Diatribes of Jay

This is a blog of essays on public policy. It shuns ideology and applies facts, logic and math to economic, social and political problems. It has a subject-matter index, a list of recent posts, and permalinks at the ends of posts. Comments are moderated and may take time to appear. Note: Profile updated 4/7/12

08 March 2012

Natural Gas: the Best Transitional Fuel


Introduction

Advantages of Natural Gas
Limitations
Conclusions


Introduction. Energy policy is hard enough by itself. The basic concepts (1 and 2) are abstract and slippery. Then you must wade through a vast sludge of self-serving nonsense (1, 2 and 3) put out by various advocates for this or that. The coal industry’s mammoth propaganda machine makes it as hard to see the light of day as it will be in our cities (1 and 2) if that machine wins.

But facts and data now emerging permit us to draw a clear and important conclusion. For the immediate future, we should focus our national energy policy on converting both our electric power plants and our cars and trucks to natural gas—all the while continuing to press ahead with more sustainable solutions. If present estimates of total natural-gas reserves are accurate, and if we don’t sell a lot of them abroad, they should give us a few decades to develop sustainable solutions based on solar, wind and safe nuclear power.

Here’s the analysis:

1. Price, price and price. The present cost of a barrel of oil is about $105. The present cost of a quantity of natural gas with the same amount of energy (5.8 million BTU) is $ 2.6 x 5.8 = $15.08.

Thus right now, today, natural gas is more than seven times cheaper than oil per unit of energy. That ratio can only grow as hundreds of millions more consumers in the developing world enter the middle class and start looking for oil-burning vehicles. And unlike oil, natural gas doesn’t need refining to propel cars and trucks.

Those price differences don’t necessarily translate to price relief for drivers. But they can. More careful price comparisons show that natural gas at industrial pricing can reduce the per-mile energy cost of driving by a factor of seven. If natural-gas stations can command industrial prices, and if they can keep their operating costs and profit down to a total of 20%, driving consumers can enjoy relief from high gasoline prices by nearly a factor of six. And even at much higher residential prices, those who install compressors in their homes can get price relief, right now, by nearly a factor of three.

From an accounting standpoint, that’s all you really need to know. But there’s even more good news: the future looks nearly as good as the present. Experts who read the tea leaves of the futures markets predict that the natural-gas energy-equivalent of a barrel of oil will not exceeed $29 before 2022—ten years away.

You can convert a car or small truck to run on natural gas for $3,500 to $7,000. If it now runs 30,000 miles per year on 20 miles per gallon, natural-gas drivers could save at least $2.72 per gallon-equivalent in fuel costs during those ten years, after recovering the lower price of converting. The total savings (over 9.33 years) would exceed $38,000—enough to buy a brand new vehicle.

Yet price is just the beginning of natural gas’ advantages. Read on.

2. Energy independence. The Energy Information Administration estimates that, during this year (2012), we will import 3.41 billion barrels of crude oil. If the price of a barrel goes no higher, the annual cost will be $105 x 3.41 = $358 billion.

The price of oil is likely to rise substantially as time goes on (1 and 2). But even if it doesn’t, that’s a third of a trillion dollars each year which: (1) increases our trade deficit, (2) leaves our shores forever, (3) enriches others’ economies, not ours, and (4) supports regimes that we would rather not support, like Saudi Arabia, Iran, and Venezuela.

We can cut that number to zero in five to ten years by a simple expedient. We already produce well over one-third of our oil consumption. So all we have to do is convert our fleet of passenger cars, vans and small trucks (including those used for business) to natural gas, leaving crude oil as a feedstock for jet fuel and diesel fuel for long-range, heavy trucks and construction machinery.

Doing so would not be hard at all. We already have over one million natural-gas vehicles on our roads. Our industries know both how to make brand-new natural-gas cars and trucks and how to convert old ones from gasoline.

All we have to do is switch. Consumers and business, not government, will lead the way, pulled by the incentive of three to six times lower per-mile energy cost. Government might provide incentives for switching, especially to low-income consumers who would benefit most from low per-mile costs but can’t afford the capital expense of converting. It could justify the incentives not only as providing economic relief for those who need it, but also as indirectly subsidizing businesses that do the converting and make the parts, thereby creating jobs.

