Almost a decade ago, oil magnate T. Boone Pickens set forth the “Pickens Plan,” which was supposed to end our reliance on imported oil. At the time, it wasn’t a bad idea. We were importing more than half our oil and were at the mercy of OPEC. Read more
I’ve just finished The Frackers, the excellent history of how the United States became the world’s leading developer of fossil fuels, by former Wall Street Journal reporter Gregory Zuckerman.
There are three lessons that can be taken away from this history, all of which relate to the development of alternative sources of energy:
- The government had very little to do with the development of fracking. It was all done by wildcatters who operated far outside major institutions.
- The founders of these methods didn’t necessarily get permanently rich. All have done well initially but have been undone by their very success, producing a superabundance of gas and oil that has driven down prices to the point where producers are overextended.
- The maverick wildcatters who have opened up our gas and oil resources are not necessarily opposed to alternative sources of energy. In fact, they have often become the biggest promoters of wind, solar and alternative fuels for our transport sector.
Let’s examine those myths one by one:
The government should get credit for the breakthroughs. Proponents of big government often try to promote the idea that the fracking revolution never would have occurred without the help of the government. They even argue that government was responsible for the fracking initiative. Three years ago, Ted Norhaus and Michael Shellenberger of the Breakthrough Institute published a piece in The Washington Post in which they practically argued that fracking had been invented in the laboratories of the Department of Energy. George Mitchell, who spent 40 years developing fracking, had simply borrowed a few ideas that the DOE had designed.
Read the opening chapter on Mitchell in The Frackers, and you’ll hardly find one reference to the Department of Energy or government help. At one point the DOE contributed a few million dollars to an experiment that Mitchell had designed, but that was it. The rest of the story tells of Mitchell’s fascination with trying to suck oil out of shale rock, and how he nearly bankrupted his moderately successful oil company in the effort. He had no luck trying to convince the major oil companies that shale could be accessed. At one point, Chevron came very close to fracking the Barnett Shale, where Mitchell had his first breakthrough, but the company gave up on the effort. Harold Hamm experienced the same frustrations in the Bakken, where he alone believed there were vast reserves of oil but couldn’t get anyone to support him, until he finally made a breakthrough. The government had nothing to do with it.
Fracking wildcatters always get rich. The great irony for many of these pioneers is that they are often undone by their own success. Aubrey McClendon built Chesapeake Gas into the nation’s second-largest producer of natural gas but was forced to give up his company because the success of his fracking had driven the price of gas so low that he was overextended. The same thing happened to Tom Ward, an early associate of McClendon’s who had built his own company, SandRidge, based on fracking. Ward was forced out of his ownership by the board of directors. Harold Hamm has been having the same trouble in The Bakken since the superabundance of oil has forced the price down. Developing a new source of energy doesn’t necessarily mean you’re going to be permanently rich.
The developers of new ways to access fossil fuels are opposed to other alternatives. Because they have been so successful in reviving production of oil and gas, the assumption has been that the Frackers are wedded to fossil fuels and are undercutting alternatives. This is not true. The primary motive of all these innovators has been to make America more energy-independent and reduce our reliance on foreign oil. All of them see the development of fossil fuels as only a temporary step, and acknowledge that we must ultimately find some other sources of energy. T. Boone Pickens, the dean of oil magnates, put forth a plan that would try to get the electrical sector to rely on wind so that natural gas could be moved over to the transport sector to replace oil. His Clean Energy Fuels Corporation had some success in building a “natural gas highway” that substitutes compressed natural gas for diesel fuel in long-haul tractor trailers. Both Mitchell and Hamm have been exploring alternative energy, and they’re funding efforts to try to substitute renewables for fossil fuels, both domestic and imported.
As Zuckerman concludes at the end of The Frackers:
The great leap forward should have involved alternative energy, not oil and gas. The U.S. government allocated over $150 billion to green initiatives between 2009 and 2014. … There’s little to show for the investments, however. … Instead a group of frackers, relying on market cues rather than government direction, achieved dramatic advances by focusing on fossil fuels, of all things. It’s a stark reminder that breakthroughs in the business world usually are achieved through incremental advances, often in the face of deep skepticism, rather than government inspired eureka moments.
It’s a lesson worth keeping in mind as we pursue alternative fuels to substitute for foreign oil.
Politico gathered some of the nation’s most influential players in the energy and national-security realms to discuss what we should do next about the sudden drop in global oil prices the past four months.
