Natural Gas for Cars (The key to ending OPEC’s control over the U.S. transportation industry)

National Review ^ | 08/26/2012 | T. Boone Pickens & R. James Woolsey

[SeekAndFind]

Recent headlines provoked by two positive but modest developments — a slight early-summer decline in gasoline prices and a laudable increase in domestic oil production — have trumpeted that these developments mean we are on the verge of achieving “energy independence.”

Whoa.

Oil monopolizes about 95 percent of the world’s transportation, and OPEC — eight nations in the Middle East and four others — controls nearly 80 percent of the world’s conventional oil reserves. We cannot change anything fundamental if we continue to permit oil and OPEC, a monopoly with a cartel nested inside it, to maintain their dominance of the transportation-fuel market and if we relegate ourselves merely to working within the framework of that dominance to increase our share of the oil market. It’s true that by doing so we can improve our balance of payments and add some domestic oil-related jobs. Good. But this won’t fill the basic need: to break oil’s monopoly and OPEC’s cartel.

Why is that essential? Because oil is not just a commodity. It is a crucial strategic commodity, as salt was for many centuries when it was the only means of preserving food (to borrow Anne Korin’s excellent analogy). So long as transportation is almost exclusively dependent on oil, we are in thrall to OPEC and its decisions on how much to pump and what to charge us. OPEC has made the basic decision to maintain oil prices at a level where we borrow about a billion dollars a day — equivalent to a tax of some $4,000 a year on every American family. OPEC has this power to, essentially, tax us (without any more representation than George III provided our ancestors), because the Saudis and some others in OPEC can lift oil for less than five dollars a barrel, whereas for the U.S. and most other non-OPEC nations the cost is tens of dollars a barrel.

Saudi Arabia, the swing producer — the nation with large oil reserves that it can tap or not, as it wishes — has indicated that, to meet its domestic-welfare commitments, it needs oil’s price to be more than $90 per barrel. What it means is that, if the price of oil were lower, the Saudi government would need to go to the trouble of putting together an economy in which it couldn’t afford to keep a staggering half of its men unemployed and on the dole.

This low cost of lifting oil, especially in Saudi Arabia, and OPEC’s control of over three-quarters of the world’s reserves of conventional oil is why improved fuel economy for our vehicles, although a good idea, is not the solution to our central problem. Seeing us economize, OPEC can just cut production to keep prices up. We could never reclaim anything like the oil-market dominance we held in the Fifties and Sixties. OPEC would manipulate the market to plunge the U.S. deeper and deeper into debt and force us to spend the maximum it can wring out of us.

OPEC chooses to sell only about 31 million barrels of oil a day, almost exactly what it sold 40 years ago when both oil demand and the size of the world’s economy were about half what they are today. Like John D. Rockefeller at the beginning of the 20th century, OPEC withholds oil from the market to keep the price up. It holds nearly 80 percent of the reserves of conventional oil, but only about a third of what is sold daily on the world market is sold by OPEC. We cannot escape the consequences of OPEC’s price-fixing by buying more oil from, say, non-OPEC Canada and less from Saudi Arabia. There is essentially one worldwide oil market. Other countries will just buy more from Saudi Arabia and less from Canada.

But suppose we become what many, inaccurately, call “energy independent” — that is, we produce about as much oil as we use. Wouldn’t that solve our problem?

No.

The U.K. was, by this distorted definition, essentially energy independent in 2008, and yet there oil hit the same peak, over $145 a barrel, that it hit everywhere else. The high price of diesel fuel in the U.K. led truckers there to strike.

A good idea would be the creation of a North American Energy Alliance. In the event of major hostilities that halted international shipping, the U.S., Canada, and Mexico could still share resources among themselves. Our two major neighbors are allies and good friends, and we should work with them when we can — for example, by permitting construction of the Keystone pipeline in an environmentally sound fashion — from Canada to the Gulf of Mexico.

We should not plan to secede from the world’s oil market. The problem is OPEC’s control of prices, not the fact of trade itself. As long as oil overwhelmingly dominates transportation and OPEC controls oil’s price, we cannot end OPEC’s control of oil prices simply by seceding from the world oil market. We do not become “energy independent” just by being able to produce as much as we use, as Britain learned in 2008.

“Independent” means “free from control by others” — not autarky, that is, shunning imports. We should neither move toward secession nor assume that our oil problems are solved merely because we produce more oil and improve our balance of payments. Instead we should follow Teddy Roosevelt’s example in dealing with Rockefeller’s Standard Oil monopoly and make OPEC’s cartel face competition. The only realistic way to accomplish this is to enable vehicles, in short order and with relatively little investment in new infrastructure, to operate on alternatives to petroleum products.

