What if, for a moment, you could hook your car up to your house every night - and refuel it with the same natural gas you use to heat your house, cook with, and heat your water heater. Moreover, what if you could refuel your car for about half the current price of premium unleaded gasoline. And finally, what if that fuel was produced, by and large, within the United States.

Essentially, that is what the proponents of natural gas vehicles running Compressed Natural Gas (CNG) say could be our future. Clean, abundant, and cheap energy that is better for the environment and better for the national economy. Is it too good to be true? Well - not exactly, but there are some real possible benefits to switching, at least in the interim, on natural gas vehicles.

In many urban areas in the United States, the bus systems,  utility vehicles (garbage trucks, street cleaners, etc.), and many school buses, run on CNG versus diesel or gasoline, and it is also employed sometimes in light-trucks and small delivery vehicles (some of FedEx vehicles I’ve seen run on CNG). In the US, Federal tax credits are available for buying a new CNG vehicle. Use of CNG varies from state to state. In California, where CNG is prized because of its low-emissions, CNG is used extensively in local city and county fleets, as well as public transportation (city/school buses), and there are 90 public fueling stations in Southern California alone. And, it’s cheaper than gas too. Although natural gas prices are rising, compressed natural gas is available at 30-60% less than the cost of gasoline, as a rule of thumb, in much of California. It is unclear if these discounts would remain if there was a heavy increase in the demand for CNG vehicles (laws of economics suggest it wouldn’t be a stable price curve, but rather, it would jump to equilibrium points over time, but I will get to that in a minute).

If you really want cheap gas - how’s less than buck a gallon sound? The state of Utah offers a subsidised statewide network of CNG filling stations at a rate of $0.85/gge (GGE is gallon gas equivalent as measured by the thermal energy unit of BTU), while gasoline is above $4.00/gal. Elsewhere in the nation, retail prices average around $2.50/gge, with home refueling units compressing gas from residential gas lines for approx $1.50/gge. Other than aftermarket conversions, and government used vehicle auctions, the only currently produced CNG vehicle in the US is the Honda Civic GX sedan, which is made in limited numbers and is available only in California at the moment.

For those who want to stop paying money to “foreign oil” - US natural gas is a veritable godsend. While in 2005, the U.S. imported over 65 percent of the oil it used, 97 percent of the natural gas used in the U.S. was produced in North America (85 percent from the U.S. and 12 percent from Canada).  Every gallon equivalent of natural gas used in vehicles is one less gallon of petroleum that has to be imported. It is because of this, champions of improving domestic energy supply, like T. Boon Pickens, have come out strongly in favor of CNG as an alternative source of energy.

However, CNG is by no means a panacea to solve our energy demands. First, let’s talk a bit about the direct drawbacks of CNG when physically compared to octane (gasoline). Compressed natural gas vehicles require a greater amount of space for fuel storage than conventional gasoline power vehicles. Since it is a compressed gas, rather than a liquid like gasoline, CNG takes up more space for each GGE (Gallon of Gas Equivalent). Therefore, the tanks used to store the CNG usually take up additional space in the trunk of a car or bed of a pickup truck which runs on CNG. This problem is solved in factory-built CNG vehicles that install the tanks under the body of the vehicle. This likely translates into overall lower “gas equivalent milage” in some cars than if running on regular gasoline as the fuel efficiencies are not offsetting the additional weight. Moreover, the lesser thermal value per volume of CNG to octane would also mean that our cars would have less range, and would need to be refueled more often than gasoline vehicles.

Second, there are potential unforseen consequences to having such a rapid rise in CNG use. The primary form of LNG (Liquified natural gas) and CNG is for heating homes, water heaters, cooking, etc. The heating of homes is by far the largest component of CNG use in the United States. Just as many people found out “what eats corn” when biofuels jumped in popularity, people would readily find out how much natural gas they use at home when their fuel bills double or triple as demand rises. For example, my own modest gas bill is about 95 dollars a month. I would expect that bill would go up by as much as 100% if all of a sudden it was fueling 10-20 million car trips a year. If the current price of GGE gas is about $1.50-2.00, and it truly becomes an equivalent to gasoline, we would expect that the prices between the two markets for the same use would equalize. What this means in real terms is that while the price of gasoline may fall to 3 dollars a gallon - the price of natural gas will go up - probably also to about three dollars a gallon. This means that it will be much more costly for people to heat their homes, run their stoves, and heat their hot water (among other things). Every winter, fuel oil prices are always an issue of political contention for Congress. Imagine the entire US complaining about the high price of natural gas to heat their homes. The reality is - there is no escaping the fact that energy costs - whether it comes from gasoline, kerosene, diesel, or natural gas. If all of a sudden people start using CNG in great numbers - the price of the natural gas is going to rise.

That doesn’t mean I think we shouldn’t strongly look at natural gas a possible short-term solution. There are several strong reasons why CNG could be a good substitute in the short term.