Among the heavy hitters are Amy Myers Jaffe, executive director of energy and sustainability at UC Davis (and a star of PUMP, the movie); environmentalist Bill McKibben; and geopolitical expert Ian Bremmer. But possibly the starkest commentary comes from magnate T. Boone Pickens, founder and chair of BP Capital. His entry in the roundtable is called “A False Sense of Energy Security,” and here’s an excerpt:
The key for America is that we shouldn’t let ourselves get distracted by falling oil prices when there is much more at stake. For decades, our dependence on OPEC oil has dictated our national security decisions and tied us up in the Middle East at an incredible price. We’ve spent more than $5 trillion and thousands of American soldiers have died securing Middle East oil. … it is critical that we not let ourselves lose sight of the problem and continue expanding American energy production. We have OPEC on the run, but we are still dangerously dependent. We have the domestic resources, but we need to demand that Washington get serious about a national energy plan that takes the real costs of energy into account. We cannot get sidetracked by a false sense of enhanced energy security and lower gasoline prices.
(Photo credit: Albert H. Teich/Shutterstock)
The famous Clydesdales that have hauled Budweiser’s barrels of beer since the 19th century are finally being replaced by 21st century compressed natural gas-driven vehicles.
Well, it isn’t quite that simple. There’s been an 80-year interval between the 19th and 21st centuries, when Budweiser’s trucks ran on gasoline and diesel fuel. But for 66 trucks at Budweiser’s Houston brewery, the 53-foot trailers loaded with 50,000 pounds are now going to be hauled by trailers running on compressed natural gas.
Anheuser-Busch actually has plans to convert its entire fleet to natural gas, according to James Sembrot, senior transportation director. “It’s significant that A-B feels comfortable swapping for an entire fleet that runs on CNG,” Christopher Helman wrote in Forbes. According to Sembrot, “the intention of shifting to natgas…is to reduce carbon emissions and fuel costs, while doing something green(ish).”
“The Houston brewery is among the biggest of the 14 that A-B operates nationwide. The closest breweries to this one are in Fort Collins, Colo., and St. Louis. Each truck rolls virtually around the clock — traveling in an average of 140,000 miles in a single year hauling beer to wholesalers. They move 17 million barrels of beer each year.” That’s a lot of beer running on natural gas.
Actually, it’s not Anheuser-Busch that is taking the initiative on Budweiser. The natural gas vehicles are being made available through Ryder, the nation’s largest trucking company since merging with Budget Truck Rental in 2002. Budget now has 2,800 businesses and 132,000 trucks around the country. Although only a small percentage run on natural gas, the company is dedicated to converting its fleet with all due dispatch, and the savings may prove to be extraordinary. According to Helman, “Sembrot tells me that the old trucks were getting 6.2 miles per gallon of diesel and running 140,000 miles per year. That equates to 1.45 million gallons of diesel to go 9.2 million miles. At about $3.80 per gallon, that’s roughly $5.5 million in total diesel costs per year. If they save about 30 percent per ‘gallon equivalent’ when buying CNG, that’s a savings of about $1.65 million per year.” That’s a lot of money save for switching to natural gas.
But it’s not just Budweiser and Ryder and a few forward-looking companies that are pushing ahead with natural-gas vehicles. The whole state of Texas seems to have gotten the bug. The Lone Star State now has 106 CNG filling stations, the most in the country. Forty are them are open to the public, while the others are fleet vehicles where vehicles from Anheuser-Busch and Ryder can fill up. Actually, far ahead of these innovators are FedEx and UPS, which have not converted their fleets for many years. And hovering in the background is T. Boone Pickens and his “hydrogen highway,” which is installing huge natural gas depots at key truck stops along the Interstate system. Much of this is aimed at Texas and the first complete link has joined San Diego to Austin in a seamless string of stations that will allow tractor-trailers to make the whole trip on natural gas.
All this has done wonders for Texas tax collections. At the start of the year, the Texas Controller’ Office was anticipating revenues less than $ million from excise taxes. Yet by July 31, 2014, collections were 220 times of that anticipated, and the Texas Controller’s office had collected $2,178,199. “These collections are more than double the estimated amount,” said David Porter, Texas Railroad Commissioner. “At 15 cents per gallon equivalent, $2 of motor fuels tax equals sales of 14,521,326 gallon equivalents of natural gas.”
Texas may be famous for fracking and producing more oil than Iraq, but they do not hesitate to look for new uses for gas and oil as well.
Photo by by Paul Keleher from Mass, US.