What are those alternatives?

Biofuels? Probably, to some degree. At present, the best candidates are mainly those made from algae. Biomass gasification to produce synfuels also shows some promise. Ethanol may have a role as well, as long as it can compete, unsubsidized, with gasoline.

Electricity? It has promise, but it won’t move 18-wheelers, and it will take years before all-electric cars and plug-in hybrids are a large-enough share of the vehicles on the road to substantially reduce the market for oil.

Other renewables? We are fans of an evolution toward wind and solar for electricity generation and will be more so as batteries or other electricity-storage systems grow more affordable. But what gets lost in the shouting on the cable-news talk shows is that since less than 1 percent of our electricity is generated by oil, the president’s call for renewable electricity generation to reduce oil consumption is more than 99 percent off base. Two-thirds of the oil we consume is used to move our 250 million cars and light trucks and 8 million heavy-duty vehicles. We can’t solve our oil problem without making it possible for people, realistically and soon, to choose a different transportation fuel.

The laboring oar in any practical, affordable, and near-term competition with oil will have to be pulled by a plan to enable drivers to choose between gasoline and fuels derived from natural gas.

Natural gas has become a game-changer because of horizontal drilling and hydrofracturing (fracking), which now make available huge reserves in shale-gas deposits. The effect of this combination on energy prices is stunning. There are about the same number of BTU’s in a million cubic feet of natural gas as in six barrels of oil. So some years ago, when oil and natural-gas prices tracked one another, if natural gas’s price (in mmcf) was at $8, oil would have been at about $48 — a ratio of 6 (barrels of oil) to 1 (mmcf of gas). But because of horizontal drilling, fracking, and OPEC’s thirst for U.S. dollars, natural gas at one point this year was under $2 per mmcf, while oil was well over $100 per barrel — a ratio of more than 50 to 1.

Fracking and horizontal drilling have caused the price of natural gas to plummet, and OPEC’s machinations have caused oil’s price to reach new heights, so the days of a 6-to-1 price ratio of oil to gas are largely gone. We are now in a world where the ratios are 30 to 1, 50 to 1, or even higher. This completely changes the energy picture.

Certainly drilling, including fracking, must be done in an environmentally sensible manner, but this is entirely feasible. The two of us grew up in Oklahoma, a few miles and a few years apart, hunting, fishing, and camping on land that had been fracked (although at that point fracking had not yet been combined with horizontal drilling). Except when you came across a small valve (a “Christmas tree,” named after its size and silhouette) surrounded by a small cyclone fence, you had no idea of what had taken place thousands of feet below you. Indeed, of the some 4 million oil and gas wells drilled in human history, about 3 million of them were drilled in Oklahoma and Texas. And hundreds of thousands of those, beginning in the 1940s, were fracked. The environmental issues that have understandably been raised about fracking are manageable if both sides are committed to reason.

Cheap natural gas, which is key to ending our vehicles’ oil addiction affordably and promptly, can destroy oil’s monopoly and OPEC’s cartel.

We need to move expeditiously to convert a large share of our buses, delivery vans, and other fleet vehicles to run on compressed natural gas (CNG); and trucks, to run on liqueified natural gas (LNG). The conversions will pay for themselves within a year or two because of the now-huge price advantage that natural gas has over oil. The market is already moving this way.

Moreover, innovative companies are rapidly devising methods for using natural gas as a feedstock for liquid fuels as well as for industrial chemicals. Stay tuned — these will not be limited to the old version of the highly capital-intensive Fischer-Tropsch process invented in Germany in the 1920s. Silicon Valley, Houston, Oklahoma City, and other venues are home to concentrations of very smart folks turning their attention to the goal of driving on liquid fuels made from natural gas. They are already beginning to change the energy game fundamentally.

Finally, the two of us agree that the U.S. should have an open fuels standard, a requirement that vehicles be able to use multiple fuels, not solely fuels derived from petroleum. An open fuels standard would inject fuel competition into the transportation sector. The two of us disagree only on one point: whether, as an alternative to gasoline for powering the family car, natural gas itself or methanol (“wood alcohol”) made from natural gas is likely to move faster into the market.

One of us (Pickens) emphasizes transitioning the nation’s heavy-duty and fleet-vehicle market to compressed and liquefied natural gas, a move that could create more than 400,000 new jobs and cut OPEC dependence by 70 percent. The other (Woolsey) stresses the low, one-time cost (under $100 per car), according to recent studies by MIT and General Motors, of making it possible to use methanol and gasoline in the same vehicle. But the point is not for policymakers, or the two of us, or indeed anyone to resolve these disagreements at the level of policy. The point is to do something OPEC won’t — let the market, the people, decide. Do as the Brazilians do and the Chinese are beginning to do — let drivers pull into a filling station and make their own choice about what to fill up with.

