Natural Gas May Be Just the Solution for This Economy

U.S. Independent Producers, including buy recommendations Anadarko Petroleum (APC), Devon Energy (DVN), EOG Resources (EOG), Occidental Petroleum (OXY) and XTO Energy (XTO) are bright spots that can lead the U.S. economy back to growth. The resource innovators have been so successful developing new natural gas supply that we have a surplus after a steep economic contraction. The low price for natural gas may be just what is needed to expand markets in the transportation and electric generation sector. Instead of pouring printed money into uneconomic alternative energy, our political leaders could have Government Motors apply its efforts to building vehicles to run on the proven technology of clean natural gas. Utility executives can make the easy choice of simply running natural gas through generating capacity already in place rather than agonizing over the expense and political uncertainty of new coal and nuclear capacity.

While natural gas cannot meet all the transportation and electric generation needs entirely at once, there appears to be the capacity to supply all of the expected growth and more. Considering that $3 a gallon gasoline is equivalent to $24 a million btu natural gas, there is ample room for the price of natural gas to rise and still be a bargain for consumers (see chart below, Six-Year Commodity Price Meter). Meanwhile the dilemma for the innovators is how to manage the surplus for the next few quarters. After growing a median 8% a year on a debt-adjusted per share basis for the past two years, volumes may level or decline until demand kicks in again (see charts Debt-Adjusted Volume Per Share and Quarterly Volume).

Originally published on June 30, 2009.

Comments

[Davewmart:]

I'm inclined to agree. Natural gas cars are no use at all in most of the world, as they do not have secure supplies in, for instance, Europe or Japan.
This means that they have little alternative but to push hard for electric vehicles and try to get the volume up so the price comes down.
With it's large indigenous supplies the US is in a different position and some switching to natural gas would be the cheapest solution.
In the long run this may put them in a more difficult position, as they may be well behind on EV's when gas supplies get tighter, and they have more possibilities to hide from the absolute necessity of getting to grips with nuclear power.
Countries in Europe, even including Germany, are starting to realise that renewables just will not do the job:
www.spectrum.ieee.org/...

The US has more leeway, but ultimately it makes little sense to burn such a superb resource as natural gas.
It would be good to save it as a feedstock for plastics, fertiliser etc.

Jul 20 06:23 AM

[redbaron:]

Natural gas is a bridge to a future strategy, in my mind, just as T. Boone has suggested. We can use what today looks like a surplus in NG to get to where we need to be in terms of nuclear, cleaner coal, and perhaps even some alternative fuels, if those alternative fuels are ever developed. We need to use the recent NG discoveries prudently, and develop a long range energy plan, to assure USA energy supplies for the future. Natural is the bridge to that future strategy. T. Boone has it right...........and again, I might add. We ought to be listening to him much more closely, IMHO.

Jul 20 07:20 AM

[Michael Fit...:]

US produced natural gas is abundant, clean, and cheap. It is a testament to failed US energy policy that a country that has 5% of the world's population, uses 25% of the world's oil, and is importing 65-70% of that oil does not switch to natural gas transportation. Natural gas is the only US produced fuel capable of being scaled up to solve the economic, environmental, and national security issues the US faces due to its foreign oil addiction. The American people should demand prudent energy policy from an American government which seems more content following wrong-headed pentagon/petroleum strategy of fighting oil wars to obtain access to oil as the country goes bankrupt in the meantime. Oil is at the heart of a weakening US. Meanwhile, we have all the natural gas we need right here. What we need is prudent and pragmatic energy policy and for folks to stop lumping natural gas in with oil and coal as a "fossil fuel". Natural gas is much cleaner and cheaper than either of them when all costs are added in (environemntal, health, military, subsidies). But, Congres is bought off by oil and coal lobbies. So, here we sit...addicted to foreign oil and coal. It is a ridiculous situation to be in entering the era of peak oil. You'd think $145/barrel oil and $4.50/gallon gasoline would have taught the American people something. It hasn't. So, we'll see it again - sooner than most people think. Here is an energy policy that could save this country:

thefitzman.blogspot.co...

Jul 20 08:51 AM

[Gassy:]

the only worry is the terrible fundamental position in the short term. Sharp decline in demand and increasing supply. It may take 12 months for the falling rigs and supply to take price to above marginal cost of $6-7/mcf

Jul 20 09:40 AM

[Ferdinand E...:]

Remembering some of the research I did a few years ago makes it difficult for me to believe the talk about a very large increase in the reserves of natural gas, but admittedly I could be wrong.