Although a bit bipolar concerning the data, the editors of Real Clear Energy published a useful graph and narrative on Tuesday. It showed the slow, steady increase of natural gas use in the U.S. over the past few years. The graph and narrative noted a 33% increase in vehicle fuel consumption since 2007. More good news for those who support natural gas, given its ability to reduce GHG emissions: the editors reported that the T. Boone Pickens’ “Natural Gas Highway” appears to offer hope that the trend will continue upward. Indeed, the EIA indicates that natural gas will increasingly substitute for gasoline in the truck, bus and rail freight sectors. So much good news! However, don’t open the champagne yet!
Now the bad news! Despite the increasing popularity of natural gas, over the next 25 years, the editors suggest it will only replace or displace 3% of the nation’s oil budget. What a bummer! But, paraphrasing Frank Sinatra (the noted oil man turned singer), when you have “your chin on the ground, there’s a lot to be learned, so look around… [we’ve] got high hopes…all problems just a toy balloon, they’ll be bursted soon, they’re just bound to go pop”…cause we’ve got high hopes.
Thanks Frank. Now, back to the editors. They correctly advised their readers that we, as a nation, will “never make any real progress until we start using liquid methanol and ethanol in regular passenger cars.” I assume the editors mean that we should increase the amount of ethanol in our cars. All of us now use at least 10% ethanol when we fill-er-up. Some of us, if we are lucky and have a flex-fuel vehicle (over 17 million of us do, but likely don’t know it), can use E15 and E85, assuming we can find a station with the necessary pumps. With the exception of a few states, such pumps are relatively few and far between. Sales of E15 and E85 constitute only a small share of the fuel market.
Why? Neither ethanol not methanol is a perfect fuel. Yet, study after study indicates that, on most dimensions, they are better than gasoline. Both are cheaper, both are generally environmentally superior and both emit less GHG emissions. Competition with gasoline from both would allow the U.S. to become less dependent on oil imports and add to our nation’s security. Over time, opening fuel markets to consumers by adding choice would likely help stabilize, and even reduce, the price of gasoline and limit its frequent nonstructural cycles.
As a former dean of a major School of Public Policy, I would gladly supervise a Ph.D. thesis or an “independent” student study concerning consumer decisions relative to the purchase of gasoline vs. replacement fuels, particularly ethanol and the acquisition of new or the conversion of existing cars to FFV status. The student could start off with some reasonable, contextual assumptions and/or hypotheses. For example:
1. Consumer decisions about alternative fuels often must be speculative, given the fact that oil companies, most times, prohibit their franchises from adding a replacement fuel pump or require them to put the pump in a hidden sidebar location.
2. There are sufficient anecdotes that price management is also a barrier to the development of competitive fuel markets. Data descriptive of the life cycle of ethanol suggests that costs for production, distribution and sales would permit ethanol to compete well, price-wise, with gas. However, anecdotes suggest that producers, distributors, blenders and retail stations — including independent stations — often raise or lower the price of gasoline relative to replacement fuels, which often impedes real consumer choice. There are no angels here. Retail stations carrying E85 have been known to raise its price to capture extra revenue.
3. Although the gap is narrowing in light of technological improvements, replacement fuels, including ethanol, get less mileage per gallon than gasoline. But, as noted earlier, the costs at the pump, if recognized in the price per gallon, generally work out in favor of ethanol. However, consumers find the calculations difficult to make without the addition of simple signs at the pump, a willing and patient station attendant, or an app in your hand. As a rule of thumb, replacement fuels should be at least 22% cheaper than gasoline to cement the deal for a knowledgeable consumer.
4. Despite EPA studies and approvals to the contrary, groups mainly associated with, supported by or historically favorable to the oil industry have planted the worry seed in car owners’ minds. E15 and, likely E85, they say, will damage engines that are actually built to use both. Saying it often enough has likely made many consumers consciously or subconsciously avoid replacement fuels like ethanol. The best answer to bad speech — whether written or oral — is good speech. Yet, only a handful of writers, editors, TV and cable anchors have responded to negative stories and rumors about replacement fuel safety.
I could go on. But I am over my word limit. Thank you, Real Clear Energy, for making me manic depressive — my friends would say it’s a rather normal state. I hope the brief comments by your editors will be discussed over and over again by others and stimulate strategies to increase the use of natural gas based ethanol, and someday soon, the legalization of methanol.
To read the newspapers these days, you’d think that all the innovation in energy is involved in bringing down the cost of solar panels or building even bigger blades for windmills. But innovation still continues apace in oil and gas, both in pulling them out of the ground and in finding new ways to use them.
