CNG in Your Beer

Thanks to a reader for this story:

Cheap Natural Gas Drives Truck Alternatives

NEW YORK (Dow Jones) – If you order a beer in New York, the odds are growing that it was delivered by a truck running on natural gas.

Beer distributors are among a growing vanguard of private trucking fleets encouraged by cheap natural gas and new government funding to adopt compressed natural gas, known as CNG, as a cleaner alternative to diesel.

As I have argued before, I think it makes a lot of sense for fleet vehicles to migrate to compressed natural gas (CNG). Natural gas is historically a lot cheaper fuel than liquid fuels such as diesel or gasoline. A quick check of prices today shows natural gas for October delivery at $3.78 per million BTUs (MMBTU). By contrast, gasoline is currently trading at $1.62/gallon (spot market, no taxes included) which works out to be $14 per MMBTU. Ethanol is trading on the CBOT at $1.66/gal for October delivery, which works out to be $21.84 per MMBTU. (In 2006, Popular Mechanics put together a graphic comparing different fuel options. See The Great Alt-Fuel Rally).

But more importantly than where prices are today is where prices are going. Natural gas will have a lot of resistance trying to sustainbly break through the $7-$8/MMBTU range because shale gas starts to become economical in that range – and we have a lot of shale gas resources. So if you are planning for the future, the odds are with you over the next few years if you are betting on moderate natural gas prices. Oil prices, on the other hand, are far more uncertain in my opinion.

The caveat of course is that the conversion can be quite expensive (the reasons for that were explained in a previous essay). The article explains that lawmakers are tackling that issue as well:

Paying for CNG conversions is still a problem. Federal funds are available to cover up to $32,000, or roughly two-thirds, of the additional costs associated with purchasing a CNG truck as opposed to a diesel one.

A company that gets the full $32,000 in federal funds should be able to make back its investment in less than three years, according to Natural Gas Vehicles for America.

Lawmakers in Congress are trying to shorten the time it takes to recoup costs on a CNG vehicle. Senate Majority Leader Harry Reid, D-Nev., is among legislators backing a bill, dubbed the NAT GAS Act, that would cover 80% of the incremental cost of a natural gas vehicle and give a $100,000 property tax credit to any company that builds a CNG fueling station. The bill has yet to come up for a vote.

The price differential between CNG and diesel/gasoline/ethanol-powered vehicles is quite large (around $10K for an individual vehicle), which is why natural gas may not make sense for individuals unless they drive a great number of miles. But that’s what fleets do, so it may make more sense to convert fleets over (and the localized nature of fleets also improves the economics of putting in CNG refueling stations). It all boils down to how many miles a year you drive and your expectation for the price differential between natural gas and gasoline/diesel/ethanol over the time you will drive the vehicle.

Finally, in the spirit of my previous post, fleet conversions are one more way to reduce our dependence on imported petroleum.

Behind the Costs of CNG Conversions

In my recent post – How Much Natural Gas to Replace Gasoline? – I mentioned that it is quite expensive to convert a gasoline-powered vehicle to natural gas. If you drive a tremendous number of miles each year – as many fleets do – the conversion will pay for itself relatively quickly. For most of us, the savings wouldn’t be enough to justify the conversion.

Today I received an e-mail from Marc J. Rauch, Exec. Vice President/Co-Publisher of The Auto Channel, who shed a bit more light on why the conversion is so expensive. I found this information quite useful, and I received his permission to post his e-mail, seen below.

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Hi Robert -

Thanks for the work you did on figuring out how much natural gas we actually seem to have (according to current knowledge) and for the related cost comparisons. It’s a great and value tool for those of us that believe in CNG (and propane) as a viable engine fuel alternative.

One thing that I would like to add (assuming that you didn’t already know this or learn it since posting your piece), is that the cost of CNG conversions for existing vehicles is as high as it is because of EPA licensing requirements. For an individual (or shop) to be licensed to do a conversion, the person must pay $10,000 per year, per engine type, per year of manufacture. So that if a conversion shop wanted to do conversions in 2009 for Camrys for the years 1995 to 2005, the shop owner would have to pay the government $100,000 in licensing fees. Then, if he wanted to do conversions on the same models in 2010, he would have to pay the $100,000 again, even though they are the exact same models and engines that he has been licensed on already. And if there is more than one engine involved, i.e., a 6-cylinder and 8-cylinder, the cost would double.

Therefore, if a shop owner wanted to do 10 model years of Camrys and Corollas and Celicas, and well as Honda Accords and Civics, unless there were common engines being used in these five models the licensing cost (for just one engine per) would be a half million dollars, which would have to be paid again in 2010. These fees are, needless to say, ridiculous and are only there to ensure that many don’t get done (thanks to the gasoline lobby). The cost of the conversion kits are actually relatively inexpensive. If there was a sensible licensing fee (or no fee) the cost for the work could be just a few hundred dollars.