I wonder if I am wrong however about the likely future price of natural gas. The present price can only be explained by the lousy international macroeconomy, and when the upturn arrives - if it arrives - that price will increase. Increases in the size of LNG fleets, and Asian demand will ensure that

But regardless of what happens with gas - or any of the other resource options - Michael Fitzsimmons is correct when he says that the American people should demand a sensible energy policy from its government. What's the point of buying the one that's for sale now?

Jul 20 09:45 AM

[George Marc...:]

From the transportation perspective, there are two ways to look at natural gas: either as a gaseous fuel per se or as a feedstock for production of a liquid fuel (i.e., methanol). The transition to natural gas as a primary transportation sector fuel may be more easily accomplished with methanol. Methanol can be blended with gasoline in an 85%/15% ratio to yield M85. Flex fuel engines have already been developed and tested by Ford, which operate on M85. Flex fuel technology is an easy transition for the automakers. In addition, methanol is a necessary ingredient for the transesterification of vegetable oils to biodiesel. Methanol can also be derived from agricultural and municipal wastes and from coal. Unlike ethanol, it will not compete with food production.

Methanol may be a more flexible fuel than natural gas for future engine technologies. It can be used in direct methanol fuel cells (DMFC). It can also be used in homogenous charge compression ignition (HCCI) free-piston motor/generators, which engines can be as efficient as hydrogen fuel cell engines. See, greencarcongress.com/2.... So, methanol would appear to be a more flexible fuel for both current engine technologies (i.e., spark-ignition/flex fuel engines and diesel engines) and for future engine technologies ( DMFC and HCCI motor/generators). It also has storage, handling and distribution benefits when compared to natural gas.

Jul 20 11:08 AM

[Elliott:]

Electric cars should be the goal. Electric motors are far more efficient than any gasoline, diesel, methanol or natural gas engine. The only barrier remaining that holds electric cars back are the batteries. Government and private industry should work to improve battery technology to reduce weight and improve range. Once that happens, then natural gas can be used for electrical generation, which in turn can be used to fuel and recharge electric cars. This is better than trying to retrofit all of our gasoline stations over to natural gas. With electricity, we already have a wholesale and retail distribution system in place.

Jul 20 11:32 AM

[macsmart:]

You're absolutely right...send your opinion to your congressmen.


On Jul 20 08:51 AM Michael Fitzsimmons wrote:

> US produced natural gas is abundant, clean, and cheap. It is a testament
> to failed US energy policy that a country that has 5% of the world's
> population, uses 25% of the world's oil, and is importing 65-70%
> of that oil does not switch to natural gas transportation. Natural
> gas is the only US produced fuel capable of being scaled up to solve
> the economic, environmental, and national security issues the US
> faces due to its foreign oil addiction. The American people should
> demand prudent energy policy from an American government which seems
> more content following wrong-headed pentagon/petroleum strategy of
> fighting oil wars to obtain access to oil as the country goes bankrupt
> in the meantime. Oil is at the heart of a weakening US. Meanwhile,
> we have all the natural gas we need right here. What we need is prudent
> and pragmatic energy policy and for folks to stop lumping natural
> gas in with oil and coal as a "fossil fuel". Natural gas is much
> cleaner and cheaper than either of them when all costs are added
> in (environemntal, health, military, subsidies). But, Congres is
> bought off by oil and coal lobbies. So, here we sit...addicted to
> foreign oil and coal. It is a ridiculous situation to be in entering
> the era of peak oil. You'd think $145/barrel oil and $4.50/gallon
> gasoline would have taught the American people something. It hasn't.
> So, we'll see it again - sooner than most people think. Here is an
> energy policy that could save this country:
>
> thefitzman.blogspot.co...

Jul 20 11:42 AM

[jack kreg:]

"But regardless of what happens with gas - or any of the other resource options - Michael Fitzsimmons is correct when he says that the American people should demand a sensible energy policy from its government. What's the point of buying the one that's for sale now?", as said by Ferd E;
So, what is our masterful gov doing,
-no nuclear build up,
-no NG build up,
-massive CO2 taxation machine, costing jobs and $$ to American family's
-some are even pushing for much higher taxation of gasoline,
American energy policy and the economy are tightly connected, the current administration, has no clue what makes the economy click.
We need to convert much of our transportation vehicles to run on American NG and possibly imported LNG,
We need to begin using our significant national energy labs to develop modern nuclear energy machines, these labs are way under utilized in energy production.
Hey Fitz, keep up the good work.

