What are the prospects of natural gas offering a viable alternative to oil as a transportation fuel?
Sure, natural gas already exists in the transportation sector. Compressed natural gas (CNG) is used in some parts of the world to fuel cars and trucks. But that only exists on a large scale in countries that have laid out specific government policies (like subsidies or regulated prices) to promote the fuel, either with the intention of cleaning up air pollution in big cities or reducing burdensome levels of gasoline and diesel imports. Countries like Iran, Pakistan, Argentina, and Brazil are the leaders in the number of natural gas vehicles on the road. Iran and Pakistan in particular account for nearly two-fifths of the total number of natural gas vehicles across the globe. Related: The Illusion Of A Rapid Energy Revolution
Elsewhere, CNG vehicles are just a niche product. In the United States, for example, natural gas is used in municipal buses or in corporate vehicle fleets. Natural gas can burn cleaner – in terms of both particulate emissions and carbon emissions – and reduce the cost of fuel. Still, CNG is not widely used, even in a country that has had extraordinary cheap shale gas for almost a decade.
One of the big constraints is the lack of refueling infrastructure – i.e. gas stations for vehicles to fill up. The problem is one of the chicken and the egg. Consumers are not going to buy CNG vehicles if they do not live near a CNG refueling station. But no one is going to build a CNG refueling station if there are no drivers with CNG cars. The US Congress considered legislation a few years ago to support natural gas vehicles, but it was not passed. Related: Forget The Noise: Oil Prices Won’t Crash Again
Ultimately, the consumer market may be too difficult to crack. But in the commercial sector, things look a bit brighter. A new report from IHS Energy forecasts that natural gas could capture a sizable chunk of the market for trucks and ships over the next few decades. Along with CNG, the use of liquefied natural gas (LNG) also holds a lot of potential. IHS believes that by 2030, CNG and LNG could displace 1.5 million barrels of oil per day from the transportation sector – a considerable sum, but still relatively small.
The use of LNG for maritime shipping, however, could have a more profound impact. International environmental regulations on maritime shipping are tightening, forcing shippers to reduce the amount of sulfur dioxide emissions from their fleets. While shipping companies can make upgrades to their fleets in order to comply while still being able to burn traditional fuel oil, doing so would impose significant costs. Instead, LNG makes much more sense. It would allow ships to adhere to environmental regulations while saving on fuel costs relative to oil.
Moreover, the use of natural gas in transportation will become a much more viable prospect given the fact that oil companies themselves are shifting towards the production of natural gas. Royal Dutch Shell’s purchase of BG Group – a company weighted towards LNG – is emblematic of this shift. Related: This Country Wants To Rejoin OPEC As Soon As Possible
The fact that the oil majors are increasingly comfortable with the idea of carbon pricing also is a testament to their shift towards natural gas. That is because under a carbon tax scenario, natural gas consumption will grow to the detriment of coal in the electric power sector. If the same phenomenon plays out in the transportation sector, oil majors won’t care all that much since one of their products would be losing out to the other.
Finally, global LNG capacity is growing quickly. With LNG export projects coming online in Australia, East Africa, and the US, LNG prices could fall significantly. That would make the use of LNG in transportation even more attractive.
By James Stafford of Oilprice.com
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