By Paolo von Schirach
October 30, 2013
WASHINGTON – A recent lead story in the MARKETPLACE section of The Wall Street Journal, (Truckers Tap Into Gas Boom, October 30, 2013), points out that major US retailers, shipping companies and others (including FedEx, Procter & Gamble, and UPS), are ramping up their purchases of new heavy trucks powered by Liquefied Natural Gas, (LNG). Well, it has been a slow process; but finally it is happening.
The LNG revolution
Yes, the trucking companies and other US corporations that rely on large fleets of trucks to deliver their supplies are waking up to the fact that America, thanks to the hydraulic fracturing revolution, is now producing plenty of cheap natural gas. And natural gas, beyond its traditional use as feed stock for electric power generation, can be used quite effectively as transportation fuel. The obvious reason for switching over to LNG is lower cost. At today’s prices, filling up a truck with LNG would cost today almost half than filling up with diesel. Trucks are on the road all the time. Significant fuel cost savings, multiplied by hundreds or even thousands of heavy trucks, are the incentive to make the switch.
There are a number of technological hurdles. But the big ones have been resolved or have been at least addressed. In July Cummings Westport Inc. started selling its new 12 liter natural gas engine, ideally suited for trucks up to 80,000 pounds. Oil man T. Boone Pickens, the prophet of natural gas, has invested in Clean Energy Fuels, a Texas company that is already building the necessary infrastructure of natural gas refueling stations. These are basic preconditions, now in place, that are creating a real market for heavy trucks powered by LNG.
Cost of course is also an issue, as these new trucks cost more than traditional ones powered by diesel engines. But the price of LNG is so much lower that big companies realize that it is in their interest to make the investments, knowing that in a couple of years they will recover the additional expense for LNG powered trucks. After that there will be only savings.
Hesitation would be normal if fuel costs were subject to significant fluctuations. But this is not the case. Oil prices, and consequently diesel prices, will stay high on account of sustained world demand (especially from Asia), while domestic LNG prices will stay low on account of vast, and if anything expanding, US natural gas supplies.
That said, beyond the advantages in terms of reduced operating costs for major US companies, there are additional gains that amount to an economic, environmental and –down the line– geopolitical revolution. The combined impact of lower electricity prices and the creation of a new, totally domestic and inexpensive transportation fuel will lift the otherwise anemic US economy.
Consider this. The US has a fleet of about 3. 2 million big rigs and an additional 7 million single-unit trucks. While trucks represent only 1% of vehicles on the road, they consume about 20% of the fuel. Just one big truck, according to the WSJ story, burns the fuel of 40 sedans. Assuming that all heavy trucks will be soon powered by LNG, a fuel produced in America by Americans, this means cutting our oil imports by at least 2 million barrels a day. That’s a lot of oil that we shall not need to import from OPEC. That’s billions of dollars that will stay at home, instead of being transferred to Saudi Arabia, Kuwait or Angola. Besides, LNG, while not perfectly clean, is a lot cleaner than diesel. Therefore this switch over will have a positive environmental impact in terms of air quality.
Finally, by relying more on domestic energy sources, US energy security will be greatly enhanced. For decades America had to be overly preoccupied with anything that happened or might have happened in the Middle East because that’s where most of the world’s oil is found. We absolutely needed that oil, and so did most of our key allies.
But now that picture has been transformed, beyond recognition. After many years of decline, now America produces more of its own oil. So, we need to import less. In the future oil imports will come mostly from vast Canadian reserves. This means far less oil from OPEC. And now, as a consequence of the natural gas revolution, the US will be able to do away with the oil imports currently necessary to fuel millions of heavy trucks. (For cars it is a different story; but with similar outcomes. It may be more cost-effective to develop electric vehicles than having cars powered by natural gas. Either way, LNG engines or EVs, technological changes will translate into lower oil imports).
All this means no more oil from OPEC. In fact it means no more oil from outside the Western Hemisphere. This is a major change that will have huge geopolitical consequences. It is hard to believe that 10 or 15 from now the US 5th Fleet will still be anchored in Bahrain, in the Persian Gulf, at a cost of billions of dollars a year for US tax payers. The US Navy is there for the sole purpose of keeping the oil flowing. If we no longer need that oil we can let the Chinese Navy patrol the Strait of Hormuz. China will need OPEC oil.
With the end of our oil worries, we shall also see a decline in the interest for anything that happens in the Middle East, just as the end of the Soviet Union caused a loss of interest in NATO affairs and German politics.