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.

America is facing a serious long-term energy crisis. The price at the “pump” that people are so traumatized by is really the short-term symptom of a longer term problem. As the largest of the two “third world” nations industrialize, India and China, billions of people are rapidly increasing in their wealth, standard of living, and their energy demands. As a result, the long-term demand for energy is increasing, and despite small changes here and there in the price of oil, gas, and coal, overall, the price of energy will go up unless we dramatically change how America obtains energy for growth.

T. Boone Pickens, is perhaps one of the most notable “oil men” standing up and saying something I believe deeply - while we must drill here, drill now, and maximize our oil output - we must also invest in America and develop a comprehensive strategy for satisfying our long-term energy demands. T. Boone Pickens’ website - Pickens Plan - lays out very starkly the problem we are facing:

America is addicted to foreign oil.

It’s an addiction that threatens our economy, our environment and our national security. It touches every part of our daily lives and ties our hands as a nation and a people.

The addiction has worsened for decades and now it’s reached a point of crisis. In 1970, we imported 24% of our oil. Today it’s nearly 70% and growing.

As imports grow and world prices rise, the amount of money we send to foreign nations every year is soaring. At current oil prices, we will send $700 billion dollars out of the country this year alone - that’s four times the annual cost of the Iraq war.

Projected over the next 10 years the cost will be $10 trillion - it will be the greatest transfer of wealth in the history of mankind.

America uses a lot of oil. Every day 85 million barrels of oil are produced around the world. And 21 million of those are used here in the United States.

That’s 25% of the world’s oil demand. Used by just 4% of the world’s population.

Can’t we just produce more oil?

World oil production peaked in 2005. Despite growing demand and an unprecedented increase in prices, oil production has fallen over the last three years. Oil is getting more expensive to produce, harder to find and there just isn’t enough of it to keep up with demand.

The simple truth is that cheap and easy oil is gone.

Not to dispute the great oil man - bowing to his instincts - I’m not entirely ready to admit that we have reached peak oil in the United States. I do believe peak oil may have been reached in Saudi Arabia - the primary source of world oil. Thus, his basic conclusion that “the cheap and easy oil is gone” is correct. Even if we open up America’s drilling grounds, or the Bakken Formations, or the other shale oils found in the United States or territories, is not simple to extract and ultimately will just stabilize, not lower in the long-term, prices for oil-related products and compounds.

Thus, Picken’s proposes a simple concept - wind power.

I’ll be honest, my first instance of seeing wind power oddly enough was at Guantanamo Bay, Cuba. Because the United States cannot rely on Cuba for water, power, or sewer, it generates its own. It has generated its own utilities since Castro cut off the water back in the 1960’s. When the United States undertook detention operationst at Guantanamo - the base’s size quadrupled in the number of people. A small backwater base of a few hundred suddenly had close to 4000 people on it. That growth placed incredible stress on the water and power facilities. The way the Navy decided to deal with the immediate power issue was to set up a few windmills on the top of the highest hills at GTMO. I watched them get built over the times I visited GTMO during my time at DoD. At the end, the windmills at GTMO provided a large share of the power used by GTMO. A simple solution. I admit they are god-awful ugly looking - and humungous. But - three windmill towers provided about a third of the energy that the base was using when they were all fired up running full tilt. That’s pretty impressive.

Wind power is growing in popularity as an alternative to fossil fuel and one of the best of the renewable energy sources. The use of wind power requires wind turbines. Wind turbine generators do little to harm the environment and are far preferable in this regard to fossil fuel. The only disadvantage is that they cannot be used everywhere. In order to effectively use turbines to generate wind power you would need an average wind speed of at least 13 miles per hour. Now, the conditions for wind power don’t occur anywhere…

Lucky for us - according to Mr. Pickens - the middle of the United States is ideal for such wind generation. Pickens website details:

Studies from around the world show that the Great Plains states are home to the greatest wind energy potential in the world - by far.

