Fueling Costs For Natural Gas Are More Expensive Than Electric Vehicles

Includes: CLNE, D, KMI, NAGS
by: Simit Patel

In my previous post comparing electric and natural gas vehicles, I noted that I thought electric vehicles were far better positioned to become the dominant standard in the transition away from oil because they offered a more robust network of re-fueling stations. I maintain that viewpoint, and in this post, I'd like to emphasize it even more by highlighting a related point: that electric fueling has a lower fueling cost than natural gas.

I was inspired to write this article largely due to this outstanding article from Jeff Siegel, which makes the same argument. Here are the key data points:

  • The most recent EPA report of compressed natural gas (CNG) prices indicates $2.13 per equivalent gasoline gallon. If you've got a Honda CNG Civic that runs on compressed natural gas, that means it'll cost you about $6.88 to drive 100 miles.
  • The US national average cost of electricity is $0.11 per kWh; if you've got a Nissan LEAF electric car, that means it will cost you $3.74 to go 100 miles.

So, based on these numbers, the fuel cost for electric vehicles is about 45% less.

Now, let me try to pre-emptively address some rebuttals:

  • Yes, we know that the cost of electricity varies greatly depending on where you are and what time you charge your vehicle. However, I also consider it highly probable that natural gas prices will rise (see previous article). In fact I expect natural gas prices to rise greater than the price of electricity, particularly when the US, "the Saudi Arabia of natural gas," begins to develop its business of exporting liquefied natural gas.
  • It is true that other parts of the world have a much higher price of electricity than is commonly enjoyed in the U.S. However, I remain bullish on nuclear power throughout the world, simply because the cost advantage will be proven in due time and will be significant. Because nuclear energy offers a much higher energy density than natural gas, it will ultimately be cheaper and more scalable in the long run - which means fueling costs will ultimately be cheaper as well.
  • What about oil? Who says we need electric vehicles or natural gas vehicles? It is true that oil prices have come down of late, now trading in the low 80s. I admit this is below the $88 floor I thought would hold (see my recent article on oil prices). However, I remain of the viewpoint that this doesn't do more than buy us time. Global oil production has still plateaued at 75 million barrels per day since 2005. In other words, peak cheap oil is here. Temporary declines in oil prices, while a boon to economic production, are just that: temporary. Barring some significant development that lets us break past the 75 million barrel per day output level and stay there, we're going to need to find alternatives - and soon.

It is possible that there is room for both natural gas and electric vehicles, although in light of the situation, I don't favor investing too heavily in natural gas vehicles. At this point in time, I think a better opportunity is in speculating on price via an ETF such as (NYSEARCA:NAGS), producers focusing on opportunities in exporting liquefied natural gas from the U.S. like Dominion Resources (NYSE:D), or pipeline players like Kinder Morgan (NYSE:KMI) focused on developing the infrastructure in the U.S. to transport natural gas. But if one insists upon investing in natural gas vehicles, I do think Clean Energy Fuels (NASDAQ:CLNE) could be a good play. More to the point of this article, though, is that the right electric vehicle manufacturer - preferably a new entrant that starts with a new customer set rather than trying to get users of gasoline cars to convert - is a big opportunity worth keeping an eye out for.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.