Do we really want to stay on our current path of being less willing than the government of Communist China to permit competition in the transportation sector of the economy?

Moreover, freedom to drive vehicles that run on fuels other than gasoline entail important health benefits. Driving on either natural gas or methanol removes the need to add benzene, which is carcinogenic, or other dangerous chemicals to our fuel tanks for the purpose of boosting octane. Published work by Boyden Gray and Andrew Varcoe shows how the use of benzene, like the use of lead in an earlier era, leads to huge medical costs — tens of thousands of shortened lives and well over $100 billion annually.

Our dependence on OPEC oil and the consequent strain on our national security and the undermining of our economic vitality add up to a problem that does, though, have a solution, if we just stay at it. Let’s choose some leaders who understand the issue and can lead the transition to natural gas as a clean, lower-cost, domestic replacement for today’s diesel, gasoline, and other fuels made from OPEC-controlled oil. And let’s arrange the transition so that the people decide how much natural gas replaces oil.

Let’s make a national commitment to this and bring forward the day when we can all cheerfully tell OPEC that if they don’t like it they can go play in their oil ponds.

— T. Boone Pickens is a longtime oil-and-gas-industry executive. R. James Woolsey is a former director of Central Intelligence, a venture partner with Lux Capital, and chairman of the Foundation for the Defense of Democracies and of the Opportunities Development Group’s Advisory Board.

[cableguymn]

limited range or no cargo space due to tanks is a huge problem.

Another is refueling. in Minneapolis we have one public station.

Now.. if you run out of fuel.. we’ll your screwed. No carrying a gallon can of fuel to the car.

No thanks to nat gas cars.

Drill baby drill.

[InterceptPoint]

But suppose we become what many, inaccurately, call “energy independent” — that is, we produce about as much oil as we use. Wouldn’t that solve our problem?

No.

That's a little misleading. If the U.S. were to add enough petroleum capacity to become "energy independent" it is true that this oil would compete for customers at the world market price. And we would pay that price. But adding that much new oil to the worlds daily available supply would certainly result in less influence on the price of oil than is currently enjoyed by OPEC.

How much? I don't know but I wouldn't be asking T. Boone Pickens for my answer. He's pushing natural gas not oil.

[jaydubya2]

I seriously considered going CNG, but the lack of public refueling stations and the expense and limited number of EPA certified CNG conversion kits kept me on gasoline. I looked at the home fueling stations, but they are pricey and require a dedicated gas line from the meter. I researched used CNG vehicles but there are not many in my area.
I'd still consider CNG if the landscape changes. Even though you do lose some range, your MPG and performance is not greatly affected. And I'm comfortable with the safety of the tanks, they're probably about as safe as having 15 gal of gasoline under your car.

[Qwackertoo]

I think with the Honda CNG you can buy a home fill kit IF you have NG available at your home.

Until someone invests in the infrastructure and car mfgs. make them more available, I think the Honda CNG is only available in CA and CT, we won’t see them in other areas. I wonder IF they can add CNG tanks at existing gas stations?

[detective]

“Boon Pickens wants to recoup the money he lost on his wind farms ...
Bingo - we have a winner!
Seems like just yesterday when my TV screen was filled 24/7 with his ads touting wind power as the Second Coming.”

Boone Pickens, and everyone else who invested in wind energy, did so knowing that it was not competitive and did not make any economic sense. They invested in wind energy only if two conditions were met:

1. Politicians forced utilities to purchase wind energy at prices far in excess of competitive options and would not require wind energy to be available when it was needed. Wind energy was always interruptible by the producer. Utilities and rate payers always had to pay for back up generation.

2. Politicians provided their project with huge taxpayer subsidies including loans that did not have to be repaid.

It appears Mr. Pickens has concluded that Obama will not win a second term and therefore taxpayer funded giveaways will not be available. This is why he is changing his position and promoting natural gas.

[ckilmer]

bad an idea it was when their neighbor’s natural gas compressor for his car went on fire/exploded/leaked and blew up half the block back in the 70s.
..............
the technology has changed since then. a lot.

[jdsteel]

The fill at home kits cost around $5k for installation, but they have multiple problems. Takes all night to fill your tank, homeowners insurance issues, transportation fuel tax issues, upkeep and maintenance issues. Adding a bi-fuel conversion kit to a car or truck DOES make great economic sense, but a filling station is a crucial part of the equation.

