It’s a gas, gas, gas – but which one?
One game might be US transport: how about using some of that cheap new shale gas to fuel American cars and trucks so there’s less need to import expensive oil from insecure sources? Surely this a win-win-win solution: cleaner transport, an economic boost from a new growth market and a trade benefit from replacing imports with domestic energy – and an energy-security benefit to boot.
Maybe. But there’s a problem, or rather several. The first is that transport is not necessarily the best use of that gas. In particular, there is going to be a need for more gas to provide power, both to replace the coal stations that will need to shut if the United States is going to rein in its carbon emissions and to provide back-up for new sources of renewable but intermittent wind and solar power.
There is also a strong economic case to export surplus gas. That would help push up prices, which households and industry will grumble about, but in doing so would boost the economic value of the gas produced domestically and provide an even bigger boost to the US economy by improving the trade balance, stimulating more production and creating jobs. That is why President Obama has already authorised one LNG export plant and is minded to permit more to go ahead.
And, in any case, it is by no means obvious that motorists and truckers are really keen on switching to natural gas – even at the low prices we have seen of late. The problem is the high cost of converting cars and trucks to run on gas rather than gasoline or diesel and the practical problems of installing refuelling infrastructure.
Take cars. Natural gas is certainly cheaper than gasoline at the pump and you can pay for the cost of converting your car (or paying extra for a factory-built) to run on compressed natural gas out of the fuel savings that you will eventually make. But the conversion cost is high so the paybacks are long. What’s more, you need a big tank which will eat up most of the space in your trunk. That is why so few people have been tempted to make the switch so far.
For trucks, gas looks like a more attractive proposition. But there again, there are big upfront costs. LNG is the only really practical solution for long-distance, heavy trucks, and the extra cost of an LNG-fuelled truck over and above a normal one can be as much as $75 000. You can get your money back from the savings on fuel cost, but the paybacks are typically three to four years. For most trucking companies in the United States – the bulk of which are small, family-run businesses – this is just too long. And there is the classic chicken-and-egg problem of who makes the first move: the trucking firms are reluctant to invest in new LNG-powered trucks until the refuelling stations along the major highways are in place, while the fuel retailers are reluctant to invest in expensive LNG pumps unless they are convinced that the demand will be there.
This is where Autogas – or propane as they call it in America – comes in. The cost of converting both cars and trucks is lower, there is already an extensive refuelling network in place and the cost of putting in more pumps is relatively cheap. Autogas is just as clean as natural gas. And Autogas is highly competitive with natural gas on price too – and is set to remain so. Because for as long as shale gas keeps rising, local supply of LPG contained in the liquids associated with the gas will likely keep rising too.
In short, the boom in shale gas actually provides an opportunity for Autogas as much as for natural gas to make inroads into the US road-fuel market. And there are growing signs that that opportunity is being seized, as the article by PERC’s Michael Taylor in this edition of Autogas Updates describes. The Autogas market is surprisingly small in the United States, but the potential is huge – not just for Autogas, but for all alternative fuels.
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 email@example.com.