Six Companies Poised to Gain from a Natural Gas Auto Mandate 40 comments
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President-elect Obama takes office in less than a week’s time. While many will be watching closely to see how he handles the ongoing financial crisis, I’ll be equally interested to see how he handles a far more ominous one: our ongoing energy and infrastructure crisis.
Regular readers know I believe energy and infrastructure are inextricably combined. We need cheap energy to fuel sustained economic growth. And we need infrastructure in place to move and dispense the energy from its source to its destination. Today I’m going to give you a perfect example of how the two are intertwined, and how one can play off the other to create a positive benefit for all.
In the face of gas prices that are less than half of what they were only a few months ago, it’s easy to think the “oil crisis” has passed. We can all return to “business and life as usual” - revert to our old driving habits - and just pay the lower price at the pump, right?
That would be a huge mistake. The real price we’ll pay will be our continued dependence on foreign oil. Last year, U.S. consumers and businesses spent over $475 billion hard-earned dollars for it.
Higher Gas Prices Are Around The Corner
With today’s lower prices forcing the cancellation or postponement of exploration projects around the world - and OPEC threatening more cuts - higher gas prices are just around the corner.
Just imagine for a minute, if - year after year - we took that nearly half a trillion dollars and reinvested it here. We’d have a stronger dollar, less susceptibility to economic downturns and recessions, and perhaps even a trade surplus as opposed to a trade deficit.
There’s one state that’s doing just that, setting an example the rest of the country should follow. As a result of their efforts, a growing percentage of money spent on auto fuel stays here. And car sales there are on fire. You see, these cars don’t burn gasoline. They run on a much cleaner fuel, one that’s found in abundance right here in the United States: natural gas.
We’re behind the natural-gas-as-a-fuel-for cars curve, however. Worldwide, there are about eight million vehicles operating on natural gas. Here in the United States we only have 116,000. But Utah, with its estimated 6,000 vehicles, is breaking new ground. Even Utah’s Governor Jon Huntsman Jr. converted his state SUV to run on the clean burning fuel.
One word: cost.
Gas Prices In Utah - 85 Cents A Gallon
Natural gas prices at the pump in Utah are controlled, and are the cheapest in the nation, at the equivalent of roughly 85 cents a gallon. The other big advantage Utah has is the infrastructure to fill the cars. It’s fairly scarce in most other areas of the country.
And while natural gas is widely used in Europe at the consumer level, here its use is relegated to a few fleet vehicles. At the consumer level, it’s the classic Catch-22 situation. Carmakers - with Honda (HMC) as the only notable exception - aren’t willing to make natural gas powered cars with so few filling stations available.
On the other side, filling stations don’t want to fork over the money to install expensive equipment to compress the gas, something that’s required in order to fill the tank on the car.
As is often the case, government intervention in the form of tax incentives or financing will go a long way towards breaking the logjam. California is leading the way, with legislation that offers a minimum $2,000 rebate to buyers of natural gas-fueled cars.
Congress has legislation it will be considering this year that offers tax credits to consumers and producers alike, and mandates to install pumps at service stations across the country. The goal? Have the nation’s consumer fleet 10% powered by natural gas within 10 years.
Energy and Infrastructure Plays With a Natural Gas Bent
U.S. natural gas production remained stagnant for nearly nine years, and then in 2007, abruptly increased 9%. Improved drilling technology accounts for a large portion of the increase. Horizontal drilling and fracturing is fast becoming the preferred method of producing gas from difficult geological formations like shale.
And there’s plenty of it: Big shale deposits include the Marcellus, Bakken, Haynesville, Barnett and Woodford. Navigant Consulting, an industry consultant, estimates natural gas production can be ramped at least 50% to 30 trillion cubic feet per year between now and 2020, if necessary.
A simple way to play the gas game is to bet on one of the big producers, like:
Once the gas is brought to the surface, it has to be distributed through our nation’s pipeline network. And that’s currently being expanded at a rapid rate to meet growing gas demand, primarily from utility customers. Take a look at three of the largest natural gas pipeline infrastructure companies in the United States:
In summary, natural gas-burning vehicles represent a clean alternative to fossil fuels, and a good bridging solution until improved batteries enable meaningful numbers of plug-in electric hybrids. All the companies mentioned stand to score big if a serious natural gas auto mandate gets underway. And we’ll all be the better off for it.
