US Taxpayers to Increase Backing for Compressed Natural Gas Vehicles

There now appears to be an increasing chance legislation will be enacted in the US by May 2010 increasing support for natural gas as an alternative to oil in transportation.  This could be the most significant energy policy change in the US since the controversial decision a few years ago to provide taxpayer subsidies for crop based fuels.

In the videos attached to the Bloomberg news story US oilman Boone Pickens is quite optimistic about the probability legislation will pass very soon.

Is the Future of Transport in Niches?

Transport occurs in fairly stable patterns.  People commute to and from work, school and stores each day within a known range of miles and load. However, these stable patterns do not define the vehicles people buy. People tend to buy vehicles which cover a large array of contingencies.  Daily commuter vehicles are more often than not heavier than needed for a daily commute as they are purchased for events such as a once every month journey more than 200 miles with 6 people.  This contingency-link to vehicle purchasing creates a lot of fuel inefficiency.

(source: US Census Bureau)

As transport fuels become more diverse and expensive, powered transportation devices may also become more customized to fill niches.  These niche vehicles will be more efficient as they would just cover the vast majority of daily transport in the most efficienct manner.  Services such as car sharing Zip Car would meet the need for less frequent vehicle uses.

In cities, people tend to use taxis, subways and buses.  Taxis are expensive. Subways and buses, while most often the quickest way around, can be slow and infrequent at the edges of a city.

I was passing a motorcycle store the other day and saw this Ultra Motor A2B electric bicycle which can travel 20 miles at 20 miles per hour between charges.  It is an urban commuting vehicle.  One can pedal if the batteries have been drained.  The vehicle can be stored inside an apartment or an office which is an advantage over gasoline-powered scooters.  I am not endorsing this bike, it is simply interesting that products which would once have been considered gimmicks are now slowly at the edges of becoming more mainstream.

Is Natural Gas the New Oil?

Source: EIA and IEA data.  Chart from Page 7, Fig. 1-3, Oil 101

There have been a number of stories over the past week about the growth potential of natural gas in the US.  The optimism over supply has resulted from the application of a technique which fractures natural gas bearing shale rock. The fracturing process involves pumping fluids at high pressure into wells to break the reservoir rock and permit natural gas to flow which would otherwise never move across the tight formation to the well.

The fracturing ("fracing") of tight shale formations is now being investigated for use in Europe and other areas outside the US.

Estimates as to how much additional natural gas can be extracted using such techniques vary extremely widely. Some say that natural gas could become an increasing alternative transport fuel to liquid hydrocarbons (crude oil) in certain applications and certain regions of the world for several decades. Natural gas may also increasingly displace solid hydrocarbons (coal) as a baseload (running all the time) electrical power generation fuel.

What is certain is that the industry is in a state of flux which could turn the oil and gas industry upside down over the next 10 years.

In fact, there is a now frantic effort bubbling to the surface in the US to try to avert a natural gas crisis due to prolonged oversupply and low prices. The effort is focussing on expanding alternative uses for natural gas and if possible linking natural gas prices to liquid hydrocarbon (crude oil) prices which are expected to trend higher due to global supply constaints.

Increasing Diversity of Transportation Fuels

As you will know from Oil 101, natural gas has been finding an increased use as an alternative to oil as a transportation fuel in a particular niche: natural gas is particularly suited to urban bus and trucking fleets as vehicles can be refuelled at the same spot each day and the distances vehicles can travel on a single refuelling is slightly more limited than with diesel.

Until relatively recently compressed natural gas (CNG) had been used mostly for buses and other urban people carriers.  Now that natural gas fundamentals have changed such that natural gas prices are extremely low relative to oil, it makes not just environmental sense, but has also become economically sound for private businesses to convert.

An interesting and well researched story today by Brian Baskin at Dow Jones describes how most beer in New York City is being, or will shortly be, delivered with natural gas powered trucks rather than diesel.

Transport Observations in Asia

Singapore: Yesterday in Singapore I had an interesting chat with a taxi driver. His taxi runs primarily on CNG (compressed natural gas) but it is bi-fuel in that it can run on gasoline also. The driver said that his main beef with CNG is that the city currently only has 3 public refueling stations. The CNG stations are all located in the west of the city and service hundreds of CNG taxis. Refueling with CNG in Singapore can currently take up to 30 minutes if you are unfortunate enough to run into one of the occasional 25 minute waits in line at a station. A fourth refueling station is being built to meet growing demand.

The vast majority of Singaporean taxis run on regular gasoline and not CNG. CNG was introduced to a portion of the Singaporean cab fleet within the past five years. The driver mentioned that the slightly slower acceleration of a CNG vehicle compared to a gasoline vehicle didn't bother him much. Cruising on highways he observes no discernible performance difference. He said that during the oil price increase in 2008, the cost of CNG was lower than that of gasoline, but that now that oil is $50 per barrel he doesn't think there is much of fuel cost difference.

Oil 101 outlines why CNG is suitable for city taxi and mass transit fleets but is not practical to use as a fuel outside of urban areas. The Singaporean experience shows that CNG service station roll outs can be a challenge even for ultra-well managed urban areas.

Vietnam: I am in the scooter capital of the world today: Ho Chi Minh City (Saigon), Vietnam. Cars are second class vehicles here and I don't see many push bicycles (which is a big change from 10 years ago). I ride a scooter and motorcycle in New York and am familiar with the benefits and hurdles such vehicles face in a city. Scooter owners in Vietnam drive aggressively. You can tell they are used to ruling the road over cars. There is a lot of scooter-pooling. By my estimation over half of the scooters here carry two passengers. It is the rainy season in Vietnam but that doesn't deter scootering. Drivers and passengers sport a vast assortment of ponchos. Beer delivery even takes place, somewhat precariously, on scooters (see the video below I took earlier today).

Vietnam is a still a net oil exporter with very low but rapidly growing per capita oil consumption (approx. 1.5 barrels per person per year compared with around 24 in the US). There is no sense of anyone in Vietnam cutting back on oil consumption as a result of high oil prices and from the level of economic activity here (5%+ yr/yr growth is generally expected in 2009) one doesn't feel we are in the midst of a global recession.

(above: video I took in Ho Chi Minh City, Vietnam this morning)