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Why Natural Gas Prices Collapsed

Natural gas prices have collapsed…

James Hamilton

James Hamilton

James is the Editor of Econbrowser – a popular economics blog that Analyses current economic conditions and policy.

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Natural Gas Now a Growing Alternative to Gasoline

The Denver Post reported the opening on Saturday of stations offering compressed natural gas to drivers in Grand Junction and Rifle, towns along Interstate 70 in western Colorado, making it possible to drive a vehicle fueled by compressed natural gas from Denver to Los Angeles.

The Glenwood Springs Post Independent offered this account:

The use of CNG fuel on the Western Slope has long been stymied as a "chicken-and-egg" scenario. No one wanted to invest in CNG cars or trucks because there were no filling stations, but there were no filling stations because no one was driving CNG vehicles.

Kirk Swallow, owner of Swallow Oil and an investor in Rocky Mountain Alternative Fueling, has now changed that. Last year, Swallow won a $675,000 grant from the Governor's Energy Office to develop the Rifle station. He and his partners in Rocky Mountain Alternative Fueling covered the difference for the Rifle station, which cost about $900,000....

As part of the grant application, Swallow obtained commitments from local fleet operators to begin making vehicle conversions to CNG.

EnCana Oil & Gas (USA), Williams Production RMT and Bill Barrett Corp. all pledged to convert five to 10 vehicles a year to natural gas. Garfield County committed to converting a dozen vehicles. The city of Rifle and Colorado Mountain College are also running bi-fuel vehicles, which can run on CNG until that tank is empty, and the switch on the fly to burn gasoline.

Technological breakthroughs in drilling methods have turned natural gas into a resource that the United States has in abundance. But what is the appropriate role of government in promoting the transition to more use of this resource for transportation? The "chicken and egg" problem referred to in the Post Independent article is an example of what economists call a "network externality", for which it makes a lot of sense for the government to be a first mover in helping encourage the infrastructure necessary to enable market forces to take over.

The days when significant numbers of people drive from Denver to Los Angeles in a CNG-powered vehicle may still be a distant vision.

But I am glad that some people have that vision and are doing what they can to make it a reality.

By. James Hamilton

Reproduced from Econbrowser




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  • Anonymous on April 07 2011 said:
    A good way to introduce CNG into the transportation economy, would be for school districts to use CNG for school buses. And/or, for public transit systems to convert buses to CNG. Fueling stations for such vehicles could then be made available to whoever has a CNG-powered vehicle. Businesses could be encouraged, perhaps with tax rebates, to convert their vehicles to CNG operation and to make use of CNG facilities originally built for school, public transit, or government motor pool vehicles. This nucleus, once started, could then be expanded.
  • Anonymous on April 07 2011 said:
    As an added bonus, at the Rifle station you can choose between a Remington deer rifle, a high powered Zeiss hunting scope, or 500 rounds of Winchester rifle ammo, free with every CNG fill-up.It is all about matching sales incentives to location! :-*

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