U.S. Automakers: Natural Gas? We Don't Need No Stinking Natural Gas
Natural gas reserves in North America -- which have more than doubled in the past three years -- can supply more than a century of consumption, according to a recent IHS Cambridge Energy Research Associates report. Such a massive resource is a boon for U.S. automakers who want to develop natural gas-powered vehicles. Problem is, they're not interested.
U.S. automakers' muted response during CERAWeek -- an annual oil, gas and power conference where the report was released -- stood out in an event that was dominated by talk of natural gas. Automakers at the conference see natural gas-powered cars and trucks more as a niche market. They certainly don't view natural gas as a game-changer, as it's been described by folks in the oil and gas industry. And no amount of natural gas seems to be able to change their minds.
Just a few years ago, natural gas looked to be in tight supply, which would have left the U.S. increasingly reliant on imports. But improvements in technology have allowed producers to tap unconventional natural gas trapped in vast shale formations in the U.S. This sudden supply has encouraged oil producers to start snapping up shale plays or entire companies that specialize in producing unconventional gas. Exxon (XOM) paid $41 billion (including debt assumption) for gas producer XTO Energy (XTO), a major holder of unconventional natural gas plays.
But U.S. automakers have dragged their feet in embracing the potential of natural gas in large part because the infrastructure needed to use it in vehicles would be a complex and costly undertaking. Cars that run on compressed natural gas cost about $10,000 more than gasoline vehicles. And the refueling stations that deliver compressed natural gas are about four times as expensive as gasoline and diesel stations. Still, there is an opportunity for U.S. automakers. Now that the oil and gas industry has created this massive supply, it desperately needs new markets. The two most likely areas of growth are transportation and power generation. Exxon sees a future in converting coal-powered utilities to natural gas. Others, including Chesapeake Energy (CHK) and Apache Corp. (APA) are promoting the use of natural gas as a transportation fuel.
And we can't forget T. Boone Pickens, the Texas oilman and billionaire who is hell bent on shifting the U.S. away from foreign oil. Pickens is certain Congress will pass the Natural Gas Act by Memorial Day -- legislation that would expand the use of natural gas as a transportation fuel among 18-wheeler trucks and provide tax breaks for fueling stations and natural gas-powered vehicles. And while Pickens' own wind energy and natural gas projects have struggled to get off the ground, there's little doubt the guy will make something happen.
U.S. automakers unwilling to go down the natural gas-powered road may soon be passed by those -- ahem, foreign companies -- that recognize the opportunity.
Photo of natural gas for vehicles from Pickens Plan