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.
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.