Making Natural Gas Transportation a Reality

by: Michael Fitzsimmons

I’ve written extensively on the severe economic, environmental, and national security problems the US faces as a result of its dependence on foreign oil imports in an era of peak oil. A recent series of my articles published here on SeekingAlpha have built strong cases to support the following assertions:

  • The transportation sector is 70% of total US oil consumption. To significantly reduce US foreign oil imports the US must reduce oil (gasoline) consumption in the transportation sector.
  • The only US domestic fuel capable of being scaled up to significantly reduce oil consumption in the transportation sector over the next 5-10 years is natural gas.
  • Natural gas vehicles emit 20% less CO2 than do gasoline powered internal combustion engines and none of the toxic particulates.
  • Natural gas reserves in the US are abundant and can power US home heating, industrial, electrical generation, and transportation sectors for decades into the future.
  • Vast US natural gas reserves and the nation’s 2.2 million mile natural gas pipeline grid are the best weapons in the war on foreign oil imports.
  • Natural gas is an ideal bridge to a renewable energy future. Natural gas electrical generation is the preferred backup power supply for intermittent wind and solar energy.
  • Natural gas electrical generators are more efficient and emit 50% less CO2 than coal-fired plants and none of coal’s very toxic particulate waste and ash.
  • “Clean coal” is an oxymoron and a myth.
  • Environmental purists who support only electric vehicles over the short term are shooting themselves in the foot by increasing demand on coal-fired electrical generation for recharging.
  • Much of the natural gas infrastructure could be used by the future hydrogen energy based economy.
  • The world economy is now riding a peak oil driven yo-yo. The consequences for the US, which uses 25% of worldwide oil supply and imports 65% of it, will be grave.
  • The only solution to the severe economic, environmental, and national security issues facing the US is a strategic, long-term, comprehensive energy policy to reduce foreign oil imports. In the short to mid-term, US energy policy should be centered on using US produced natural gas for transportation. Such an energy policy was published here on SA.

Not everyone agrees with all of these bullets. However, after much constructive debate in SA’s comment section, no evidence was presented that any other energy policy can significantly reduce foreign oil imports (say 5-7 million barrels a day) over the next 5 years.

So, what now? For those of us who believe a natural gas centric energy policy should be an urgent and critical priority for America’s future prosperity, how can we make it happen?

President Obama and Energy Secretary Chu obviously do not have reducing foreign oil imports high on their list of priorities. This is evident by the lack of legislation presented to effectively and significantly move the US away from gasoline powered automobiles. The electric car solution doesn’t work over the short term because EVs would be charged by coal-fired power plants. That is not an acceptable strategy. Equally disturbing is Obama and Chu repeating their oxymoronic “clean coal” mantra so often they have begun to believe it is actually possible. It is not. More worrisome is Energy Secretary Chu’s recent comment that he is “agnostic” about natural gas transportation. Clearly then, natural gas transportation supporters cannot rely on the Obama administration for a strategic energy policy or even a level playing field for natural gas vis-à-vis coal and oil. We must therefore accept the current political climate and take matters into our own hands. We must go straight to the American people with political activism, policy initiatives, while pressuring automobile manufacturers to deliver NGVs and refueling solutions. But exactly how should we proceed?

Political Initiatives

  • Support H.R. 1835 – Legislation for Nat Gas Transportation

HR 1835 is a bi-partisan bill containing robust support for natural gas transportation initiatives. Refer to my earlier SA article on HR 1835. Everyone who works for an American company that makes automobiles or natural gas compressors or industrial equipment should support this bill. Everyone who works in the natural gas production or energy services businesses should support this bill. Every farmer or landowner that has natural gas on his property should support this bill. Every American who is tired of funding both sides of the “war on terror” should support this bill. And every environmentalist that wants to breathe cleaner air and view clearer skies should support this bill. Call or write (letters with stamps, not email) your elected officials. Let his or her know you want them to support this bill and that you will be watching energy policy voting very carefully.