To be fair, there is a second part of the cost equation that has to be addressed: trained CNG conversion mechanics. An argument is typically made by those that want to make argument against CNG that there aren’t enough trained mechanics. This is somewhat true, but of course there really is no shortage of new and old mechanics that would be willing to learn. So the issue is where can they be trained? The University of West Virginia has a great automotive program that they’ve “syndicated” to other colleges around the country. In California, two schools (Rio Hondo in So. CA and Yuba College in No. CA) teach the UWV curriculum. They can and do teach CNG conversions.

I hope the above wasn’t too redundant for you. If you have other information or newer information I would love to hear of it.

Regards.

Marc J. Rauch
Exec. Vice President/Co-Publisher
THE AUTO CHANNEL
www.theautochannel.com

How Much Natural Gas to Replace Gasoline?

I Took This Picture of a CNG Bus on a Recent Trip to D.C.

You may have seen the news this week that a report by the Potential Gas Committee says natural gas reserves in 2008 rose to 2,074 trillion cubic feet. The New York Times and the Wall Street Journal (via Rigzone) both had stories on it, and T. Boone Pickens issued a press release. First, from the New York Times (and this is a really good article):

Estimate Places Natural Gas Reserves 35% Higher

Thanks to new drilling technologies that are unlocking substantial amounts of natural gas from shale rocks, the nation’s estimated gas reserves have surged by 35 percent, according to a study due for release on Thursday.

Estimated natural gas reserves rose to 2,074 trillion cubic feet in 2008, from 1,532 trillion cubic feet in 2006, when the last report was issued. This includes the proven reserves compiled by the Energy Department of 237 trillion cubic feet, as well as the sum of the nation’s probable, possible and speculative reserves.

The new estimates show “an exceptionally strong and optimistic gas supply picture for the nation,” according to a summary of the report, which is issued every two years by a group of academics and industry experts that is supported by the Colorado School of Mines.

The Wall Street Journal wrote:

US Has Almost 100-Year Supply of Natural Gas

The amount of natural gas available for production in the United States has soared 58% in the past four years, driven by a drilling boom and the discovery of huge new gas fields in Texas, Louisiana and Pennsylvania, a new study says.

…the Potential Gas Committee’s study was prepared by industry geologists who analyzed individual gas fields using seismic imagery and production data provided by gas producers. The surge in gas resources is the result of a five-year-long drilling boom spurred by high natural-gas prices, easy credit and new technologies that allowed companies to produce gas from a dense kind of rock known as shale. The first big shale formation to be discovered, the Barnett Shale near Fort Worth, Texas, is now the country’s top-producing gas field, and companies have made other huge discoveries in Arkansas, Louisiana and Pennsylvania. Together, the shale fields account for roughly a third of U.S. gas resources, according to the Potential Gas Committee.

Pickens had this to say:

T. Boone Pickens Statement on Surge in Estimated Natural Gas Reserves

Today’s report substantiates what I’ve been saying for years: there’s plenty of natural gas in the U.S. I launched the Pickens Plan a year ago to help reduce our dangerous dependence on foreign oil, and using our abundant supply of natural gas as a transition fuel for fleet vehicles and heavy-duty trucks is a key element of that plan. On the same day this report is going out, diesel prices are again on the rise, squeezing the trucking industry. Now more than ever we need to take action to enact energy reform that will immediately reduce oil imports.

The 2,074 trillion cubic feet of domestic natural gas reserves cited in the study is the equivalent of nearly 350 billion barrels of oil, about the same as Saudi Arabia’s oil reserves.

A number of people have rightly pointed out that a 100-year supply implies usage at current rates. But it got me to thinking about how much natural gas it would take to displace all U.S. gasoline consumption. So in the spirit of my previous essay Replacing Gasoline with Solar Power, I will do the same calculation for replacing gasoline with natural gas. The big difference between this calculation and the earlier one is that solar power still has some technical issues to resolve (e.g., storage) and electric vehicles are not yet ready for prime time. On the other hand we are perfectly capable, today, of displacing large numbers of gasoline-fueled vehicles with natural gas.

How Much Do We Need?

