While the US struggles to pass an “Act,” the Free Market moves ahead
With all the talk about shovel ready/other job creating infrastructure investment, the noise around the proposed Natural Gas Act continues at a high pitch. Infighting among/between energy producers and consumers threatens any “act”-ion at all. Opponents include Koch Industries (refiner), the US chemical lobby (concerned about competition for low priced feedstock), ethanol producers (no ethanol in NGVs – Natural Gas Vehicles). Overexposed/low credibility proponents include Boone Pickens and Aubrey McClendon (Chesapeake Energy). The opportunity is significant — retail value of the fuel (as $5/mcfe) suggests sub-$2/gallon prices (before taxes), and 3-6 year paybacks with reasonable subsidies – unsubsidized paybacks are average 10 years. One can argue that NGVs can and will gain share without government help, but not for most passenger cars. Return-to-base and repeatable route applications can make sense – it might be slower, but would require less intensive subsidy programs. Royal Dutch Shell, which was clearly skeptical about broad natural gas vehicle implementation a year ago, has become much more active – in Canada, with plans to build LNG capacity in Calgary, and a co-marketing agreement with Westport Innovations (WPRT). Encana is promoting construction of an NGV corridor from Toronto to Windsor. While there is some ‘hit’ to payload from CNG-fueled heavy duty trusts, LNG is safer and minimizes the payload hit.
Opponents do make a good point – natural gas is NOT $5/mcfe everywhere (it’s $4 in Texas, $8 in Wisconsin) — and it may never be an economic solution for the whole of North America. But then, if full cycle economics were the issue, nor would corn-based ethanol. All the industry really needs to move at a steady pace is a little help on the capital recovery front.