3. Economic growth. National security and trade deficits are good reasons for seeking energy independence ASAP. But they are far from the only ones. A natural-gas small-vehicle fleet would boost economic growth here at home in six ways:
    a. By reducing the cost of hauling people and small loads by a factor between three and six, it would lower the cost of everything, reduce prices to consumers and make American industry more competitive abroad.
    b. By removing some demand pressure from oil for small vehicles, it might reduce the price of diesel fuel and jet fuel, thereby lowering costs in our trucking, intercity bus, shipping, and airline industries. That would lower the cost of almost everything and make those industries more competitive.
    c. Building new natural-gas service stations, converting old ones to natural gas, and adding new natural-gas pumps to old ones would help revive our construction industry nationwide.
    d. Converting existing cars and trucks from gasoline to natural gas would create a cottage industry of small businesses, with non-outsourceable jobs. (It’s impossible to retrofit a vehicle on another continent.)
    e. Designing and building the necessary equipment and parts—chiefly compressors, compressed-gas tanks, regulators, fuel injectors and safety devices—would help revitalize domestic manufacturing. Ramping up conversion quickly would create numerous opportunities for small- and medium-side manufacturing businesses. Although some of this manufacturing could be outsourced, retrofitters could chose their own parts, and each manufacturer would be the best designer, most efficient manufacturer, and most attractive warrantor of original equipment for its own vehicles.
    f. The different driving ranges and slightly different characteristics of natural-gas vehicles (as compared to those burning gasoline) would prepare consumers for a later and more gradual shift to electric cars.
4. Reducing pollution. Burning natural gas instead of gasoline creates less hydrocarbon smog and virtually no particulate emissions. As more and more cars switched to natural gas, urban pollution would decline, as would the incidence of smog-induced asthma.

5. Reducing the acceleration of global warming. Natural gas is a carbon-bearing fossil fuel. Its wider use will accelerate the already alarming growth rate of atmospheric carbon dioxide, and therefore of climate change.

But burning natural gas creates less carbon than burning oil that must be refined, let alone extracted by heating tar sands or shale. And it creates only half the carbon emissions of burning coal. So it appears to be the best alternative in the short-to-medium term.

Our table of cost per mile driven for various forms of energy shows why. Of all the types of energy listed, only nuclear and solar power are comparable to natural gas at industrial prices. Both will take time—probably at least a decade—to roll out in sufficient quantity nationwide.

In the meantime, electric cars will “burn” a lot of coal, because coal produces the plurality of of our nation’s electricity. For 2010, for example, coal produced 1,847,290 out of a total of 4,125,060 gigawatt-hours, or 45%.

Coal is not only the worst source, by far, of climate-changing carbon. It also produces acid rain, mercury pollution, asthma-causing particulate pollution and hydrocarbon smog. From an environmental perspective, reducing and eventually eliminating its use as rapidly as possible is job one.

Increasing the use of electricity for transportation before we can wean our electricity grid from coal would do the opposite. Converting our electric-power plants and small-vehicle fleet to natural gas first would prevent us from backsliding as carbon-spewing coal power replaced gasoline for transportation.

For small vehicles, converting to natural gas will be an easy transition, for two reasons. First, the capital costs of switching from gasoline to natural gas are far lower than those for switching from gasoline to electricity. While consumers can switch from gasoline to natural gas for as low a price as $3,500, there is no practical or economical way today to convert existing gasoline cars to electricity. A consumer who wants to drive electrically has to incur the capital cost of a brand new vehicle, which, for electric cars, is now in the $30,000 range. That’s a substantial economic barrier to consumers’ acceptance of electric driving, to add to the reduced range of electric cars.

Second, natural-gas driving is here now. Cottage industries are doing vehicle conversions as I write these words. They can expand virally, facilitating rapid, nationwide adoption of natural gas as a transportation fuel.

In contrast, clean nationwide adoption of electric driving will require a reduction in the capital cost of electric cars, conversion of power generation nationwide from coal to solar, wind and nuclear power, and perhaps also upgrading our nation’s power grid for the substantial additional burden of driving on electricity. All that will take time.

There are a few regions in which environmentally benign hydroelectric and/or nuclear electricity already predominate over coal. By and large, they tend to be regions with more economically upscale consumers able to afford electric cars. In those few lucky regions, there is no reason why the electricity “solution”—which has higher capital cost but also offers significant savings over gasoline—can’t roll out simultaneously with conversions to natural gas. Converting from coal to natural gas for electric power everywhere also can help. But practically speaking, the chief means of ameliorating global warming in the short and medium term has to be natural gas.

A natural-gas small-vehicle fleet is not ideal. Ideal would be electric light vehicles running on solar, wind or nuclear power, and long-haul heavy transport running on natural gas.

But we have to be realistic. As always, American consumers will demand the convenience of individual vehicles. Any policy that tries to stop them will fail in the marketplace and encounter heavy political opposition. So we have to assume that cars and light trucks will continue to run. And if they don’t run on electricity, they will have to burn something.

If we do nothing, they’ll burn more and more expensive oil, which will come from more and more energy-inefficient and carbon-polluting sources like tar sands. If we convert to electric vehicles without switching to clean electricity first, nearly half of our small-vehicle fleet will run on coal, the most disastrously polluting fuel known.