  • Call for Energy Secretary Chu to Resign

US Energy Secretary Chu

Secretary Chu’s top priority as Energy Secretary should be reducing foreign oil imports. That’s job #1. Nothing is more critical for the future prosperity of the United States. Secretary Chu’s recent comment on being “agnostic” about natural gas transportation are a great opportunity for the natural gas lobby, NGV supporters, natural gas producers, and natural gas infrastructure providers to band together and call for his resignation. They should take out half page ads in the WSJ, the Washington Post, the NY Times, and USA Today and demand he resign or for Obama to dismiss him. Is this an extreme measure? No, it is not. It’s extreme incompetence on Chu's part. Add Chu’s oft repeated “clean coal” mantra and you have a one-two punch of wrongheaded energy policy from the one person whose direct job should be to enact smart energy policy. A high profile campaign to oust Chu, even if unsuccessful, will enable a debate in the media. And that is a debate natural gas folks can easily win - if you need help, please contact me directly.

  • Listen to US Energy Experts

Here is a video of Robert Hefner discussing energy policy and his new book The Grand Energy Transition (The GET) at the Aspen Institute.

Hefner asks a very simple yet telling question: Why is it that US policymakers believe Russian, Iranian, or Saudi Arabian energy estimates, yet won’t listen to fellow American energy experts with respect to US energy reserves? Ironically, Chevron’s (NYSE:CVX) ad playing at the beginning of this video is very easy to hear. Yet, even with my laptop’s volume turned all the way up, I had to strain to hear the panel discussion with Mr. Hefner. This is probably a coincidence, but it is indicative of how difficult it is for an energy expert like Hefner to be heard in the US. However, I'd bet money the energy experts in Russia, Iran, and Saudi Arabia are listening to Mr. Hefner!

Fuelmaker and “The Phill”

NGV owners were shocked and dismayed (not to mention really PO’d) recently by news that Fuelmaker was headed for bankruptcy. Here is an article that describes what happened.

This could be good news. The bankruptcy process should clean up Fuelmaker’s debt issues and make the company ripe for the picking. We can only hope an American corporation swoops in and buys Fuelmaker’s IP. The “Phill” (a natural gas vehicle refueling appliance for home garages) is a very simple yet critical piece of hardware for America to succeed in the war against foreign oil imports.

Home refueling is a key aspect of solving the chicken-n-egg dilemma with respect to NGVs and NG refueling station availability. If people can refuel their NGVs at home and get 200 miles per tank, an NGV immediately makes sense as a second car as a great majority of daily trips are less than 40 miles roundtrip. As gasoline prices rise in the next peak oil spike, that NGV may well become the family’s primary mode of transportation. With more NGVs on the road, public refueling stations will follow.

The Phill

  • Advice for Honda Motor Company (NYSE:HMC)

If the executive quoted in the article is correct in his assertion Honda attorneys are at the root of unsuccessful Fuelmaker buyout offers, Honda executive management needs to take control of the situation. The Honda Civic GX is the only commercially available NGV sold in the US. Who has a larger incentive to see a successful Phill business than does Honda? Why would Honda’s management quibble about $25 million (with an “m”) for Fuelmaker IP when they stand to make billions (with a “b”) selling NGVs? I talked to a person connected with Honda manufacturing a few weeks back. He said Honda is doubling 2009 production of the Civic GX, and volume still isn’t meeting demand. Honda is being penny wise and pound foolish - and it's a pound of gold not British sterling. Honda should just sell Fuelmaker to the first company capable of expanding Phill production, distribution, sales, and service.

Honda also needs to design and mass produce an electric/nat gas hybrid vehicle like the Toyota (NYSE:TM) Camry concept vehicle.

  • Advice for Fuelmaker’s Buyer

The first thing the CEO of Fuelmaker’s buyer should do is contact Akio Toyoda, new President of Toyota and descendant of the company’s founder. They should discuss the electric/nat gas Camry hybrid concept vehicle Toyota unveiled at the LA 2008 Auto Show.

This car is the single best transportation solution for the US market. Think a Prius that runs on US-produced natural gas rather than gasoline derived from imported foreign oil. This car combined with a Phill home refueling unit is an absolute gold mine. I would be happy to be the first buyer!

The Toyota Camry Electric/Nat Gas Hybrid Concept Car

After listing all the positive benefits of such a vehicle, Toyota then announced it had no plans to manufacture the vehicle for the US market! So, it is time the (new) manufacturer of the Phill, Mr. Toyoda, and a few of the US natural gas utility companies got in a room, shut the door, and hammered out some business agreements. It’s not complicated and there are billions of dollars to be made in this market. All it takes is some fairly simple business deals and a little capital. Ok, well, perhaps a lot of capital for Toyoda – but the business plan is solid, risk is relatively low (assuming a viable Phill manufacturer) and the potential ROI is huge. The market for a Toyota electric/nat gas hybrid combined with a “Phill” refueling appliance is worldwide since natural gas is abundant the world over.