The U.S. currently consumes 390 million gallons of gasoline per day. (Source: EIA). A gallon of gasoline contains about 115,000 BTUs. (Source: EPA). The energy content of this much gasoline is equivalent to 45 trillion BTUs per day. The energy content of natural gas is about 1,000 BTUs per standard cubic foot (scf). Therefore, to replace all gasoline consumption would require 45 billion scf per day, or 16.4 trillion scf per year. Current U.S. natural gas consumption is 23 trillion scf per year (Source: EIA). Therefore, replacing all gasoline consumption with natural gas would require a total usage of 39.4 trillion scf per year, an increase in natural gas consumption of 71% over present usage.

Assuming for the sake of argument that the 2,074 trillion standard cubic feet cited in the study is accurate, that the “probable, possible and speculative reserves” eventually equate to actual reserves, and that the gas is economically recoverable, that is enough gas for 53 years of combined current natural gas consumption and gasoline consumption. If you assume that only the proven plus probable reserves are eventually recovered, the amount drops to about 1/3rd of the 2,074 trillion scf estimate, still enough to satisfy current natural gas consumption and replace all gasoline consumption for almost 20 years.

We can also calculate in terms of oil imports. Right now the U.S. imports about 13 million barrels per day of all petroleum products. A barrel of oil contains around 5.8 million BTUs, but oil only makes up 10 million of the 13 million barrel per day figure. Other imports include things like gasoline (4.8 million BTUs/bbl) and ethanol (3.2 million BTUs/bbl). Scanning the list of imports, I probably won’t be too far off the mark to presume that the average BTU value of those 13 million bpd of imports is about 5.4 million BTUs/bbl. On an annual basis, this equates to 25.6 trillion scf of natural gas, which would be an increase over current natural gas usage of 111%. Going back to the 2,074 trillion scf from the study, this would be enough to displace imports of all petroleum products (again, at current usage rates and not factoring in declining U.S. oil production) for 43 years.

What’s the Cost?

Natural gas is presently trading at about $4 per million (MM) BTU (although December 2009 is trading at almost $6). Oil is presently trading at $71/bbl, which equates to $12.24/MMBTU. Gasoline is presently trading at over $17/MMBTU. Thus, natural gas is a bargain relative to oil or gasoline. Incidentally, I just checked on seasoned wood and wood pellets, and they range from $8-$12/MMBTUs. So it is cheaper to heat your house with gas than with wood. I am not sure I would have guessed that.

While natural gas is a bargain relative to gasoline, converting a gasoline-powered vehicle to natural gas isn’t cheap. According to this source, it can cost $12,500 to $22,500 to convert a gasoline-powered car to natural gas. Honda makes a compressed natural gas (CNG) vehicle, but according to this review in Car and Driver the premium over the gasoline version is $8780. A person would need to drive an awful lot to justify that premium. However, that’s what fleets do. They drive a lot. The large price differential explains why fleets would be interested in running their vehicles on natural gas.

Conclusions

So, the good news is that the United States could be energy independent if the newly released natural gas reserve numbers are remotely accurate. It also appears that we have enough natural gas available that civilization isn’t going to end any time soon due to lack of energy supplies. There are three caveats. First, energy independence via natural gas could require us to spend significantly more for personal automotive transportation. Second, “possible” reserves may never materialize. Finally, a large chunk of the calculated reserves are based on shale gas, and that requires gas to be in the $6-$8/million BTU range to be economical. Still, it is a bargain compared to gasoline, and it explains why fleets are more receptive to conversion to natural gas than the general public is likely to be for their personal vehicles.

Time to Switch to Natural Gas?

A couple of articles, both at Seeking Alpha, got me to thinking about whether it might be time to trade in my Petrobras (PBR) stock for something in the natural gas sector. From the first of the two articles:

Natural Gas Should Get a Boost from China’s New Demand

China has been developing natural gas vehicles for many years, recently the number of vehicles running on nat gas has risen dramatically. For example, the government of Xi’an in western China, a medium size with 8M population, has decided to mandate all city buses and taxis using natural gas. The government website reported 5000 buses and 20000 taxis was using nat gas in 2008, and is expected to grow in coming years.

That wasn’t the most interesting bit for me. This was:

With natural gas price at historic low $3.74, investors should take advantage and invest in ETF such as (UNG), or producers such as Chesapeake Energy Group (CHK), Devon Energy Corp (DVN) and XTO Energy (XTO).

I haven’t been following natural gas prices closely, and would have expected them to be on the rise like oil prices. Speaking of which, the other article was about Petrobras, and it argued that the price is poised to rise further if oil prices continue to climb:

Petrobras Ready to Benefit from Next Oil Price Spike

During the credit crunch, there were concerns Petrobras would have trouble obtaining financing to exploit Tupi. The stock dropped from over $70 to a low of under $15 in November of 2008. However, the stock has recovered nicely as credit crunch worries have subsided and financing deals have been reached with China and others. Recently PBR traded above $43/share. The PE=11.7 and the dividend yield is a scant 0.70%. But this isn’t a dividend story. Unlike US majors XOM, CVX, and COP, Petrobras is a story about strongly increasing production in an age of peak oil. That will certainly lead to increasing profits and a stock that will outperform its peers.

