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Natural Gas a Natural Winner? Let the (Transportation) Market Decide!

Four-dollar per gallon gasoline provides more margin for oil producers than four dollars per million British thermal units (MMBtu) provides for natural gas producers. Historically speaking, oil prices are high and natural gas prices low.

In the face of low prices, the natural gas industry can practice self-help in a free market–or resort to political shenanigans. Self-help means producing less (hard to do in a technology boom!) or selling more. Whether converting fuel oil customers to natural gas in the home heating market or building gas-to-liquids plants to convert natural gas into petroleum products, including gasoline, natural gas companies and their trade groups can work to be their own best friend.

But segments of the natural gas industry, led by master rent-seeker T. Boone Pickens, has turned to the political means to bolster demand and thus price. After all, if wind, solar, and biomass can get special government favor (a favorable regulation or special tax-code provision), why not natural gas?  And enigmatic T. Boone‘s large ownership interest in natural gas refueling stations would just happen (sshhhh!) to win big from his political activism.

Specifically, Pickens is fronting and bankrolling legislation to provide a generous government subsidy for converting transportation vehicles from petroleum (gasoline or diesel) to natural gas. Too bad if there is not a national refueling infrastructure . . . too bad if the natural gas tanks are heavier and take up more space than a gasoline tank . . . and too bad if the extra engine expense doesn’t work despite natural gas’s lower relative cost per BTU.

What is the Subsidy?

A Wall Street Journal article, “Natural-Gas Trucks Face Long Haul,” went over the sour economics of natural-gas-driven 18-wheelers.

As veteran energy writer Jeffrey Ball explains, the extra cost for a dedicated natural gas vehicle differs from a low of around $10,000 (+5 percent) for a trash truck to a high of $100,000 (+105 percent) for a long-haul cab truck. United Parcel ordered 48 natural gas cabs–but only by applying $4 million of Obama stimulus money. So taxpayers paid about $83,300 (83 percent) of the premium.

And UPS is clear–no more natural gas cabs without more federal money, according to the WSJ piece. The proposed New Alternative Transportation to Give Americans Solutions (H.R.  1380, or NAT GAS Act), would provide this $80,000, not coincidentally.

A letter-to-the-editor in response to Ball’s piece agreed with the incremental $100,000 cost but contended that a two-to-three-year payback was achievable followed by significant savings. “Since fuel prices on their own make natural-gas trucks cost-effective, the writer concluded, “procurement subsidies for them seem wholly unnecessary and gratuitous?” But what if future fuel prices converged with gasoline and diesel falling and natural gas increasing? This is where the subsidy might, indeed, be necessary.

Why Natural Gas Privilege?

American Enterprise Institute’s Gary Jason tried valiantly to make a case for subsidizing vehicles that use natural gas instead of either gasoline/diesel or electricity, on the grounds that natural gas is technologically superior to batteries and cheaper and cleaner than gasoline or diesel.

Both are true, but such style points do not translate into marketplace preference. His argument for special privilege was different:

As a general policy, I oppose subsidies. But given the fact that our society has chosen to subsidize senseless automotive technologies such as [electric vehicles], it makes sense to subsidize a sensible one as well.

But as Marlo Lewis of the Competitive Enterprise Institute points out, this is all about raw politics and not consumer-driven economics. And we now have the NAT GAS Act, a bill endorsed by 186 members of Congress (including a bunch of apparently naïve Tea Party freshmen).

This bill is nothing but typical rent seeking–a wealth transfer to the politically powerful from the rest of us. Never mind that gasoline and diesel win hands down in the great majority of transportation applications–just like natural gas beats oil in the great majority of stationary applications (boiler fuel, home heating, and electrical generation).

Perhaps natural gas can displace petroleum-based fuels as the main transportation energy source. As Robert Bryce explains, new discoveries of vast resources, new technologies for tapping them, and the inherent physical superiority of natural gas presage a growing market share of transportation sector without subsidies because—well, because it’s technologically superior, cheaper, and cleaner.

Conclusion

Government subsidies were not necessary to get American drivers to substitute clean gasoline-burning cars for dirty hay-burning horses; none should be needed to get them to substitute to another cheaper, cleaner alternative.

Consequently, crony capitalism should be rejected in favor of free-market capitalism. Taxpayers should not be at risk, and consumers deserve the best with transportation as for the other goods and services bought in the marketplace.

———————-
E. Calvin Beisner, Ph.D., spokesman for the Cornwall Alliance for the Stewardship of Creation, applies the Biblical worldview to economics, government, and environmental policy. He has published over ten books and hundreds of articles, contributed to, or edited, many other books, and been a guest on television and radio programs. His previous post at MasterResource, “Clean Energy Standard”: Bad Solution to a Non-Problem (Lindsey Graham rides again)” was published earlier this year.

6 comments

1 RexAlan { 05.24.11 at 2:28 am }

Here in Australia LPG (liquefied petroleum gas) is well established as a fuel for vehicles and has been for years. Most petrol stations now have gas. Sydney taxis almost all run on gas as do many of the buses and a large number of commercial vehicles as well.

No government intervention needed.

2 Steve C. { 05.24.11 at 9:23 am }

Let’s not forget about the time value of class 8 trucks (i.e. asset utilization). The average over the road tractor can travel 1,000+ miles before stopping to refuel. I wonder how far a natural gas powered truck can travel on one tank of fuel?
There is a common sense argument to be made for local fleets refueling from a central point benefiting from natural gas fuel. A decision best left to the operators/owners.

3 steve { 05.24.11 at 10:58 am }

BIG OIL wants to have its cake and eat it too. Decades of government stimulus have put big oil (read gasoline and diesel fuel) in an unassailable position as the American transportation fuel of choice.
Now that a new player, i.e., natural gas, has entered the transportation fuel sector, BIG OIL asserts the new found philosophy of “let the marketplace decide” and that government shouldn’t pick winners and losers in the energy sector.
How ironical that just last week BIG OIL fought tooth and nail to retain government subsidies they’ve enjoyed for decades.
It’s clear to me that opponents of H.R.1380 like Congressman Pompeo and Koch Industries are speaking out of both sides of their mouths.

4 Energy and Environment News { 05.24.11 at 3:22 pm }

[...] Natural Gas a Natural Winner? Let the Market Decide! E. Calvin Beisner, Master Resource, 24 May 2011 [...]

5 rbradley { 05.24.11 at 5:31 pm }

Steve:

Your argument is historically off the mark in some important ways.

‘Little Oil’ has been much more responsible for preferential government favor than ‘Big Oil’. This is true with market-demand proration in the oil states in the late 1920s forward, as well as oil tariffs & quotas from 1932 forward (protectionism).

‘Little Oil’ and ‘Big Oil’ got the depletion allowance and other special deductions also.

Big Oil did get the gasoline tax as I once explained at MasterResource, beginning in Oregon in 1919.
http://www.masterresource.org/2009/11/origins-of-the-gasoline-tax-part-ii-in-a-series-on-political-capitalism-understanding-the-beast-that-broke-the-cage/.

All this is documented in my Oil, Gas, and Government: The U.S. Experience….

What about Big Government, Big Wind, Big Environmental ….? Is small beautiful?

6 Why the loons don’t like abundant natural gas supplies | JunkScience Sidebar { 05.25.11 at 12:56 am }

[...] Natural Gas a Natural Winner? Let the (Transportation) Market Decide! by E. Calvin Beisner May 24, 2011 [...]

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