The Department of Energy reports that 20% of America’s electricity can come from wind. North Dakota alone has the potential to provide power for more than a quarter of the country.

Today’s wind turbines stand up to 410 feet tall, with blades that stretch 148 feet in length. The blades collect the wind’s kinetic energy. In one year, a 3-megawatt wind turbine produces as much energy as 12,000 barrels of imported oil.

Wind power currently accounts for 48 billion kWh of electricity a year in the United States - enough to serve more than 4.5 million households. That is still only about 1% of current demand, but the potential of wind is much greater.

I think wind power, solar power, coal, natural gas, nuclear power, all of it needs to be considered. For someone like Mr. Pickens to have decided that Wind power is worth developing suggests to me that it may finally be mature enough to deploy in a serious commercial manner. Thus, I commend efforts like Mr. Pickens and I fully support what he wants to accomplish.

The reason why is a simple one. In one of Mr. Pickens’ advertisements - he talks about how each year we are transferring $700 billion in energy costs to foreign powers. Let’s be clear about who that money is going to - it’s Hugo Chavez, it’s Iran, it’s Nigeria, it’s Angola, and others.  The wealth transfer that will occur because of oil empowers enemies of the United States. The debt we have to incur in order to finance the energy costs is empowering our competitors like China. It is a national security problem as serious as the GWOT or the war in Iraq to limit our dependence on oil supplied by countries who have long-term hostile intent to the United States.

Drilling is going to help. Improving fuel efficiency of cars is going to help. But in the long run - we need to figure out how we’re going to fuel the engine of America. We need a long term plan - and people like Pickens are going down the right path.

Continuing without developing a long-term energy plan for America is the equivalent of taking a star off the flag and giving it to our enemies.

Washington, D.C. (Washingtonpost.com): Confused about oil prices? So are the experts.

Executives from the giant oil companies say it’s partly the fault of “speculators” or financial players. Key financial players say it’s really a question of limited supply and expanding global demand. Some members of Congress accuse the Organization of the Petroleum Exporting Countries for bottling up some of its production capacity. And OPEC blames speculators, wasteful U.S. consumers and feckless U.S. policy.

Almost everyone points at China’s growing appetite for fuel.

Whatever the causes, one of the most dizzying runs in the history of oil prices picked up pace yesterday — again — as crude oil prices jumped to settle at more than $133 a barrel, up $4.19 in one day, 18 percent so far this month and more than one-third so far this year. Prices climbed even higher in late electronic trading.

The nationwide average price for a gallon of regular gasoline yesterday also set another record at $3.81 a gallon, up a penny a day for the past month, the auto club AAA reported.

“People don’t get it,” said Sen. Herb Kohl (D-Wis.) at a Judiciary Committee hearing yesterday at which senior oil company executives were grilled about prices. Kohl said: “Demand is not crazy. Why are prices going crazy?”

While the share of blame for soaring oil prices may be blurry, the impact of those rising prices is painfully clear. They are damaging the profits of oil-intensive industries, tearing holes in the pockets of American consumers, offsetting the stimulant effect of tax breaks, sapping more than $1.5 billion a day out of the U.S. economy for oil imports and diverting ever-bigger gushers of dollars to oil-producing countries such as Saudi Arabia, Russia, Iran and Venezuela.

Analysts cited several factors behind yesterday’s crude oil move: the declining dollar, the impact of higher price forecasts issued by investment banks, an unexpected drop in U.S. crude inventories and a jump in Chinese fuel imports. China needs extra fuel to run generators to compensate for disruptions in coal deliveries and hydropower resulting from the recent earthquake. Traders said demand is particularly strong for diesel fuel, used by drivers in Europe and in Chinese generators.

But the bigger question is: What has been driving the doubling of prices over the past year even as U.S. demand has stagnated and global output has continued without any major new disruption?