To me, this explains why PBR is trading at $43 a share. But I bought PBR at $17.50 in November – having just barely missed the bottom – and it has risen sharply with oil prices. But I think the upside at this point is limited unless oil prices continue to climb. In fact, I would have sold it already if I wasn’t trying to wait long enough to benefit from the long term capital gains tax rate.

And while I think there is some upside left to PBR, natural gas stocks should go sharply higher if natural gas prices start to respond to higher oil prices. (Historically, this correlation has not been very good, but the two have correlated well in the past few years). We are also entering the low demand time of year for natural gas, and prices also reflect that. But if your outlook is a bit longer than past this summer, natural gas is looking like a real bargain to me. In fact, natural gas stocks remind me of PBR back in November…

Natural Gas Gaining Momentum

I have said a number of times that I would prefer to take the natural gas we use to make ethanol and just use it directly in compressed natural gas (CNG) vehicles. Natural gas burns very cleanly, and I think that would be a lot more efficient than the convoluted scheme by which we turn natural gas into ethanol. One of the criticisms I sometimes encounter from ethanol advocates is that we would have to build out a new CNG infrastructure to do so. I always point out that the only reason we have built an E85 infrastructure is that taxpayers funded it.

But I learned something of interest today when I was flying back to Texas from Europe. I am currently reading Oil 101by Morgan Downey. This is a really great book by the way, which I will review as soon as I finish it. Downey covers natural gas in some detail, and the book states that there are 1600 retail stations in the U.S. selling CNG. That made me wonder how many stations are selling E85, since some ethanol advocates have claimed to me that we are already too far down the E85 path to start down a CNG path. It turns out that today there are 1900 stations selling E85, but the number only went past 1600 in 2008. So CNG isn’t operating from as big a deficit as some of my ethanol friends would like to believe. CNG just hasn’t benefited from the same kind of legislation that has benefited ethanol.

But the landscape may be starting to change. Of course T. Boone Pickens has been pushing CNG hard as part of his Pickens Plan. Then last month AT&T announced they would invest $565 million to replace 15,000 gasoline-powered fleet vehicles with compressed natural gas and hybrid engines. And yesterday Reps. Dan Boren (D-Okla.), John B. Larson (D-Conn.) and John Sullivan (R-Okla.) introduced new legislation to further incentivize CNG:

House members plan bill to expand NGV use

Known as the New Alternative Transportation to Give Americans Solutions (NAT GAS) Act, the bill also would create a new tax credit for automakers which produce natural gas and bi-fueled vehicles, the three federal lawmakers said. Currently, all major automakers manufacture NGVs for overseas markets and this provision is critical to encourage them to begin offering NGVs in the United States, they said.

Energy investor T. Boone Pickens applauded the measure. “America’s national and economic security depends on moving off foreign oil as quickly as possible. Natural gas is the cleanest, most abundant, most economic fuel to replace imported diesel fuel. The US has enough natural gas to last more than 118 years; we should turn to it as an immediately replacement for foreign oil in fleets and heavy-duty vehicles,” he said.

I will have to look into the context of that 118 year claim a bit later. But the U.S. is certainly in better shape with respect to our gas reserves than we are with our oil reserves. Further, gas can be produced renewably from the same feedstocks that go into any other biofuel.

Of all the schemes promoting energy independence, a massive expansion of CNG just might have a chance of displacing enough oil to achieve at least independence from the Mideast and Venezuela. Again, it will take many components, but I don’t see any possible way it can be achieved without a healthy contribution from domestic oil and gas production.

Now, since I have been up for 24 hours, I am going to call it a day.

Natural Gas Gaining Momentum

I have said a number of times that I would prefer to take the natural gas we use to make ethanol and just use it directly in compressed natural gas (CNG) vehicles. Natural gas burns very cleanly, and I think that would be a lot more efficient than the convoluted scheme by which we turn natural gas into ethanol. One of the criticisms I sometimes encounter from ethanol advocates is that we would have to build out a new CNG infrastructure to do so. I always point out that the only reason we have built an E85 infrastructure is that taxpayers funded it.