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This article has 40 comments:
notice how the USPS keeps all their CNG powered delivery vehicles outdoors. for short hauls & a central refueling station CNG is wonderful, the engines run at about 22/1 CR and efficiency is better than with gasoline.
> jack
i also am a little tired of hearing the distortion that the evil terrorist arabs are gaining. they are gaining but china, india and europe will keep buying oil. on a world market the only way we can hurt opec is to produce more of our own oil to help hold the price down. canada has been our biggest supplier of oil. canadian terrorists are not crossing our border to do harm just yet. that smells like salesmanship of an old billionaire that wants a govt. handout for his windfarms and the typical misdirection of politicians to explain the ridiculous debt of this nation. i guess i am getting a bit cynical.
from what i can tell oil, ng, coal and nuclear are cost efficient and ng can become efficient in automobiles.
it is what it is so thank you for the pointers on how to make money. i guess the free nation, free people, free market concept is a fantasy from the past. guess i'm getting old.
That said, if the US does ever get serious, one stock you left off your list of natural gas plays was ConocoPhillips, the 2nd largest producer of natural gas in the US.
If you remember Pickens brought up the fact that distribution is the major obstacle to the use of natural gas as the main automobile fuel source. Congrats to Utah and their foresight.
And you all failed to mention methane hydrates. We have vast domestic resources of this form of NG, which contain 160X (!) the energy of the traditional version. Of course, we'll have to license the production technology from the Japanese, who expect to be producing this product commercially within a few years. But that's alright, they'll be building our cars by then, as well.
The average Korean citizen working in Seoul has monthly transportation expenses of about $50. This includes a monthly subway/transit pass and the odd taxi fare after a Friday night bar hop with coworkers. No gas, no car insurance, no parking fees, no vehicle maintenance, no speeding tickets.
We don't actually need better vehicles, we need better drivers. The average driver is like someone that buys a gallon of milk and pours a quart to 3 pints down the drain. They then cry that the dairy farmers are stealing milk out of their children's mouths. If everyone one slowed down and quit tailgating, this would make a big difference. The traffic jams would go away too. I am retired now, but when I worked I got over 70 mpg in my Buick LeSabre. I car pooled. I only get 30-32 mpg now.
Why not a couple of American Trusts with no debt and little overhead, such as DOM & SBR?
And along the way to potential capital gains you can collect a nice fat dividend.
Would this not be safer and potentially as profitable?
1) A great deal of the nat gas on the north slope in Alaska is being reinjected to maintain the pressure in the depleting oil fields up there, that's why the big oil companies aren't so enthusiastic about sending the gas to the lower 48.
2) Roughly 20%+ of the gas that went into a pipeline in northern Alaska would be burned up as compression fuel to move the gas down to Chicago. It only makes economic sense to move gas from the North Slope down to the lower 48 via a pipeline if gas averages $10/mmbtu.
3) Utah's gas cost is due to a old lawsuit over captive gas in storage so the utility is forced to supply ng at a cheap price; actual cost for most places would be between $1.50 to $2.50/gal gas cost.
4) The only gas being flared in the lower 48 and most of Canada is from new wells that haven't been tied into the pipeline grid; the bulk of flared gas nowadays is in Nigeria.
5) We have about 100 years worth of nat gas based upon a burn rate of 20Tcf/yr. If a lot of the transportation vehicles got switched over, it would be more like 50 to 60 years.
6) Nat gas is sort of 'green', but it still creates carbon dioxide when it is burned, so the Enviros will never support it 100%.
7) The US gas market has 5% more supply from production than this time last year, and demand is down 2 to 4%; so the market is way over supplied for the short term, meaning 2009. Even if Obama mandates CNG filling stations, the market won't begin to soak up the excess until next winter at the earliest. My expectation is that nat gas prices will stay low till at least October, so don't rush out and buy nat gas companies just yet.
8) Three major LNG trains come on line in June, unless demand picks up, the LNG in Trindad will be forced to come here, even though we don't need it this year, so there's a real chance that prices stay low well into 2010.
CEO Mr Risberg have spoken of the situation we are at now, for 10 years. And leased high return NG acres for years (long before the price -hike), they are putting 250 Herkimer Wells in production now....
