Natural gas, on the other hand, is an excellent replacement for diesel fuel. It’s also less expensive to operate, produces 22 less greenhouse gases and less criteria and toxic pollutants. Looked at this way, natural gas in vehicles IS a critical use.
This is not in any way an issue. According to the US Energy Information Administration (EIA), in 2009, the American residential, commercial and industrial markets together only used 2.5 quadrillion Btu of distillate and residual fuel oil. That’s the equivalent of 2.5 trillion cubic feet (Tcf) of natural gas. Much of this stationary oil use is in facilities where natural gas service is not readily available. However, assuming natural gas could serve all these customers, we could displace all this petroleum by increasing natural gas use by less than 11% (the US consumed 23.23 Tcf last year). That leaves lots of excess natural gas production capability for vehicle use.
If Russia et al. are successful in creating a gas OPEC (OGEC?), that won’t affect America’s gas market. See my answer to Point 5. Supply and demand for gas in North America determines the price in North America. Japan and Korea should be worried about an OGEC since they import all or most of their gas, but we are insulated because we have all the domestic gas we can use. Rising OGEC controlled gas prices (if an OGEC could actually pull it off) would just make America’s LNG import terminals even more uneconomic.