But I learned something of interest today when I was flying back to Texas from Europe. I am currently reading Oil 101by Morgan Downey. This is a really great book by the way, which I will review as soon as I finish it. Downey covers natural gas in some detail, and the book states that there are 1600 retail stations in the U.S. selling CNG. That made me wonder how many stations are selling E85, since some ethanol advocates have claimed to me that we are already too far down the E85 path to start down a CNG path. It turns out that today there are 1900 stations selling E85, but the number only went past 1600 in 2008. So CNG isn’t operating from as big a deficit as some of my ethanol friends would like to believe. CNG just hasn’t benefited from the same kind of legislation that has benefited ethanol.

But the landscape may be starting to change. Of course T. Boone Pickens has been pushing CNG hard as part of his Pickens Plan. Then last month AT&T announced they would invest $565 million to replace 15,000 gasoline-powered fleet vehicles with compressed natural gas and hybrid engines. And yesterday Reps. Dan Boren (D-Okla.), John B. Larson (D-Conn.) and John Sullivan (R-Okla.) introduced new legislation to further incentivize CNG:

House members plan bill to expand NGV use

Known as the New Alternative Transportation to Give Americans Solutions (NAT GAS) Act, the bill also would create a new tax credit for automakers which produce natural gas and bi-fueled vehicles, the three federal lawmakers said. Currently, all major automakers manufacture NGVs for overseas markets and this provision is critical to encourage them to begin offering NGVs in the United States, they said.

Energy investor T. Boone Pickens applauded the measure. “America’s national and economic security depends on moving off foreign oil as quickly as possible. Natural gas is the cleanest, most abundant, most economic fuel to replace imported diesel fuel. The US has enough natural gas to last more than 118 years; we should turn to it as an immediately replacement for foreign oil in fleets and heavy-duty vehicles,” he said.

I will have to look into the context of that 118 year claim a bit later. But the U.S. is certainly in better shape with respect to our gas reserves than we are with our oil reserves. Further, gas can be produced renewably from the same feedstocks that go into any other biofuel.

Of all the schemes promoting energy independence, a massive expansion of CNG just might have a chance of displacing enough oil to achieve at least independence from the Mideast and Venezuela. Again, it will take many components, but I don’t see any possible way it can be achieved without a healthy contribution from domestic oil and gas production.

Now, since I have been up for 24 hours, I am going to call it a day.

Rahm Emanuel Proposal

Update

I see from some of the comments following this story that my position needs to be clarified. There are several reasons that I think this is an important step forward. First, I have long advocated that we should use natural gas to directly fuel our vehicles instead of using the convoluted step of turning it into ethanol. Proponents of ethanol will often say “But there isn’t enough infrastructure.” This bill would help build out infrastructure.

Second, with respect to this simply trading out one fossil fuel for another. That is true, today. But it helps diversify our energy supply. Most importantly, though, is that it is much easier to produce biogas than to produce renewable liquid fuels. Therefore, natural gas has the potential to supply a significant portion of our renewable fuels.

Finally, natural gas vehicles burn much cleaner. All of these factors are what helped lead Brazil to build up a large fleet of natural gas vehicles (8 times the size of the U.S.). They certainly don’t use their natural gas for producing ethanol.

RR

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Representative Rahm Emanuel has proposed some very promising legislation. As a fan of natural gas vehicles, this legislation, while not perfect (I prefer incentives over mandates, and this may be a mandate) is a big step in the direction of actually addressing our energy problems. Press release in full below, and credit to a reader for calling it to my attention:

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EMANUEL ANNOUNCES NEW PROPOSAL TO INCREASE THE USE OF NATURAL GAS

Washington, D.C. – At a press conference in Chicago, Rep. Rahm Emanuel today announced plans to introduce legislation that will compel automakers to make 10 percent of their fleet vehicles that run on natural gas by the year 2018. Emanuel’s proposal also includes incentives and tax credits that will result in the addition of natural gas pumps at 20,000 fueling stations across the country. The legislation will be formally introduced later this week.

“This proposal is a hat trick for America: it’s good for our environment, good for our national security and good for drivers who are suffering at the pump. Natural gas is cheap, green and American-made and it’s time we encouraged the use of natural gas vehicles here in America,” said Emanuel. “American drivers should be able to buy a car that runs on a cleaner fuel that is currently half the cost of gas. Developing cars that run on natural gas and making it available at the gas station or at home will save money for consumers and help end our dependence on foreign oil.”

Emanuel’s legislation would compel automakers to make 10% of their fleet vehicles that run on natural gas by the year 2018. The bill would also offer new incentives to make natural gas more readily available for drivers and could enable the construction of natural gas pumps at 20,000 gas stations across the country. The legislation:

Offers a $90,000 tax credit to encourage gas station owners to install natural gas fuel pumps.

Provides $2.6 billion in bonding authority to states to provide no or low-interest loans to service stations to install natural gas pumps.

Requires the gas stations owned by the major oil companies to install at least one natural gas pump in each station by 2018.

