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Natural Gas Prices Spur Truckmaker Interest (Market, not political, development)

The Wall Street Journal‘s Marketplace headline of March 5th said much: “Natural Gas to Power Pickups.” The piece did not mention the Nat Gas Act or other special government favors, just an effort by U.S. automakers to get natural-gas-fueled trucks into the mix given the large BTU disparity between gas and gasoline/diesel prices.

Reporter Jeff Bennett described a “growing wave” of interest in natural gas trucks:

On Tuesday, Chrysler Group LLC plans to disclose it will build the first production-line pickup truck powered by natural gas. The auto maker is promising to build at least 2,000 heavy-duty Ram bi-fuel trucks that run on a combination of compressed natural gas and gasoline starting in June.

General Motors Co. on Monday plans to disclose it will offer bi-fuel Chevrolet Silverado and GMC Sierra 2500 pickups in the fourth quarter. The trucks will be built by GM and sent to a supplier that will retrofit them to use compressed natural-gas tanks.

Back in 2009, natural gas trade groups, as well as Apache Corporation, pushed automakers to offer factory-built CNG-powered pickups, Bennett explained, but fuel prices are the real catalyst. Still, gas refueling remains a problem with only 400 public compressed gas stations in the country.

Self-Help, Free-Market Style

As I have previously written, industry self-help is an alternative to corporate rent-seeking (special tax code provisions and checks written on the U.S. Treasury).

In the face of low prices for its product, an industry can do two things in a free market to increase its per unit revenue: reduce supply or increase demand.

For gas producers, reducing supply means producing less in the face of a supply-increasing technology boom. To this end, drilling rigs are being redirected to oil prospects from gas plays. About one-third of all rigs are looking for natural gas versus two-thirds for oil, a reversal from several years ago.

The other choice is to increase demand. Several self-help measures are being incited by relative energy prices for natural gas interests to:

1. Further penetrate the Northeast home heating oil market, continuing the trend of natural gas-for-oil of the last several decades.

2. Build new or reverse existing import LNG infrastructure to export U.S. gas to high-price markets

3. Construct gas-to-liquids plants to turn natural gas into gasoline and other liquid products, a global opportunity (such as Shell’s Arabian Gulf project, the world’s largest).

4. Related to #3, increase exports of liquids stripped from natural gas, such as propane and butane.

5. Offer long-term pricing deals to lock-in niche transportation markets (fleet vehicles).

Some of the above (#1, #4, #5) are incremental, and some (#2, #3) require lots of capital and lead time. All are happening and in the headlines.

Conclusion

Capitalism deserves more support from the capitalists, including gas-industry leaders such as T. Boone Pickens and Aubrey McClendon. It is time to look at the big picture and the need for smaller government and less regulation. The energy industry is a great place to start.

8 comments

1 rbradley { 03.08.12 at 9:00 am }

Regarding reserving LNH facilities from import to export: see here.

2 Marlo Lewis { 03.08.12 at 10:13 am }

Spot on and very timely, as the Senate will begin voting this afternoon on highway bill amendments, which include the Menendez/Burr amendment, aka the NAT GAS Act, aka the Pickens-Your-Pocket-Boonedoggle Bill — a more accurate title, as explained here: http://www.globalwarming.org/2011/05/18/t-boone-pickens-im-sure-not-doing-this-for-the-money/

3 Donald Hertzmark { 03.08.12 at 11:49 am }

On LNG exports of U.S. shale gas:

There has been a lot of noise about renewed LNG exports from the US to the Atlantic Basin. Most of this controversy has been manufactured out of whole cloth by the same forces that seek to raise overall energy prices here through supply restriction.

The purpose of employing LNG plants at partial capacity is to hedge prices and keep them inside a relatively narrow band – probably $3.50-5.50/mmbtu at the LNG plant gate. In such a price range LNG is competitive in spot export markets. When domestic gas prices get too high other LNG producers can more easily compete with US companies and natural gas will lose its competitive advantages vis-a-vis coal in power generation. That effectively puts a lid on domestic gas prices. The ability to export LNG puts up a floor.

The purpose of the LNG option has always been seen by the investors as a physical hedge, not as a “put to pay” base load market. Without an effective market-driven price floor and ready market for excess capacity the natural gas industry risks the fate of the US airlines – too much low quality capacity, no profits and continual instability.

4 Senate to Consider Pickens-Your-Pocket-Boonedoggle Bill { 03.08.12 at 11:51 am }

[...] picks that can run on either natural gas or gasoline,  Rob Bradley points out today at MasterResource.Org. Fracking has been so successful in increasing natural gas supplies that producers worry about [...]

5 rawalter { 03.08.12 at 12:00 pm }

Natural Gas is a clean fuel and looks much better than a wind tower. Wind towers are a complete waste of resources.

The Chinese had a natural gas distribution system in place in 3000 BCE. It’s about time those living in the NE US catch up with the times.

T. Boone Pickens can make as much money as he possibly can, I don’t care. I won’t miss supper or sleep, no matter how filthy rich he is.

6 Kermit { 03.09.12 at 4:38 pm }

Rob, There was a presentation put on by Shell on Wednesday regarding construction of a GTL plant of the size of its Pearl facility in Qatar. A friend was invited. The plans are to build a greenfield facility in TX or LA.

7 Kermit { 03.09.12 at 5:04 pm }

The sad truth is that this will likely pass and it has been supported by many “conservative” legislators to this point.

8 Kermit { 03.09.12 at 5:07 pm }

As to your #4, that is great feedstock for the petrochemical industry, particularly the ethane component for olefins crackers, and the dry gas to fuel the required large cracker furnaces.

There in fact are many plans for grassroots olefins units (producing ethylene/propylene and sometimes acetylene) for states like OH, PA & WV. The problem is the regulations, many of which only served to feed ambulance chasers and bureaucracy employment.

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