The payback time required to make my car bi-fuel (gasoline and/or CNG) is about 3 years. Add to that the reduced maintenance costs due to cleaner burning CNG and added engine life and it makes sense...as long as I have a place to fill it up.

[SueRae]

Actually, not as much as a propane grill flashback. Interested in learning about the fuel and ignition systems for vehicles.

[crosshairs]

Does your current gas tank scare you too?

Mine does when I'm filling my car up and the gallon indicator on the pump is slowwwwwwwwwlllly going up, but the dollar amount indicator is spinning so fast, I can't even read it. Scares the crap out of me.

[Spktyr]

Sadly, the stupid users who caused the problems with the equipment back them have not. :P

[ckilmer]

Seems like just yesterday when my TV screen was filled 24/7 with his ads touting wind power as the Second Coming.
.........

boone’s wind power farms died when the price of natural gas collapsed. so likely now he has some investments in natural gas or natural gas related projects.

but so what?

[SumProVita]

My husband, who grew up on a farm, remembers when almost everyone who had a tractor ran it on LP.

[Ditter]

My husband had a pick up truck switched over to propane back then. The truck ran away with him and he had a tough time getting it stopped. I think that was the end of his propane experiment.

[Qwackertoo]

Oh wow, I thought the cost of the kit was 500.00 not 5K but then we don’t have natural gas and don’t live anywhere near a state that even sells the Honda model.

I’m for drilling for oil on federal land and paying down our debt with the revenue that would generate.

[ckilmer]

Sadly, the stupid users who caused the problems with the equipment back them have not. :P
...........
true but if you read upthread you’ll notice that the technology changes are designed to mitigate against the frailties of stupid users.

[taxcontrol]

Gas to Liquids conversion solves much of these problems ... however, the process itself is energy intensive. I believe that it could be combined with nukes to provide the heat required and then produce a wide range of petroleum products.

[Graewoulf]

” - - - One of us (Pickens) emphasizes transitioning the nation’s heavy-duty and fleet-vehicle market to compressed and liquefied natural gas - - - “

Who is going to pay for this “transitioning” that you are trying to sneak by us taxpayers, Boone?

If this is such a marvelous idea Boone, then why are you trying to tax-hustle the Federal Government into something that the market finds unprofitable?

Obama had his Solyndra fling, and now T. Boone wants his tax-funded Nat. Gas boon-doggle.

If you build it Boone, then you did that.

Write a check or shut up!

[free me]

T. Boone still trying to get the Feds to force us all to use his product, and so increase it’s price.

Natural gas has some promise, the market should determine how much.

[Leep]

Is converting back and forth from one fuel to another practical and or cost effective?
It seems like it would be because when one fuel is way up anotther fuel is way down.
Seems like it would pay for itself?

[thackney]

into something that the market finds unprofitable

Not all find the market unprofitable.

Shell Investing $300M To Fuel LNG-Powered Trucks
http://www.forbes.com/sites/christopherhelman/2012/06/13/shell-investing-300m-to-fuel-lng-powered-trucks/

Navistar commits to expanding LNG truck offerings
http://www.landlinemag.com/Story.aspx?StoryID=22150

Commercial Vehicle shift to natural gas spurring a mini-boom
http://www.torquenews.com/1080/commercial-vehicle-shift-natural-gas-spurring-mini-boom

Truck-stop chain plans 100 liquefied natural-gas stations
http://www.vindy.com/news/2012/jul/02/truck-stop-chain-plans--liquefied-natura/

More natural-gas vehicles headed to the U.S. market
http://www.usatoday.com/USCP/PNI/Business/2012-03-09-PNI0309biz-natural-gas-vehicles_ST_U.htm

Chrysler, Ford, GM Introduce Natural-Gas Pickup Trucks
http://enr.construction.com/economics/quarterly_cost_reports/2012/0326-ford-gm-and-ram-introduce-natural-gas-pickup-trucks.asp

Dart Launches CNG Dedicated Truck Service
http://www.darttruckingjobs.com/News-Blog/Detail/articleType/ArticleView/articleId/64/Dart-Launches-CNG-Dedicated-Truck-Service.aspx

More good news about natural gas vehicles
http://www.bseec.org/content/more-good-news-about-natural-gas-vehicles
A Dallas-based company, AmericaCNG, announced this month that they will be equipping 300 Roady’s Truck Stops with natural gas fueling equipment. This comes on the heels of a recent announcement by Clean Energy Fuels to install natural gas fueling equipment at 250 Pilot and Flying J truck stops nationwide.