Includes tax credits for drivers who convert their cars to allow them to run on natural gas and for those Americans who own home “Phill” units, a simple device that can be installed in a garage that allows drivers to use their home natural gas line to refuel their car.

Currently, natural gas costs about half of the price of gasoline and produces approximately one-third less emissions. Additionally, 98% of the natural gas Americans currently consume is produced in North America and current estimates indicate that America has a 118 year supply of natural gas.

“The United States has abundant natural gas reserves,” added Emanuel. “It’s time to start making those reserves work for us.”

American automakers have the technology to produce vehicles that run on natural gas. General Motors currently makes four different natural gas vehicles in Europe and Asia and Ford has previously built natural gas vehicles that were used in the House of Representatives.

The Emanuel legislation would also create jobs and help offset recent declines in the SUV and light truck market. Estimates indicate that increased demand for natural gas powered vehicles and natural gas production could create 500,000 US energy industry jobs.

Rhode Island’s Smart Choice

Compressed Natural Gas

A recent article in the Providence Journal caught my attention: Another fuel to power your car arrives in R.I.

Some excerpts from the article:

May 24–WARWICK — Hate the gas-guzzling SUV? Worried about greenhouse effects and smog? Fearful that we’ll someday run out of oil? Rhode Island’s eco-conscious, your day has come.

Environmentalists have long offered the benefits of compressed natural gas vehicles as a solution to all of these problems. The engines burn immaculately clean. Vehicles powered by CNG produce only 10 percent of the carbon monoxide and particle discharge of gasoline-powered engines, and half the nitrogen oxides. Carbon dioxide discharge is reduced by 30 to 40 percent.

The fuel, which is primarily methane, is cheaper than gasoline — at T.F. Green, the natural gas will retail for $2.69 for the equivalent of one gallon — and natural gas-powered cars get better mileage.

According to the Natural Gas Vehicle Coalition, there were 130,000 natural gas vehicles operating in the United States and 5 million worldwide as of last year.

The states have been the leaders in buying them: In 2005, Governor Carcieri signed an order mandating that 75 percent of all new state vehicles purchased use some sort of alternative fuel — CNG, hydrogen, ethanol, biodiesel, or others. Rhode Island chose to use CNG.

“Initially, Rhode Island invested very heavily into natural gas,” said David R. Sheldon, principal engineer with the Department of Administration’s Environmental Compliance Unit.

While the gasoline-powered Civic GX gets an average highway mileage in the high 20s, the CNG version will average in the mid 30s, officials said.

I have long maintained that converting vehicles to natural gas (NG) makes more sense than converting that NG to diesel via the gas to liquids process (GTL) or ethanol via the corn to liquids process. Note that Brazil, which we immediately associate with ethanol, has over 8 times the CNG fleet of the U.S., despite having a population 100 million less than the U.S.

Consider the options for NG. If we convert it to diesel, we are going to consume about 40% of our initial BTUs in the conversion process, as shown here. But, since the diesel engine is around 35% more efficient than the combustion engine, we have an approximate wash. We will get around the same ultimate fuel efficiency from directly burning the natural gas as we will from processing it into diesel. (But, of course the advantage of GTL is the ability to develop stranded gas reserves).

If we convert it to ethanol, the BTUs in and out are close to a wash. According to the 2002 USDA study Estimating the Net Energy Balance of Corn Ethanol, it takes 77,228 BTUs of fossil fuel inputs – primarily natural gas – to make 83,961 BTUs of ethanol (and a BTU co-product credit of 14,372 BTUs). This is a gain of 8% for fossil fuels in and ethanol out, or a gain of 27% if we include the co-products. But to earn that modest energy gain we mine the topsoil, apply herbicides and pesticides – some of which end up polluting waterways, and we have to build an ethanol refinery.

Also note that the Union of Concerned Scientists report that CNG vehicles “achieve green house gas emission reductions in the range of 5 to 25 percent compared to conventional passenger gasoline vehicles.” The above article from the Providence Journal reported a 30-40% reduction in carbon dioxide emissions. Corn ethanol is reported by Daniel Kammen (the Berkeley ethanol advocate interviewed on the recent 60 Minutes piece on ethanol) to achieve a reduction of 10 or 15 percent over gasoline in terms of greenhouse gas production. So, natural gas is at least as good as ethanol with respect to greenhouse gas emissions, but probably better as a whole for the environment when you consider the environmental aspects of corn farming.