I for one would not want to sacrifice range, or trunk space, or a rear seat, or accept the risks of CNG in a collision let alone leakage in my garage.
I think we will need a bit of everything in the end: CNG, electric, hybrid, bio-Fuel, railroad, and more mass transit. If we get 5% here or 10% there, we might just dodge that peak oil bullet.
Natural gas' cost of production does not enable it to be anywhere as efficient as nuclear power.
Like I always say, the solution is simple: We need to build 100-200 nuclear power plants, spend 500B to subsidize all/most new cars purchased as electric or plugin hybrid cars (and give trade-in incentives to move the fleet over). These nuclear plants need to be breeder reactors that can make best use of fuel. We can use all of the to-be unemployed troops now positioned in Iraq to set up property security around this new infrastructure.
This would stop the status quo and get us into the new paradigm effectively. If you like this idea, write a letter to Obama and suggest it. This is the only way to affect change.
The one good thing that has resulted from the delay is the design of nuclear generators that by design cannot rupture. The bad thing is that unlike France we send 5% of our GNP to people who hate us, rightly or not, and spend a significant part of the money to do us harm.
In addition we bailout the low mileage automakers who bought up mass trasit in order to close it and make us a captive audience to personal transportation which killed our cities and stressed our culture into the sterile suburbs and decaying cities we often endure.
We don't yet make coal pay for carbon pollution so it seems cheaper than wind and we need coal for our baseloading. With nuclear baseloading, recommended, we could use coal mines to supply colocated uranium and shut down the smokestacks.
Which coupled with electric cars, hybrid green diesel cars, and LNG trucks would free us from 700 billion dollars of balance of payments and cure most of what ails the non financial portions of the economy.
Then we try and jail the bad investment bankers and start with a new financial system.
But we need to bail out wall street and rebuild the school system......to satisfy democrats who elected OBAMA. Bush did jack%3h* for the economy and energy plan......
What about HMC and its CNG car and FSYS conversions and fill your car in your own GARAGE AT NIGHT WHILE YOU SLEEP; YES WE CAN AMERICA>>>>...
DIEGOJAMES
PORTER RANCH, CALIFORNIA
On Jan 19 09:33 PM Michael B. Krause wrote:
> Actually, y/y natural gas production and consumption is relatively
> unchanged. Demand is down a little bit, but it appears producers
> have shut in a bit of production to compensate for what could potentially
> be in the market.
>
> Natural gas' cost of production does not enable it to be anywhere
> as efficient as nuclear power.
>
> Like I always say, the solution is simple: We need to build 100-200
> nuclear power plants, spend 500B to subsidize all/most new cars purchased
> as electric or plugin hybrid cars (and give trade-in incentives to
> move the fleet over). These nuclear plants need to be breeder reactors
> that can make best use of fuel. We can use all of the to-be unemployed
> troops now positioned in Iraq to set up property security around
> this new infrastructure.
>
> This would stop the status quo and get us into the new paradigm effectively.
> If you like this idea, write a letter to Obama and suggest it. This
> is the only way to affect change.
>
Our domestic supply is maybe a hundred years but it would be affected by new demand. That means we would likely be subsidizing to build the infrastructure that has a diminishing life of domestic supply.
Pickens plan is to use natural gas in trucks. Trucks use diesel for two very good reasons. First, diesel engines produce better torque for pulling. Second, diesel trucks are 30% more efficient in mileage than gasoline engines. Natural gas engines are 40% less efficient than gasoline engines.
w/out going into great detail - you need to research your thesis as we now have more access as well as inventory in the u.s. ever. they've stopped drilling as the surplus is driving prices down, no longer economically feasable to drill.
On Jan 18 09:36 AM toobad41 wrote:
> Natural gas, like oil, is a limited resource and is difficult to
> store for future use. Natural gas needs a distribution system in
> the form of a pipeline (underground) at a cost of over a million
> dollars a mile. So you need big reserves to justify laying a pipeline.
> Most of the natural gas is gone (at least in the US), vented or burned
> to the atmosphere. What companies go afer now is the last of that
> product. The reason companies go after natural gas is because it
> is not as regulated as oil, it requires no ugly pump jack, no tubing
> in the hole and is not subject to spills. Like oil today, gas will
> have to be imported by container ships. You are right that this is
> a needed commodity to help with the environment. But it won't be
> cheap.