Jul 20 12:11 PM

[ripskii:]

Michael Fitzsimmons is spot on with his comments on NG use and our failure to implement a sensible energy policy! After staring at $145/bbl oil last year and a change in administration is it incomprehensible that we still no plan to deal with our future energy requirements. Nuclear energy needs to be updated to use the concept of the IFR reactor developed a decade by Argonne Labs. It solves most of the problems related to the current generation of light water reactors, all of which are seriously aging in the U.S. now.

www.nationalcenter.org...

Jul 20 03:38 PM

[TinyTim:]

Natural gas is a perfect transportation fuel and it makes sense to use it instead of gasoline if it's abundant in the US.
It burns clean, keeps the engine clean and is easy to retrofit on many internal combustion engines.
Years ago, some gung-ho Arizona legislator passed a bill providing cash incentives for alt fuel vehicles (mainly propane). A cottage industry immediately sprung up (including dealers) to retrofit vehicles.

Just like Brazil and ethanol from sugar, if you got it, use it.

Jul 20 10:59 PM

[A Barrel Full:]

I don't know why more in the natural gas industry don't lobby for this to happen. In states with significant NG production, it woud surely be quite easy to create a system that incentivises conversions to natural gas usage.

The only real problem is the chicken and egg filling station availability. If an individual city government announced that it was to convert a few thousand of its vehicles, and would buy the fuel whereever it was available, that would be all the push needed.

Jul 21 06:15 AM

[tuj:]

CNG fails in non-fleet transportation because the electricity distribution network is so much more vast than ample-capacity NG pipelines. The real answer is to build liquefaction capacity here in the US and export LNG.

Jul 21 07:51 AM

[A Barrel Full:]

Not a bad idea, but would not have helped much this year as the world LNG export capacity will grow 30%


On Jul 21 07:51 AM tuj wrote:

> CNG fails in non-fleet transportation because the electricity distribution
> network is so much more vast than ample-capacity NG pipelines. The
> real answer is to build liquefaction capacity here in the US and
> export LNG.

Jul 21 08:37 AM

[Wisdom vs. ...:]

NG has much less energy per volume than diesel; that means long-haul, OTR semis would need to stop much more often. getting a semi off the highway and filled with fuel takes significant time, adding significant costs to each trip, more than would be saved by NG prices; in other words, switch to NG and the price of toilet paper goes up. this is not an issue for local trips, eg port vehicles and buses, so NG works for them and has been adopted.
NG used for transportation will lower demand, thus price of diesel and gas. if it is competing with diesel and gas for transportation, then it will eventually become equally expensive; thus, you must understand that the price of NG will increase substantially if used for transportation

Jul 21 10:23 AM

[Elliott:]

Correct. That's why big rigs, construction equipment, tractors, etc. should remain diesel-powered.

Commuter cars should be electric, once we get battery technology improved. The beauty of electric auto power is that the electricity source is diversified -- it can come from nuclear, nat gas, hydro, solar, wind, etc.

Electric motors are miles ahead of internal combustion engines on efficiency. 75% of energy applied to electric motors propels the car forward and 25% is wasted. With internal combustion engines only 16% is converted to forward motion, the rest is wasted in mechanical losses and heat.


On Jul 21 10:23 AM Wisdom vs. Information wrote:

> NG has much less energy per volume than diesel

Jul 21 11:51 AM

[William Dav...:]

Natural Gas looks good for the long term in the US, but how long is that?

There is no sign at the moment that the price gap between oil and NG is narrowing. If the US does shift to NG for transport what time scale are we looking at before that makes a impact on the US NG market. Can you really power a 18 wheeler using NG as T. Boone Pickens is suggesting? or will they have to stay on Diesel.

The International LNG market that is developing may have greater impact on US NG prices in medium term, as more and more countries use LNG.

NG does looks very cheap, but how long will we have to wait and how long will some of these new gas reserves last, Matthew Simmons thinks they will peak quickly. If so prices could be suppressed by surplus supply in the short term to only be replaced by collapsing supply in the long term. Not good for investors!

Jul 23 05:07 AM