Natural Gas Sources

As I indicated in my essay on XTL, the estimated 3,000 trillion cubic feet of stranded natural gas is enough to produce 300 billion barrels of fuel. However, if we were to burn this gas directly in CNG vehicles, instead of converting it into fuel via the GTL process, we could expect that stranded gas to provide the energy equivalent of over 500 billion barrels of fuel. At current world energy usage rates of 84 million barrels/day of oil, that is enough BTUs to supply us for over 16 years. Consider that if ¼ of the world’s BTUs came from stranded natural gas, the stranded natural gas could contribute to the world energy portfolio for over 60 years at today’s consumption rate. Also remember, we are only talking about stranded reserves. There are another 3,200 trillion barrels that are not considered to be stranded.

However, if you are concerned about global warming, as I am, converting all of that natural gas into carbon dioxide may not be too appealing. Fortunately, natural gas can also be renewable if we make if from biomass. Natural gas is created by the anaerobic decomposition of biomass. It can be made from sewage sludge, municipal solid waste, or biomass crops grown specifically for that purpose.

According to the company Gas Separation Technology, between 450 and 650 billion cubic feet per year of methane leeches out of landfills into the atmosphere. This is the energy equivalent of around 75-100 million barrels of oil, floating up into the atmosphere each year. While this is only equivalent to about 1% of U.S. oil demand, according to the EPA methane is 21 times more potent as a greenhouse gas than carbon dioxide. By capturing some of this landfill gas, we can make a small contribution toward our energy requirements while trading methane emissions for carbon dioxide emissions. That’s a good potential source of natural gas, and 395 landfill energy projects are already in place, demonstrating the feasibility of the technology.

Of course we are going to need more methane than we can get from landfills. As I mentioned above, we can generate methane from sewage sludge, any waste source of biomass, or from crops grown specifically for methane generation. It is unlikely that we will be able to generate enough methane to maintain our current levels of consumption, but with a major conservation push, methane can be a nice fraction of the energy pie.

EROI

Ah, but what about the EROI? That’s an obvious question, and I don’t have a good answer. I simply haven’t found a good energy analysis. But due to the fact that biogas consists mostly of methane and carbon dioxide, and carbon dioxide has a much higher solubility in water than methane, the separation should not have a high energy requirement. If anyone knows of any literature on this, I would be interested in reading it.

Footnotes

This essay was also posted at The Oil Drum. As always, peer review is appreciated. If you spot an error, I will correct it.

Note that I have used methane and natural gas interchangeably. Natural gas consists primarily of methane (~92-97%), but natural gas from gas wells can contain nitrogen, carbon dioxide, hydrogen sulfide, ethane, propane, and even trace longer chain hydrocarbons.

Finally, I want to note that the article above says that the price of NG right now is $2.69 for a gasoline gallon equivalent (GGE). To put that in perspective, a gallon of ethanol on the CBT today closed at $3.41, and is around $3.70 in California on the spot market. On a GGE basis, this would be $5.00-$5.50 a gallon – twice the price of the NG.

Rhode Island’s Smart Choice

Compressed Natural Gas

A recent article in the Providence Journal caught my attention: Another fuel to power your car arrives in R.I.

Some excerpts from the article:

May 24–WARWICK — Hate the gas-guzzling SUV? Worried about greenhouse effects and smog? Fearful that we’ll someday run out of oil? Rhode Island’s eco-conscious, your day has come.

Environmentalists have long offered the benefits of compressed natural gas vehicles as a solution to all of these problems. The engines burn immaculately clean. Vehicles powered by CNG produce only 10 percent of the carbon monoxide and particle discharge of gasoline-powered engines, and half the nitrogen oxides. Carbon dioxide discharge is reduced by 30 to 40 percent.

The fuel, which is primarily methane, is cheaper than gasoline — at T.F. Green, the natural gas will retail for $2.69 for the equivalent of one gallon — and natural gas-powered cars get better mileage.

According to the Natural Gas Vehicle Coalition, there were 130,000 natural gas vehicles operating in the United States and 5 million worldwide as of last year.

The states have been the leaders in buying them: In 2005, Governor Carcieri signed an order mandating that 75 percent of all new state vehicles purchased use some sort of alternative fuel — CNG, hydrogen, ethanol, biodiesel, or others. Rhode Island chose to use CNG.

“Initially, Rhode Island invested very heavily into natural gas,” said David R. Sheldon, principal engineer with the Department of Administration’s Environmental Compliance Unit.

While the gasoline-powered Civic GX gets an average highway mileage in the high 20s, the CNG version will average in the mid 30s, officials said.

I have long maintained that converting vehicles to natural gas (NG) makes more sense than converting that NG to diesel via the gas to liquids process (GTL) or ethanol via the corn to liquids process. Note that Brazil, which we immediately associate with ethanol, has over 8 times the CNG fleet of the U.S., despite having a population 100 million less than the U.S.

