WASHINGTON – In an otherwise thoughtful review of Obama’s energy policies, (WSJ, Obama’s Second-Term Energy Policy is Working, August 19, 2014), MIT Professor John Deutch, (who has also held many high level government positions), does not even mention the real low hanging fruit represented by the use of US produced natural gas as transportation fuel.
Gas for power generation
Yes, the US shale gas bonanza is the proverbial game changer, when in comes to energy resources. But so far its beneficial effects have been felt almost exclusively in power generation.
Indeed, thanks to abundant and inexpensive shale gas, America’s electricity prices are now 1/3 of Germany’s rates. In a hypercompetitive world, low electricity prices do matter, a lot. They affect the final cost of many manufactured goods; and they have a particularly high impact on energy intensive sectors, like steel.
LNG as transportation fuel
That said, it has been pointed out by T. Boone Pickens and others that US produced compressed or liquified natural gas, (CNG and LNG) could and should replace diesel as the primary transportation fuel for heavy trucks. There are compelling economic reasons for doing this. Simply stated, LNG made out US produced natural gas is considerably cheaper than diesel, a lot of it refined from imported oil. Heavy trucks are on the road all the time, and they use a lot of fuel. Therefore, it is indeed cost-effective to switch.
From a larger energy security stand point, the impact of such a switch would be very significant. We have about 9 million heavy trucks in America. They consume about 3 million barrels of oil a day. If we could imagine a future in which all of them will run on US produced LNG, this would translate into huge savings. We would not need to buy a lot of the oil we are importing now. These are billions of US dollars that will stay at home. Besides, we would be less reliant on far away suppliers for our basic energy needs.
The switch to LNG
That said, the problem is that it takes a while for large fleet operators to fully understand the economic benefits of LNG, while weighing them against the substantial capital investments needed to switch.
To start with, fleet operators need to buy expensive new trucks. Secondly, they need to be reassured that there is already in place a reasonably extensive networks of LNG refueling stations. This is complicated, because these facilities are large and very expensive.
And so, in some cases we may have the classic “chicken or the egg” situation. Operators will not buy new trucks unless the refueling stations are built, and companies will not build expensive stations unless they are confident that there will be sufficient demand for their product.
A signal from Washington?
In this context, it would be very helpful if the Federal Government would give a signal to the market. Washington could help this energy-saving and energy efficiency transformation by committing to buy new trucks fueled by LNG. This would boost production of LNG powered trucks, this way creating a new incentive for private companies to follow suit. At the same time, companies that make and install LNG refueling stations would be convinced that they will have a substantial market.
This would be a way in which the Federal Government could invest tax payers dollars in energy-saving technologies –this is good for America– while boosting the production of domestic energy sources, something that benefits the American economy.
Why is Obama not acting on this?
While this switching process will take time and money, the concept is not complicated. The incentives are clear. LNG is cheaper than diesel. Besides, LNG is produced from domestic natural gas. This change would cut our energy imports bill, while boosting domestic producers who generate and support many jobs.
This being the case, I wonder why the Obama administration does not move –decisively– in this direction. I also wonder why Professor Deutch does not even mention the issue –let alone endorse the idea– in his op-ed piece.