While I’m not much of an “environmentalist whacko” - if that is your thing - then CNG is your wet dream. Per unit of energy, natural gas contains less carbon than any other fossil fuel, and thus produces lower carbon dioxide (CO2) emissions per vehicle mile traveled. While cars running natural gas do emit methane, another principle greenhouse gas, any increase in methane emissions is more than offset by a substantial reduction in CO2 emissions compared to other fuels. Tests have shown that CNG cars produce up to 20 percent less greenhouse gas emissions than comparable gasoline vehicles and up to 15 percent less than comparable diesel vehicles. Exhaust emissions from a typical car powered by CNG are much lower than those from gasoline-powered vehicles. For example, the natural gas-powered Honda Civic GX is recognized by the U.S. EPA as the cleanest commercially available, internal-combustion vehicle on earth.  The Civic GX is rated by the California Air Resources Board as meeting the very stringent AT-PZEV standard.  In addition, dedicated CNG automobiles produce little or no evaporative emissions during fueling and use. In gasoline vehicles, evaporative and fueling emissions account for at least 50 percent of a vehicle’s total hydrocarbon emissions. So if you want to save gas and money and the environment - then CNG is your panacea fuel.

Second, natural gas is generally an abundant resource that could wind up powering all of our cars for quite a long time. According to the Potential Gas Committee of the Colorado School of Mines (the most authoritative body on the subject), in 1990, total U.S. recoverable natural gas resources was 1,172 trillion cubic feet (Tcf). That was about a 60 year supply at the 1990 level of natural gas production. Since then, we have produced about a quarter of that gas (314 Tcf ). In 2006, the Potential Gas Committee estimated the size of the recoverable natural gas resources was 1,525 Tcf - an 80 year supply. How is that possible? The answer is that improvements in our knowledge of gas geology, improvements in production technology (such as horizontal drilling, 3D seismology and even 4D seismology) and changes in energy economics keep changing the definition of what is recoverable.

For example, prior to 1990, the recoverable natural gas resource estimate did not include natural gas trapped in coal formations (referred to as coal bed methane)since it was not considered economically recoverable. However, technology improved, and, in 2007, coal bed methane accounted for 10 percent of domestic production of natural gas.

Another example (that is evolving right now) is natural gas from shale formations. Like coal bed methane, geologists have long known about gas in shale, but it was not considered economically recoverable. Changes in production technology and economics have changed the situation completely. The majority of the growth in the recoverable natural gas estimate is gas from shale. Further, evaluation of the potential of gas from shale is only in its early stages. It is expected that the amount of recoverable natural gas from shale will grow considerably.

It is expected that, as production technology continues to improve, the U.S. recoverable natural gas resource base will continue to grow as fast (or faster) than production. The world has more natural gas than petroleum, and natural gas resources are more evenly distributed. As a result, a growing number of countries have discovered indigenous natural gas resources that they are interested in selling in the international market. Meanwhile, the demand for natural gas from countries with a limited domestic energy resource base (e.g., Japan, Korea) is increasing. So it is expected that worldwide trade in natural gas will be expanding steadily.

The direct impact of this on the United States will be very limited. The world market for natural gas is very different than that for petroleum. With petroleum, America imports almost three-quarters of what it uses and all the oil used is affected by the worldwide oil price. On the other hand, the U.S. natural gas market has the following characteristics: (1) the vast majority of the natural gas used here is produced here, and (2) except for one small exception, the United States and Canada have no ability to produce and sell their natural gas on the international market via LNG (liquified natural gas - a substance similar in many respects to “propane” that is used in BBQ’s and RV’s). As a result, the U.S. and Canada are largely isolated from the international market and the world clearing price for natural gas. In other words, supply and demand in America - not the world price — determines the average natural gas price in America. As a case in point, during the first part of 2008, the price of natural gas in the U.S. was significantly less than the world price for natural gas. As a result, the U.S. LNG importation terminals were only operating at 20 percent of their capacity since they couldn’t “bid away” LNG from other countries.

There are no plans to build any LNG export terminals in the U.S. and, because of all the domestic U.S. natural gas resources, the U.S. will continue to rely on its own its domestic supply to satisfy the vast majority of its domestic demand.

So perhaps we should really thing about the possibility of using CNG gas for our cars. It’s cheap, economical, and although over the long-term the price of gasoline and CNG will likely stabilize, it may be the best alternative in the short-run to gasoline. Auto makers need to look at CNG carefully, and natural gas companies need to work with the auto industry to make it possible (and safe) to refuel at home. Personally, I think the natural gas car is an excellent idea - and one that could be readily adapted (within a 3 year span) to have a major impact on the price of gasoline in the US and the demand for foreign oil.

Final upcomming post - Why the United States needs a Comprehensive Energy Policy.

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