“We haven’t been giving the big oil companies enough credit,” said Dominic Basulto in The Washington Post. “ Sure, we may see their print ads or watch as they tout their accomplishments on TV, but deep down, many of us believe that the brightest minds have moved on to something new in energy innovation. But that’s not true.”
That’s important because if we’re going to use our abundant natural gas supplies to wean ourselves off of foreign oil, we’re going to have to be sure the current superabundance of natural gas isn’t just a flash in the pan. Moreover, we’re going to need innovation in making the transition to methane-based liquid alcohol fuels easier as well.
As most people have heard by now, even our best technologies can’t extract more than about 10-20% out of an oil or gas reservoir from the earth. Simply doubling that rate would give us access to huge, new quantities of domestic fuels.
There’s also a concern that fracking wells will have a much shorter lifespan than traditional gas and oil wells. Then there’s all that natural gas being flared off in the Bakken. Ending that conspicuous form of waste will require some new technology.
All these problems are being tackled through innovation, however, and that’s what Basulto is talking about.
Although everybody knows about fracking — the technology of forcing sand and water into the rock to break it up — few realize that the real novelty that makes up the current upturn in production possible is horizontal drilling, which allows access to entire geological strata without making the territory look like a pincushion.
“Today, drilling rigs are so good that they can punch holes in the earth that are two miles deep, turn the drill bit 90 degrees, drill another two miles horizontally, and arrive within a few inches of the target,” said Robert Bryce, author of “Smaller, Faster, Lighter, Denser, Cheaper,” a book about innovation in the energy industry. But horizontal drilling hasn’t stood still. ExxonMobil has developed an “extended reach” technology that can push outward several miles further deep in the earth. “Extended reach reduces our environmental footprint and in offshore applications will limit our presence in the marine environment,” says the company’s website. It may have been developments like this that prompted President Obama to give a green light to exploration off the Atlantic Coast from Delaware to Florida last month.
The same innovations are occurring with natural gas fracking. Innovators have made an improvement called “sleeve technology” that surrounds the drill bit and allows highly accurate placement of stimulation treatments. The result is that wells can be drilled twice as fast as a few years ago, at a lower cost. With increased precision in both drilling and fracturing, wells are being made more productive as well. Erika Johnsen on Hot Air said, “Data from the Energy Information Administration’s Drilling and Production Report shows that a Marcellus Shale well completed by a rig in April 2014 can be expected to yield over 6 million cubic feet of natural gas per day (Mcf/d) more than a well completed by that rig in that formation in 2007.” That’s a huge improvement in the space of seven short years.
All this is good news for the effort of substituting natural gas-based ethanol or methanol for foreign oil in our cars. After all, one of the fundamental considerations is that there will be enough natural gas around to keep the price reasonable. With so many competing proposals for employing natural gas — electrical generation, the industrial revival, LNG exports, etc. — it’s crucial that we keep expanding production.
So it’s encouraging to hear the news from Clean Energy Fuels, T. Boone Pickens’ baby, which has been building a “CNG Highway” across the country to service long-haul tractor-trailers. CEF has just completed the first leg of this nationwide network, connecting Los Angeles and Houston.
But much of the nation still lies outside the reach of natural gas pipelines and CEF is figuring out a way to serve them, as well. Last month the company opened a filling station in Pembroke, New Hampshire that will be served by a “virtual pipeline” of high-tech tractor-trailers making round-the-clock deliveries. This will allow the station to pump 10 million gasoline-gallon-equivalents (GGE), twice the volume of CEF’s largest existing station. More important, it will open up large areas of the country that have not had access to CNG. This natural gas-based substitute will sell for 30% less than gasoline.
Technology never stands still. Sometimes it forces us to give up things that have become familiar or even seemingly permanent. But as Robert Bryce said, the new technology is usually “faster, smaller, lighter, denser and cheaper.” And in the case of methane-based liquid fuels, it will mean freeing ourselves from foreign oil as well.
What would you say about an investment opportunity where your product is four times cheaper than the commodity it is trying to replace and there are 77 million potential customers waiting to use it?
Does that sound like something that you would like to put your money into? Well that’s the opportunity that awaits anyone willing to invest in the infrastructure and technical changes needed to substitute natural-gas-based ethanol for foreign-fuel-based gasoline in our cars.
A full-fledged prospectus was presented this month by Miles Light, professor at the Leeds School of Business at the University of Colorado Boulder, in a report called “Natural Gas Based Liquid Fuels: Potential Investment Opportunities in the United States,” written for the recent Goldman Sachs Energy Summit.
