28th july 2011
But the second I'm more interested in. Natural gas cars . The companies exposed to this sector soared in the stock market on the news that the U.S. government (if it survives) will keep the tax deduction for these vehicles. But the interesting thing is that, even without tax grants, converting vehicles to natural gas is attractive.
Yesterday two things happened that we will remember for a while:
First, RWE, the German utility, abandoned the world's most ambitious project of tidal energy as it is economically unviable. The project, Siad Wave, says "wave goodbye, goodbye sir", quoting the great Patti Smith. The project ends leaving £6 million in subsidies behind without having generated a kilowatt/hour . How wonderful.
The advantages of the natural gas vehicles are:
- Access to an abundant source of energy, six times cheaper than oil . Even after all costs, the difference between diesel or gasoline and natural gas in the U.S. is 2 to 1.
- Very low infrastructure needs . Compared to the trillion dollars needed to adapt the country for electric car infrastructure, the U.S. already has converted service stations in almost all states.
- It's a proven technology for vehicles of all types of tonnage. In Brazil, for example, 9% of the fleet runs on natural gas liquids.
- Does not require subsidies . A truck that consumes 15,000 gallons of gasoline a year saves $ 22,500 a year in fuel and recovers the cost of converting to natural gas in 2.9 years. If tax deductions are not approved, it would recover the investment in 4.5 years.
- They are not ugly like crazy. Unlike other unconventional vehicles, they do not need to look like clones of the Atom Ant helmet to have the autonomy of a traditional car.
T. Boone Pickens , the billionaire American, has been saying it for a long time. It makes no sense to keep the huge fleets of trucks travelling up and down the U.S. using gasoline/ diesel when the country imports $ 1 billion per day of oil from foreign sources, while the US produces abundant natural gas cheaply and with a local industry.
Therefore, in a country where, thanks to shale gas the industry can benefit from abundant natural resources, low prices and a daily production of 58-60 Bcf / day, it makes perfect sense to convert a substantial portion of the fleet from gasoline to natural gas.
But most importantly, if we assume that these vehicles, the same way that electric cars, absorb 9% of the total fleet, the additional demand in 2020 (2.5 Bcf / day) would be less than 3% of the domestic production of natural gas, making the price impact of additional consumption quite limited.
Disadvantages of the natural gas car in Europe:
- In Europe we still reject to develop our reserves of shale gas, as we stated here , so the cost benefit may be lower, since the country depends on gas import from Russia, Qatar and Algeria, for example. However, even assuming the price of gas in Europe (NBP), which is two times more expensive than in the U.S., the savings compared to petrol or diesel is still relevant (38%).
- In Europe almost all countries have near-monopolies on natural gas, some state-owned, with market shares by country ranging between 60 and 80% (E.On-Ruhrgas in Germany, GDF- Suez in France , ENI in Italy, Gas Natural SDG in Spain , Galp in Portugal ) which prevents strong competition. In the U.S. there are hundreds of independent companies and none has more than 15% market share. Even after the merger of ExxonMobil with XTO the group only has 12% market share in gas.
- In Europe, unlike in the U.S., the final price of gasoline and diesel include between 55% and 60% tax . If you apply a similar tax to natural gas, and believe me it would happen, say goodbye to the benefits of conversion. But that risk, intervention and government hands in the consumer's pocket, is going to happen in every technology, electricity included.
- The main disadvantage is that if demand soars for electric cars, hybrids and natural gas vehicles, added to the "start-stop" engine that giving an additional 15% fuel efficiency, then demand for oil will collapse, making the price of crude more competitive. Obvious. But in principle, assuming a 10% penetration of the fleet in the OECD in "unconventional" transport, it seems that the impact on oil demand will not be greater than 3% overall.
What I love to see is more companies, from my dear Better Place (Israel) in electric vehicles, to EQT, Westport Innovations, Clean Energy Fuels Corp. and others in the U.S., whose business model is already beginning to sound very promising when it includes the sentence "without subsidies." That's enough to get me interested.
Data Source: Clean Energy Fuels, NGV, Lazard, Exxon, EQT