By Paolo von Schirach
February 27, 2012
WASHINGTON – This being an election year, rising oil and gas prices have unleashed predictable polemics about whose fault it is that energy costs are going up in America. Easy enough for the Republicans to claim that it is all Barack Obama’s responsibility, because his administration is biased against fossil fuels, making it more difficult to drill and extract more. And then Obama recently vetoed the Keystone XL pipeline that would have carried more Canadian crude to the refineries in Texas, thus increasing US supplies.
Sterile political arguments
These arguments are mostly political and not very compelling. Not much that can be done in the short run to insulate America from higher oil prices now rising because of fears of supply constraints due to the confrontation with Iran and its contentious nuclear power development, widely believed to be a precursor to nuclear weapons development. Right now, some more oil from Canada or from increased US off shore sources would not be enough to decouple the US market from a rising world wide oil price. So, in the near term, we are stuck with whatever the oil price is.
Long term US could rely only on North American oil supplies
That said, if the US were truly aggressive in pushing more domestic oil extraction (North Dakota alone will soon produce close to 1 million barrels of shale oil) while at the same time building more pipelines from Canada, the home of gigantic oil sands deposits, over time this would really change the picture. We could be talking about getting three or four additional million barrels from domestic and Canadian sources, eventually relying entirely on North American oil, with no more imports from the Gulf, from Nigeria or from Angola. This would be a game changer and it would lead to the creation of a US oil price, based on North American demand and supply insulated from the rest of the world. But this is not for now.
Natural gas is a real alternative –today
However, if decoupling US oil prices from the rest of the world is a real but distant possibility, we have now the real opportunity to drastically diminish our reliance on oil –foreign or domestic– by aggressively adopting liquefied natural gas (LNG) and compressed natural gas (CNG) as viable alternatives to diesel and gasoline. And this is opportunity is provided by the shale gas revolution now in full swing in America.
Indeed, due to our ability to extract natural gas from shale formations through “hydraulic fracturing”, (known in the industry as “fracking”), combined with horizontal drilling, America is now the largest natural gas producer in the world, having surpassed Russia in 2009. Given the huge supply increase, prices have gone down significantly, with immediate benefits for the electrical utilities that use natural gas as their fuel, not to mention the plastics and chemical industries that rely on natural gas as a basic feed stock for many of their processes.
Natural gas as transportation fuel
While all these benefits are real and immediate, the next opportunity provided by all this cheap and domestically produced natural gas is to use it as transportation fuel, given its low cost and the added bonus of much lower emissions (natural gas is cleaner than oil) that would greatly benefit the environment. T. Boone Pickens has been pushing this transportation fuel revolution via his “Pickens Plan”. And do keep in mind that there is nothing novel or revolutionary in building cars or trucks with engines running on natural gas. The technology is old, tried and tested and widely used in other countries. Nothing experimental here.
Challenges: cost of new vehicles, lack of refueling stations
There are however many challenges. And they have to do with absorbing the up front cost of new vehicles, initially more expensive than the traditional ones we are used to and in creating, practically from scratch, a national network of refueling stations (an American Natural Gas Highway) that would make natural gas powered vehicles practical.
Given these constraints, the consensus is that it would make sense to start a conversion process beginning with heavy trucks operated by major companies, like AT&T, FedEx or UPS. They are on the road most of the time. They burn a lot of fuel, and they rely on centralized refueling stations. Given trucks large fuel use, it would be much faster for fleet operators to recover the up front cost of a new natural gas powered vehicle, because of fuel savings of at least 40% compared to diesel.
Instead of complaining about high gasoline prices, switch to natural gas
So, from the above we get a simple advice. Instead of complaining about high oil prices (beyond our control) that translate into high gasoline prices, do away with gasoline altogether, at least for a large chunk of our user base. Switch to cheap and domestically produced natural gas, starting with heavy trucks. Save money, contain the cost of all transported goods, enhance US energy security by cutting down oil imports, and do something nice for the air we breath –all at the same time. But, surprisingly, there is not much action on any of this. Frankly, given the clear benefits and the added incentive of higher oil prices, this is really amazing.
We need new public policy
Some resistance is understandable. It is obvious that there will be huge opposition to any large scale switch to natural gas from the many components of our economy that are tied to oil. They have a good thing going, and do not want to change it.
But policy-makers should have the national interest at heart. They should recognize this incredible opportunity and grab it. It is quite possible to incentivise end users to switch to natural gas powered vehicles by making the transition easier via tax credits and other facilitations. (We are already doing this for hybrids and electric vehicles). Natural gas powered vehicles are now economically viable because of the shale gas revolution that increased supplies while lowering prices. What we need now is to build the necessary momentum to push this transformation forward.
So, instead of this silly name calling about who is at fault regarding gasoline at 4 dollar a gallon, it would be much more productive for Republicans and Democrats to get behind a major national policy initiative aimed at using our own domestic gas instead of imported oil. But this would require statesmanship, and this is a US commodity in even shorter supply than cheap oil.