Professor Light lays out the situation in very clear terms: “Low natural gas prices and new technology present an opportunity to market and sell liquid fuels in the form of ethanol and methanol to U.S. consumers. Per unit of energy, oil is almost four times more expensive than natural gas. This implies a potential arbitrage opportunity to convert natural gas and natural gas liquids into a liquid fuel. In the U.S., 14.5 million vehicles can currently utilize ethanol fuels. These are the so-called ‘Flex Fuel’ vehicles. Another 16.1 million FFV ‘Twins’ can utilize ethanol with a software upgrade, and 46.9 million conventional fuel vehicles can potentially be converted for $150-$250 each. In all, this presents 77.75 million light duty vehicles, or 31.8% of the national light duty fleet, that would potentially purchase natural gas liquid fuel, if prices were attractive.”
You’ve undoubtedly heard the phrase, “If we can capture just 2 percent of this market…” Well, this is it. There are opportunities up and down the line, from auto mechanics performing flex-fuel conversions on conventional engines to major corporations building plants to convert natural gas to ethanol.
What Light is talking about here is the wholesale substitution of a portion of our natural gas resources for the oil we import in order to run our transportation sector. True, we’ve cut down on imports so they now make up less than half of our consumption for the first time since the early 1990s. But what people are missing is that we still pay the same amount for that oil because the price keeps rising. This continues to put a $380 billion dent in our trade balance every year — not to mention that much of this money goes to countries that actively support hostile actions against America and its friends and allies around the world.
So what would it take to make this transition? There’s certainly been a lot of activity to date. However, most of it has concentrated on utilizing compressed natural gas (CNG) and liquid natural gas (LNG). T. Boone Pickens’ Clean Energy Fuels is in the process of building a “CNG Highway” to service long-haul trucks from coast to coast. He’s already completed the first leg from Los Angeles to Houston. Those big 18-wheelers have room for the larger gas tanks and travel fixed routes along the Interstate Highway System that can be serviced by relatively few filling stations.
But passenger vehicles are a completely different matter. They travel everywhere and would require a whole new national infrastructure to fill their tanks. The auto companies have already offered a few CNG models but they haven’t sold well. It’s the chicken-and-egg problem — people won’t buy cars before the stations become common and the stations won’t be built until there are enough cars on the road.
With ethanol, however, there is already an infrastructure in place. The country is presently outfitted with 2,394 gas pumps dispensing E85, a mixture of 85% ethanol and 15% gasoline. (The gasoline is there just to start on cold mornings.) Most of these are concentrated in the farm belt but they’re starting to make their way into major cities on the East and West Coasts as well.
The point is this: these stations have been set up to handle corn ethanol. This is the result of the 35-year government effort to promote biofuels. But Light suggests that these stations could just as easily dispense ethanol made from natural gas. No new technology would be necessary, nor would it require any special permission from the government. (Methanol, which is a little easier to synthesize than ethanol, has a greater toxicity and would require some additional approval from the Environmental Protection Agency.)
So according to Light, this is where the investment opportunities lie. The conversion of natural gas to ethanol is the first and most important step, but Coskata, Inc. already has a working facility and Celanese Corporation is converting coal to ethanol in Indonesia. Light estimates that, at current and foreseeable prices, the return on investment could be as high as 46 percent.
Then there are all the intervening steps. “Alongside the core ethanol production opportunity, there are several related supply-chain developments projects, such as production facility development, ethanol fuel marketing, fueling station upgrades, blending facility expansions, and vehicle update kits,” he writes. All are well within the range of private investment. No government subsidies or mandates would be required.
In other words, the conversion of significant portions of our auto fleet to natural gas presents a whole world of opportunity just waiting for imaginative, ambitious investors to take advantage.
Wall Street was abuzz last week as Clean Energy Fuels, the leading supplier of natural gas for use in delivery and heavy-duty trucks, jumped 11 percent in one day after a long slump in which investors were questioning its business model.
“We’re at the very beginning of a major shift to natural gas for trucking – a shift that could take a decade before the growth slows – and Clean Energy Fuels is the leader in the market,” added Jason Hall of Motley Fool, who had been skeptical of the company in the past but is now turning enthusiastic.
“Natural gas vehicles are here to stay,” added James E. Brumley on SmallCap Network, in one of the many enthusiastic endorsements the company received last week. “So Clean Energy Fuels is very much a right-time, right-place idea. It’s not just that the company is the biggest and the best at what it does. There’s a market of scale for what it has to offer.”