“The basic story that has brought oil from $20 to $130 dollars is that world demand is growing robustly when world supply is not,” argued Jeffrey Rubin, chief economist of CIBC World Markets. “As a result, we need ever-higher world oil prices to kill demand in the [industrialized countries], which is exactly what’s happening.”

While U.S. demand has leveled off, Rubin said, demand in China is growing at a 12 percent rate, more than the 8 percent rate he forecast. While the extra increase in China is probably because of short-term factors, such as the earthquake or hoarding by the government in preparation for the Olympics, Rubin said even the lower rate would keep world demand growing briskly.

Earlier this month, Goldman Sachs rattled the market by upping its second-half 2008 forecast for oil prices to $141 a barrel from $107. And it said prices could spike as high as $200 a barrel.

“The market is once again searching for a new equilibrium,” Goldman said in a May 16 analysis. It said that policy constraints were impeding the flow of capital, labor and technology, limiting new supplies despite high oil prices, while demand remained stubbornly strong. Higher exploration costs have also blunted activity to boost supplies. As a result, Goldman said, even higher prices would be needed to bring demand growth in line with supply trends.

Oil consumers usually react slowly to price increases; savings come as they buy more fuel-efficient cars.

But another reason high prices haven’t had a bigger effect on consumption is that much of the world isn’t paying market price. “Half the world is not seeing the real oil price,” said Rob J. Routs, executive director for oil products and chemicals at Royal Dutch Shell.

This year, for example, India is expected to pay more than $20 billion in fuel subsidies. According to the International Monetary Fund, Lebanon, Mexico and Peru have cut excise taxes, and the Philippines and Ukraine have lowered import duties to blunt price increases — much as Sens. Hillary Clinton (D-N.Y.) and John McCain (R-Ariz.) have proposed a tax “holiday” for U.S. motorists.

Oil-producing countries are among the worst culprits; their consumption has rivaled China’s. CIBC’s Rubin said Mexico, the second-leading source of U.S. oil imports last year, could be a net oil importer in five years.

But even the oil industry and financial community are divided over the cause of high oil prices. “There’s nobody waiting at retail stations to fill up cars,” said Routs, who points to financial flows. “There’s no problem getting crude to refineries.”

“The high is developing a momentum of its own,” said a pair of analysts at Commerzbank in Frankfurt, Germany. Bloomberg News reported that they said “the trend will soon be coming to an end, and that the subsequent correction will be all the more severe.”

“We see many of the essential ingredients for a classic asset bubble,” said Edward Morse, chief energy economist at Lehman Brothers. Morse estimated that $90 billion has flowed into the biggest commodity indices in just more than two years, and more money has flowed into other exchanges, pushing up prices.

“Performance-chasing financial inflows to commodities cause prices to rise, thus delivering good performance and, in turn, attracting even more inflows. This phenomenon can be self-fulfilling,” Morse said. Ultimately, however, “commodities markets still have a physical aspect to them that must fundamentally balance.” He said that once the size of oil inventories and worldwide spare production capacity becomes clearer, “markets may face a sharp correction.”

Washington, D.C. (rightcommentary.com): I reported yesterday on the US major oil executives testifying before the US Senate. CSPAN now has a link to view the testimony in full:

http://www.c-spanarchives.org/library/index.php?main_page=product_video_info&products_id=205477-1&showVid=true

Enjoy!

Washington, D.C. (rightcommentary.com): Senators told oil executives Wednesday that high oil prices cannot be explained by supply and demand and the oil industry’s concentration — and OPEC price collusion — is contributing to the costs facing consumers.

Executives of the five largest oil companies were appearing before the Senate Judiciary Committee.

Committee Chairman Patrick Leahy, D-Vt., said there’s an unexplained “disconnect” between prices — at nearly $130 a barrel — and legitimate supply and demand.

“We need to get prices under control…. We can only conclude that the oil markets have failed,” said Sen. Herbert Kohl, D-Wis.

But Shell Oil Co. Chairman John Hofmeister said the prices can be explained, saying, “The fundamental laws of supply and demand are at work.”