Consider the options for NG. If we convert it to diesel, we are going to consume about 40% of our initial BTUs in the conversion process, as shown here. But, since the diesel engine is around 35% more efficient than the combustion engine, we have an approximate wash. We will get around the same ultimate fuel efficiency from directly burning the natural gas as we will from processing it into diesel. (But, of course the advantage of GTL is the ability to develop stranded gas reserves).

If we convert it to ethanol, the BTUs in and out are close to a wash. According to the 2002 USDA study Estimating the Net Energy Balance of Corn Ethanol, it takes 77,228 BTUs of fossil fuel inputs – primarily natural gas – to make 83,961 BTUs of ethanol (and a BTU co-product credit of 14,372 BTUs). This is a gain of 8% for fossil fuels in and ethanol out, or a gain of 27% if we include the co-products. But to earn that modest energy gain we mine the topsoil, apply herbicides and pesticides – some of which end up polluting waterways, and we have to build an ethanol refinery.

Also note that the Union of Concerned Scientists report that CNG vehicles “achieve green house gas emission reductions in the range of 5 to 25 percent compared to conventional passenger gasoline vehicles.” The above article from the Providence Journal reported a 30-40% reduction in carbon dioxide emissions. Corn ethanol is reported by Daniel Kammen (the Berkeley ethanol advocate interviewed on the recent 60 Minutes piece on ethanol) to achieve a reduction of 10 or 15 percent over gasoline in terms of greenhouse gas production. So, natural gas is at least as good as ethanol with respect to greenhouse gas emissions, but probably better as a whole for the environment when you consider the environmental aspects of corn farming.

Natural Gas Sources

As I indicated in my essay on XTL, the estimated 3,000 trillion cubic feet of stranded natural gas is enough to produce 300 billion barrels of fuel. However, if we were to burn this gas directly in CNG vehicles, instead of converting it into fuel via the GTL process, we could expect that stranded gas to provide the energy equivalent of over 500 billion barrels of fuel. At current world energy usage rates of 84 million barrels/day of oil, that is enough BTUs to supply us for over 16 years. Consider that if ¼ of the world’s BTUs came from stranded natural gas, the stranded natural gas could contribute to the world energy portfolio for over 60 years at today’s consumption rate. Also remember, we are only talking about stranded reserves. There are another 3,200 trillion barrels that are not considered to be stranded.

However, if you are concerned about global warming, as I am, converting all of that natural gas into carbon dioxide may not be too appealing. Fortunately, natural gas can also be renewable if we make if from biomass. Natural gas is created by the anaerobic decomposition of biomass. It can be made from sewage sludge, municipal solid waste, or biomass crops grown specifically for that purpose.

According to the company Gas Separation Technology, between 450 and 650 billion cubic feet per year of methane leeches out of landfills into the atmosphere. This is the energy equivalent of around 75-100 million barrels of oil, floating up into the atmosphere each year. While this is only equivalent to about 1% of U.S. oil demand, according to the EPA methane is 21 times more potent as a greenhouse gas than carbon dioxide. By capturing some of this landfill gas, we can make a small contribution toward our energy requirements while trading methane emissions for carbon dioxide emissions. That’s a good potential source of natural gas, and 395 landfill energy projects are already in place, demonstrating the feasibility of the technology.

Of course we are going to need more methane than we can get from landfills. As I mentioned above, we can generate methane from sewage sludge, any waste source of biomass, or from crops grown specifically for methane generation. It is unlikely that we will be able to generate enough methane to maintain our current levels of consumption, but with a major conservation push, methane can be a nice fraction of the energy pie.

EROI

Ah, but what about the EROI? That’s an obvious question, and I don’t have a good answer. I simply haven’t found a good energy analysis. But due to the fact that biogas consists mostly of methane and carbon dioxide, and carbon dioxide has a much higher solubility in water than methane, the separation should not have a high energy requirement. If anyone knows of any literature on this, I would be interested in reading it.

Footnotes

This essay was also posted at The Oil Drum. As always, peer review is appreciated. If you spot an error, I will correct it.

Note that I have used methane and natural gas interchangeably. Natural gas consists primarily of methane (~92-97%), but natural gas from gas wells can contain nitrogen, carbon dioxide, hydrogen sulfide, ethane, propane, and even trace longer chain hydrocarbons.

Finally, I want to note that the article above says that the price of NG right now is $2.69 for a gasoline gallon equivalent (GGE). To put that in perspective, a gallon of ethanol on the CBT today closed at $3.41, and is around $3.70 in California on the spot market. On a GGE basis, this would be $5.00-$5.50 a gallon – twice the price of the NG.