It hasn’t been easy. The company, the brainchild of legendary oilman T. Boone Pickens, seemed poised for growth last year but suddenly hit a sudden downdraft in January. Skepticism grew over whether compressed natural gas (CNG) or liquid natural gas (LNG) would be the best substitute for diesel in heavy-duty trucks. The debate is really inconsequential since the two are interchangeable – LNG for large-scale storage and transport with some use in the biggest rigs and CNG for fueling smaller commercial vehicles. Nevertheless, the controversy drove down CEF’s stock price 25 percent since the first of the year.
“Much of the conversation in the investor community over the past six months has been dominated by the false idea that CNG and LNG were competing fuels,” wrote Hall in a recent evaluation. “But while we’ve been arguing, Clean Energy Fuels has been opening stations for trucks across the country. And the company is a leader in both.”
Once again, it seems to have been a case of investors becoming absorbed in short-term focus while ignoring the long-term prospects of the company. True, Clean Energy Fuels has not yet delivered a profit but its progress in building infrastructure to enable us to use significant portions of our natural gas resources as a substitute for diesel fuel has been significant. Here’s what the company has accomplished so far:
- Clean Energy Fuels has delivered 800 million gallons of CNG and LNG to light and heavy-duty trucks.
- The company has built approximately 500 fueling stations across the country.
- It has installed over 1,500 compressors for delivering CNG to vehicles worldwide.
- It has two LNG production plants.
- It has 60 LNG tankers making 5,000 deliveries every year.
- It has two renewable natural gas plants producing bio-methane.
- It has 39 major airport fueling stations.
- It now fuels over 35,000 trucks, large and small, with CNG each day.
As you can see, this is no fly-by-night operation. Whether the company is profitable or not right now, Pickens is obviously in it for the long haul.
Clean Energy Fuels’ long-term goal is a “CNG superhighway” that will offer fueling stations to long-haul trucks along all the major interstates that crisscross the country. But its major success to date has been in servicing fleet vehicles for delivery companies and municipalities.
- CEF currently services 230 trucks a day for UPS with big plans for expansion.
- CEF has contracts with Owens-Corning, Lowe’s, Proctor & Gamble and other commercial establishments’ fleet owners for their delivery vehicles.
- Garden City Sanitation of San Jose has converted 23 refuse trucks to natural gas using CEF’s services.
- CEF will be fueling Kroger’s new 40-unit fleet of LNG trucks later this year.
Analysts believe that refuse and delivery fleets, especially those that are garaged overnight and can be refueled at a central CNG station, will become one of the company’s major markets.
CEO Andrew Littlefield just announced a loss in revenues for the first quarter of 2014 but said this was because of the expiration of the federal volumetric excise tax credit (VETC), which had provided $26 million in 2013. Overall, the trend is definitely upward:
- LNG fuel deliveries increased 22 percent to 16.7 million gasoline gallon equivalents.
- CNG deliveries increased 16 percent.
- When the VETC is excluded, overall revenues were up 43 percent.
- Sales of Redeem, the company’s renewable bio-methane product, increased 45 percent.
Sean Turner, COO for Gladstein, Neandross & Assoc., a leading consulting firm for the development of alternative fuels, notes that the NGV market in the United States is actually larger than in countries such as Argentina and Pakistan, which have been at it for a longer time. “While North America might lag behind in the adoption curve of other countries, natural gas usage per vehicle is actually near the top worldwide,” he said. “This is because other countries have tended to employ NGVs for passenger cars, whereas the U.S is now concentrating on medium-sized and heavy-duty trucks.” And as T. Boone Pickens likes to point out, natural gas will be unrivaled in this marketplace since electric vehicles cannot produce the torque needed to power those long-haul vehicles.
Whether all this makes Clean Energy Fuels a hot stock again is something Wall Street will have to decide. But in terms of moving America toward greater reliance on homegrown natural gas, the news is all favorable.
The effort to substitute compressed natural gas for foreign oil in our gas tanks is moving ahead on all fronts across the country, in scores of municipal departments that are converting their fleets, in new gas stations that are opening and with entrepreneurs who are looking for ways to speed up the conversion.
Leading the pack is Clean Energy Fuels, T. Boone Pickens’ effort to put the nation’s natural gas resources to work in the transport sector. Clean Energy Fuels has targeted long-distance, heavy-duty trucks, which tend to stay on the Interstate Highway System and can be services at massive truck stops. In Pennsylvania, for instance, Clean Energy Fuels is building stations in Pittston and Pottsville that will serve trucks on heavily the traveled I-81 and I-476. They are scheduled to open later this year.
