A golden age of [Auto]gas?

Unless you have been living in a cave for the last few years, you will no doubt have heard that “shale gas is a game-changer” and how we are entering a “golden age of gas”. Natural gas, that is. Resources of conventional gas were already large, but technological advances now hold out the prospect of producing large amounts of unconventional shale and tight gas and coalbed methane, while demand is set to continue with the environmental and practical attributes of gas making it the preferred fuel in many uses, notably power generation.

Conventional wisdom says that more natural gas is bad news for LPG generally and Autogas specifically, as the two fuels are competitors. But is that really the case?   

The boom in production of shale gas in the United States over the past few years has boosted overall natural gas supplies and helped to drive down the price. This has boosted demand for the fuel and opened up the possibility of using it on a much larger scale as a transport fuel. This has sent alarm bells ringing in the US propane industry. Autogas, or propane Autogas as it is called in America, is already struggling to make headway in the US market. Surely, cheap compressed or liquefied natural gas will only make matters worse.

Not necessarily. Increased output of natural gas has also boosted supplies of LPG, as it is contained in varying degrees in the gas stream. Unsurprisingly, gas drillers in the United States have been focusing much more on areas where the liquids content of the gas is highest, as the gap in price between oil and gas widens. In fact, if you look at the official data, LPG output from refineries and gas-processing plants combined has actually increased almost as rapidly in percentage terms as natural gas since 2005. Quite simply, more natural gas means more LPG.

Increased supplies of LPG in the US have inevitably helped to drive down the price there, which has boosted the competitiveness of Autogas against gasoline. It is true that the price of natural gas has fallen even more in recent years, and that gas now holds a price advantage of about a third in pure energy terms. But that reflects the fact that the United States cannot, for the moment at least, export its surplus gas in the form of LNG as there are no export terminals as yet, whereas LPG can be shipped to export markets at relatively low cost. And the price of natural gas is unlikely to remain so low relative to LPG and oil products generally for long, especially once the several LNG terminals that are planned come into operation. Elsewhere in the world, Autogas remains competitively priced.

Autogas remains a more attractive option than natural gas as an alternative transport fuel in many cases because of its practical advantages, especially in light-duty vehicles: it is much cheaper to convert a gasoline-powered car to run on Autogas than on natural gas, the additional fuel tank is much smaller and refuelling is easier and quicker, and installing distribution and refuelling infrastructure is less costly.

Worldwide, the production of both natural gas and LPG is set to carry on growing for the foreseeable future. The International Energy Agency, in its most recent World Energy Outlook, projects growth in gas production of 1.7% per year on average through to 2035 and growth in natural gas liquids (including LPG) of 1.8%. But as LPG is a by-product, the market will remain supply-driven: this extra supply will need to find a home. Autogas is one obvious place for it to go.

A growing number of countries are looking at introducing or boosting the role of Autogas, for both environmental and economic reasons. Colombia – the subject of a special report in this edition of Autogas Updates – is the latest example. And it isn’t simply a case of picking either natural gas or Autogas. Both fuels can contribute to diversifying the fuel mix and reducing environmental impacts. 

An expanded role for Autogas isn’t going to happen by itself. The industry in all parts of the world needs to work together with policymakers and carmakers to ensure that the right conditions are put in place for Autogas to compete fairly and effectively with natural gas and all the other fuels options. As PERC President Roy Willis said about product development at a recent council meeting, “We have a lot of work ahead of us. … We need to put our foot on the accelerator and get ready.”

Disagree? Agree? Either way, Trevor would like to hear your reaction and any thoughts you might have about Autogas Updates! He can be reached by email at: trevor.morgan@menecon.com