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MasterResource

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MasterResource is a blog dedicated to analysis and commentary about energy markets and public policy.Precisely because energy is the lifeblood of the modern economy –…

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Natural Gas Producers Looking to Capture a Growing Share of the Transportation Sector

Four-dollar per gallon gasoline provides more margin for oil producers than four dollars per million British thermal units (MMBtu) provides for natural gas producers. Historically speaking, oil prices are high and natural gas prices low.

In the face of low prices, the natural gas industry can practice self-help in a free market–or resort to political shenanigans. Self-help means producing less (hard to do in a technology boom!) or selling more. Whether converting fuel oil customers to natural gas in the home heating market or building gas-to-liquids plants to convert natural gas into petroleum products, including gasoline, natural gas companies and their trade groups can work to be their own best friend.

But segments of the natural gas industry, led by master rent-seeker T. Boone Pickens, has turned to the political means to bolster demand and thus price. After all, if wind, solar, and biomass can get special government favor (a favorable regulation or special tax-code provision), why not natural gas?  And enigmatic T. Boone’s large ownership interest in natural gas refueling stations would just happen (sshhhh!) to win big from his political activism.

Specifically, Pickens is fronting and bankrolling legislation to provide a generous government subsidy for converting transportation vehicles from petroleum (gasoline or diesel) to natural gas. Too bad if there is not a national refueling infrastructure . . . too bad if the natural gas tanks are heavier and take up more space than a gasoline tank . . . and too bad if the extra engine expense doesn’t work despite natural gas’s lower relative cost per BTU.

What is the Subsidy?

A Wall Street Journal article, “Natural-Gas Trucks Face Long Haul,” went over the sour economics of natural-gas-driven 18-wheelers.

As veteran energy writer Jeffrey Ball explains, the extra cost for a dedicated natural gas vehicle differs from a low of around $10,000 (+5 percent) for a trash truck to a high of $100,000 (+105 percent) for a long-haul cab truck. United Parcel ordered 48 natural gas cabs–but only by applying $4 million of Obama stimulus money. So taxpayers paid about $83,300 (83 percent) of the premium.

And UPS is clear–no more natural gas cabs without more federal money, according to the WSJ piece. The proposed New Alternative Transportation to Give Americans Solutions (H.R.  1380, or NAT GAS Act), would provide this $80,000, not coincidentally.

A letter-to-the-editor in response to Ball’s piece agreed with the incremental $100,000 cost but contended that a two-to-three-year payback was achievable followed by significant savings. “Since fuel prices on their own make natural-gas trucks cost-effective, the writer concluded, “procurement subsidies for them seem wholly unnecessary and gratuitous?” But what if future fuel prices converged with gasoline and diesel falling and natural gas increasing? This is where the subsidy might, indeed, be necessary.

Why Natural Gas Privilege?

American Enterprise Institute’s Gary Jason tried valiantly to make a case for subsidizing vehicles that use natural gas instead of either gasoline/diesel or electricity, on the grounds that natural gas is technologically superior to batteries and cheaper and cleaner than gasoline or diesel.

Both are true, but such style points do not translate into marketplace preference. His argument for special privilege was different:

As a general policy, I oppose subsidies. But given the fact that our society has chosen to subsidize senseless automotive technologies such as [electric vehicles], it makes sense to subsidize a sensible one as well.

But as Marlo Lewis of the Competitive Enterprise Institute points out, this is all about raw politics and not consumer-driven economics. And we now have the NAT GAS Act, a bill endorsed by 186 members of Congress (including a bunch of apparently naïve Tea Party freshmen).

This bill is nothing but typical rent seeking–a wealth transfer to the politically powerful from the rest of us. Never mind that gasoline and diesel win hands down in the great majority of transportation applications–just like natural gas beats oil in the great majority of stationary applications (boiler fuel, home heating, and electrical generation).

Perhaps natural gas can displace petroleum-based fuels as the main transportation energy source. As Robert Bryce explains, new discoveries of vast resources, new technologies for tapping them, and the inherent physical superiority of natural gas presage a growing market share of transportation sector without subsidies because—well, because it’s technologically superior, cheaper, and cleaner.

Conclusion

Government subsidies were not necessary to get American drivers to substitute clean gasoline-burning cars for dirty hay-burning horses; none should be needed to get them to substitute to another cheaper, cleaner alternative.

Consequently, crony capitalism should be rejected in favor of free-market capitalism. Taxpayers should not be at risk, and consumers deserve the best with transportation as for the other goods and services bought in the marketplace.

By E. Calvin Beisner

This article was provided by MasterResource


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  • Anonymous on May 27 2011 said:
    HOW SOON WE FORGETIt's amazing that BIG OIL can"with a straight face" assert that the market place should decide. It was only last week that BIG OIL was arguing tooth and nail to preserve government stimulus $$$ it has received for decades.Now that a new player, i.e., natural gas, has entered the transportation fuel market place BIG OIL asserts that it's unfair to even the playing field, and challenge it's firmly entrenched position as America's transportation fuel notwithstanding the hundreds of $$$$Billions yearly sent to our OPEC "fiends".

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