But much of Clean Energy Fuels’ real success is coming from the fleet conversion for major shipping firms that rely heavily on truck transportation. The company has had particular success with UPS. Fueling depots were recently opened in Oklahoma City and Amarillo, Texas. The carrier E.J. Madison, LLC has deployed a fleet of 20 long-haul LNG trucks that will utilize a CEF network of stations that stretches from Los Angeles to Jacksonville, Florida. Jacksonville is emerging as a hub of CEF activity as the company has opened a liquid natural gas (LNG) terminal there as well. LNG is more difficult to handle than compressed natural gas but has much greater energy density.
Rapidly expanding in Florida, CEF has just announced a grand opening of a CNG filling station that will service the Hillsborough Area Regional Transit Authority (HART), which provides public transportation throughout the Tampa metropolitan area. The opening kicks off a plan to convert HART’s entire fleet of public services buses and vans to compressed gas.
Just last week Clean Energy Fuels CEO Andrew Littlefair was in the news telling The Motley Fool that Tesla’s electric cars will not be in competition with CEF’s efforts. “Tesla and electric vehicles are really great for certain applications,” he told interviewer Josh Hall. “But hauling 80,000 pounds of cargo, natural gas is really well suited for that.”
However, even if Clean Energy Fuels doesn’t think CNG can compete with electric at the passenger-car level, others do. Last week the Wawa convenience store chain announced it will partner with South Jersey Gas to open CNG fueling stations in southern New Jersey. “Compressed natural gas gives us an opportunity to increase the convenience we offer our customers and positions us for the future as well,” Brian Schaller, vice president of fuel for Wawa told the press. “We’re excited about the growth potential.” With 600 stores on the East Coast from New Jersey to Florida, Wawa has plenty of room to grow.
Pennsylvania is becoming a hotbed of compressed gas progress as the state seeks to take advantage of the Marcellus Shale. The state has adopted a funding program to help businesses convert. One of the first to take advantage is Houston-based Waste Management, which received an $806,000 grant from the State Department of Community & Economic Development to switch 25 of its waste and recycling collection vehicles to CNG. Pennsylvania-American Water Company has also announced plans to convert its fleet with a $315,000 state grant. American Water, the largest water utility in the state, operates out of Scranton.
Nebraska is a long way from any natural gas drilling but the Uribe Refuse Services company of Lincoln has announced it will convert its entire fleet of 17 trucks to natural gas over the next few years. The first trucks were displayed in the city last week on Earth Day.
Oklahoma is a big oil-and-gas producing state and is making a major effort to convert state vehicles to natural gas. In 2011 Gov. Mary Fallin joined 15 other states in a multi-state memorandum of understanding committing them to purchase NGVs for the state fleet. The state now has 400 CNG vehicles and is pushing the federal government to convert its fleet in the state as well. Oklahoma is building CNG gas stations to match and now stands third in the nation behind California and New York.
The natural gas industry is putting its shoulder to the wheel on this effort. The American Gas Association and America’s Natural Gas Alliance (ANGA) have teamed up to sponsor “Add Natural Gas (+NG),” an effort that is encouraging entrepreneurs and mechanics to convert ordinary passenger cars already on the road to CNG. “Fleets across the country are already using natural gas vehicles to save money and reduce emissions,” says the group’s website. “However, natural gas can be used to fuel any vehicle. To demonstrate this, we worked with automotive engineers to add natural gas as a fueling option for some of the most popular vehicles on the market today.”
Performance CNG LLC is a Michigan startup that has been inspired to take up the initiative. The company recently had a hybridized 2012 Ford Mustang GT demonstrated as part of +NG’s campaign and is currently trying to raise $55,000 in capital on Indiegogo, an international crowd funding site. More than half the money would go to EPA emissions testing.
Not everyone is convinced that CNG is the way to go. Clean Energy Fuel’s stock has done poorly since January, based on investor skepticism that its market is not that big and that some liquid natural-gas based fuel – methanol of butanol – will prove easier to handl
The United States Energy Security Council has written a brilliant report explaining why neither increased production nor improved conservation will solve our oil problems or free us from dependence on world events.
The Council numbers 32 luminaries from across the political spectrum, including such diverse figures as former National Security Advisors Hon. Robert McFarlane and Hon. William P. Clark, former Secretary of State Hon. George P. Shultz, Gen. Wesley Clark, T. Boone Pickens and former Sen. Gary Hart. The study, “Fuel Choice for American Prosperity,” was published this month.