Natural Gas Utility Executives Should Support Natural Gas Transportation

Clearly, whoever buys Fuelmaker should strategically align themselves with NGV manufacturers and natural gas distributors and utility companies. A consumer should be able to visit a local Honda dealer and finance a Civic GX and Phill together as a package deal. Further, the new “Fuelmaker” should investigate partnerships with local natural gas utility providers to distribute, install and service the Phill. Natural gas utilities should consider special promotions and incentives to motivate and give confidence to US consumers considering buying an NGV and home refueling device. A credit for one free tank refill a month for 12 months would be a good start. Perhaps let the consumer make interest free monthly payments on their gas bill to cover the cost of the Phill. There is a lot of room for creativity here and it will benefit everyone involved: the automakers, the Phill manufacturer, the natural gas producers, the natural gas utility companies – but most of all the US consumer and the country as a whole.

Energy Company CEOs Should Support NG Transportation

Oil executives like Jim Mulva, CEO of ConocoPhillips (NYSE:COP), should join Aubrey McClendon and T. Boone Pickens and embrace natural gas transportation. Mulva runs a company with significant natural gas assets in the lower-48, Alaska, and Australia. COP and partner BP are planning to build the “Denali” natural gas pipeline from Alaska’s North Slope to the lower-48 and deliver some 4 billion cubic feet of natural gas daily to North American markets. Perhaps Mulva is simply protecting ConocoPhillips’ large investments in oil exploration and refining. However, is there any doubt these oil investments will continue to be huge money makers well into the peak oil future? Worldwide oil and gasoline demand won’t evaporate over night simply because the US makes a strategic decision to adopt natural gas transportation. There will always be demand for oil and higher future oil prices. Meantime COP’s large exposure to the natural gas market combined with the plunge in natural gas prices has caused the stock to take a beating. Yet Mulva remains silent on natural gas transportation. Why?

Who is more aware of the dire consequences of US dependence on foreign oil in the era of peak oil than US oil executives themselves? Do they think their friends and families in the US will be immune to the economic and social mayhem peak oil will cause (and is causing now)? This is baffling. One would think these executives would have collected enough money such that their attention might now switch to patriotic, family security, and environmental concerns. Besides, it’s not like foreign countries are welcoming US oil firms with open arms these days: in spite of $145/barrel oil and ever growing E&P budgets, oil production at many big US oil producers was down year-over-year in 2008. And what will those paper US dollars be worth if the US economy is built on an unstable foundation of foreign oil? Meantime, the US has an abundance of clean and cheap natural gas within its own borders. US oil, energy, and energy services companies should be all over natural gas transportation like flies on honey.

These initiatives will help solve the NGV and natural gas refueling chicken-n-egg problem while simultaneously helping to publicize the natural gas transportation solution.

If natural gas transportation doesn’t begin to take root soon in the US, peak oil and high energy prices will whack the US economy again. American investors should consider buying oil company stocks (XOM, CVX, COP, PBR, BP, [[STO], OXY), energy services companies like SLB and RIG, and gold bullion. In addition US investors should consider shorting the US dollar and going long the Canadian Loonie.

Here are some natural gas transportation related investment ideas if some of the initiatives in this article come to fruition:

  • Natural gas vehicles: Westport Innovations (NASDAQ:WPRT), Honda Motor Company (HMC), Toyota Motor (TM), and Clean Energy Fuels (NASDAQ:CLNE). Consider investing in any publicly traded company that buys Fuelmaker’s assets.
  • Natural gas infrastructure plays: General Electric (NYSE:GE), Ingersoll Rand (NYSE:IR), Fluor (NYSE:FLR), Air Products & Chemicals (NYSE:APD), and Jacobs Engineering Group (NYSE:JEC).
  • Natural gas producers: British Petroleum (NYSE:BP), Chesapeake Energy (NYSE:CHK), ConocoPhillips (COP), Range Resources (NYSE:RRC), and Quicksilver Resources (NYSE:KWK).

Disclosures: The author owns SLB, PBR, and COP.