The report wades right in, pointing out that even though our domestic production has increased and imports are declining, we are still paying as much or more for imported oil than we did in the past. The report states, “Since 2003 United States domestic oil production has risen sharply to the point the International Energy Agency projects that the United States is well on the way to surpassing Saudi Arabia and Russia as the world’s top oil producer by 2017. Additionally fuel efficiency of cars and truck is at an all-time high. As a result of these efforts, U.S. imports of petroleum and its products declined to under 36% of America’s consumption down from some 60% in 2005.”
Good news, right? Well, unfortunately not so fast. The report adds, “None of this has had any noticeable downward pressure on global oil prices. Over the past decade the price of crude quadrupled; the value of America’s foreign oil expenditures doubled and the share of oil imports in the overall trade deficit grew from one third to about 5%. Most importantly, the price of a gallon of regular gasoline has doubled. Despite the slowdown in demand, in 2012 American motorists paid more for fuel than in any other year before.”
How can it be that all this wonderful effort at improving production still has not made a dent in what Americans pay to fill up their cars? The problem, the study says, is that OPEC still has enough monopolistic market leverage to keep the price of oil where it wants. “While non-OPEC supply has been increasing and while the world economy is growing by leaps and bounds, OPEC, which holds some three quarters of the world’s economically recoverable oil reserves and has the lowest per barrel discovery and lifting costs in the world, has failed to increase its production capacity on par with the rise in global demand. Over the past four decades, world GDP grew fourteen-fold; the number of cars quadrupled,; global crude consumption doubled. Yet OPEC today produces about 30 million barrels of oil a day (MBD) – the same as it produced forty years ago.”
This means that even though we’re doing very well in ramping up supply and reducing demand, the overall distribution of reserves around the world still weighs so heavily against us that we’re basically spinning our wheels as far as what we pay for oil is concerned. The Council sums it up succinctly: “What the U.S. imports from the Persian Gulf is the price of oil much more so than the black liquid itself.”
So, what can we do? The Council says we have to change our thinking and come up with an altogether new approach: “If we are to achieve true energy security and insulate ourselves from countries that whether by design or by inertia effectively use oil as a economic weapon against us and our allies, America must adopt a new paradigm – one that places oil in competition with other energy commodities in the sector from which its strategic importance stems: the transportation fuel market.”
In other words, quite simply, we have to find something else to run our cars. “Although this may appear to be a daunting task, our country — and the globe — is abundant in energy resources that are cost-competitive with petroleum.”
In fact, there are numerous alternatives available. We have natural gas that can be used in a variety of ways, we have biofuels and we have electricity; all of which exist in abundant supply. What prevents us from using many of these alternatives is a regulatory regime and political inertia that prevents them from being employed. “Cutting into oil’s transportation fuel dominance has only been a peripheral political objective over the past forty years with inconsistent support or anemic funding from one Administration to the next. Competing technologies and fuels to the internal combustion engine and to gasoline and diesel have often been viewed as political pet projects by the opposing party. . . . What we must do is relatively simple: level the playing field and end the decades-old regulatory advantage that petroleum fuels have enjoyed in the transportation fuel market. By pursuing a free market-oriented policy that has as its primary objective a competitive market in which fuels made from various energy commodities can be arbitraged against petroleum fuels, the United States can lead the world in placing the best price damper of them all – competition – on oil.”
The Council is particularly critical of the “multiplier” system that has allowed the Environmental Protection Agency to become the arbiter of which alternative vehicles win favorable regulatory approval. The Corporate Average Fuel Efficiency (CAFE) standards have now been set so high — 54.5 mpg by 2025 — that no one realistically expects them to be achieved. But automakers can win “multipliers” by manufacturing alternative-fuel vehicles that are counted as more than one car, thus lowering the fleet average. The value of this multiplier, however, is determined solely by the EPA.
But as the study points out, the EPA has a conflicting mandate. On the one hand, it is supposed to be cutting gasoline consumption but on the other it is concerned with cutting pollution and carbon emissions. (Just why the EPA and not the Department of Energy is administering the CAFE program is a question worth asking.) So the EPA tends to favor cars that do not necessarily improve energy consumption, but cut emissions. Thus, it awards a two times multiplier to electric vehicles and fuel cell cars by only 1.3 times for plug-in hybrids and compressed natural gas. Meanwhile, flex-fuel vehicles, which could do most for reducing oil consumption, get no multiplier at all.
The Energy Security Council has many other good recommendations to make as well. I’ll deal with them at length in a later column. But for now, the takeaway is this: Greater production and improved efficiency will only get us so far. The real key to lowering gas prices and freeing ourselves from foreign dependence is to develop alternatives to the gasoline-powered engine.