So for practically achievable reductions in pollution and the acceleration of global warming, switching to natural gas for both electric power and transportation is the best of a series of not-so-good alternatives. And, as we will see, that “solution” will predominate only for a few decades, as we convert to even less polluting sources of power.

6. Reducing accidental environmental damage. Apart from global warming, which natural gas will improve but not enough, natural gas will vastly improve the environmental consequences of our transportation system in other respects. It will:
    a. Reduce, if not eliminate, environmental damage caused by pipeline leaks, shipping accidents and other environmental spills. (In every spill, natural gas would be better because: (1) it dissipates naturally, without “cleanup,” even if liquified; (2) its impact on wildlife would be temporary and localized at the spill site; and (3) its natural dissipation would make repairs and reconstruction of damaged pipelines and vessels easier, quicker and less expensive.)
    b. Reduce the environmental impact of extraction. (Even natural gas “fracking” requires only drilling, i.e., “pinprick” holes, compared to the vast strip-mining needed to exploit tar sands and shale oil. While gas fracking can release methane—a potent greenhouse gas—and pollute water supplies, it does not typically ruin vast areas of land, as “advanced” oil-recovery techniques undoubtedly will do.)
* * *


Natural gas thus has impressive advantages over oil, let alone coal. But nothing is perfect. There are two drawbacks, although neither seems important enough to preclude switching to natural gas from coal and gasoline.

7. “Fracking” issues. The first drawback of natural gas already has received considerable publicity. The fracturing or “fracking” process can pollute water supplies, sicken residents near extraction sites, cause drilling “mini-quakes,” and cancel natural gas’ modest global-warming advantage by releasing methane into the atmosphere.

The current “fracking” craze is what gave us natural gas’ low prices, by increasing both supplies and reserves of natural gas dramatically. Without fracking, switching of light transportation to natural gas wouldn’t be worth while, because our natural-gas reserves wouldn’t last long enough. So fracking and switching are two sides of the same coin.

The current controversies over its unintended consequences suggest that fracking is neither riskless nor costless. But if you drill down (pardon the expression) into the controversies, they seem to arise mostly from “wildcat” drilling, i.e., drilling by less responsible energy producers, in sensitive areas, in a rush to make money ASAP. Furthermore, each wildcatter seems to have a “proprietary” extraction technique, using unknown and often carcinogenic chemicals that, because their identity is secret, scare the hell out of nearby residents.

At the moment, these problems seem easily solvable by obvious means. We can: (1) require all drillers to disclose what they inject into the ground, (2) drill more carefully, (3) rapidly settle on a set of standard “best practices,” which accumulating national experience should make clear, and (4) compensate victims of poor drilling practices, instead of stonewalling and compensating lawyers. Most of all, we can (5) drill first in gas fields far from inhabited areas and save the more sensitive spots for drilling later, when safe technology and practices will be more widely known and rising gas prices will encourage their use.

The same frenzy of wildcatting that drove the oil industry a century ago is inappropriate today, in a much more heavily populated nation with infinitely greater environmental sensitivity. If the more responsible and better-financed energy producers can’t contain the worst excesses of wildcatting with persuasion, economic pressure and buy-outs, the government will have to step in with regulation. But industry self-policing is vastly preferable, if only because it will work much faster than any political “solution” in our broken government.

With so much money and so many policy objectives at stake, you would think industry would clean up its act, and pronto. But whichever path improvement in drilling takes, a slow pace seems unlikely to undermine the compelling advantages of natural gas discussed above.

8. Limited reserves. What will, in the medium term, disturb the vast benefits of natural gas is its second drawback. All good things must come to an end.

The fracking craze made (and makes) switching to natural gas possible, by vastly increasing our nation’s usable reserves of that fuel. But natural gas is not a long-term solution to our energy problems. Some day in the medium term, even fracked reserves will run out.

It’s not too hard to calculate when that day will come. Let’s start with Daniel Yergin’s optimistic estimate, from last April, of total US natural-gas reserves, including fracked gas, at 2.5 quadrillion cubic feet. For good measure let’s add recent estimates of Alaska’s shale gas—80 trillion cubic feet—for a total of 2.58 quadrillion cubic feet.

In order to compare reserves with “burn rates,” we first convert that number into BTU, the standard unit for consumption. Since 1 cubic foot of natural gas produces 1,025 BTU, our generous estimate of total US natural-gas energy reserves would provide 2.58 x 1.025 = 2.64 x 10**18 BTU, or 2,640 quadrillion BTU.

Our own Energy Information Administration publishes comprehensive records and projections of US consumption rates for various sources of energy, all in quadrillion BTU. Based on its projected figures for this year (2012), the following table shows how long our entire natural-gas reserves will last, depending on what we use them for:

Working Life of All US Natural-Gas Reserves, Including “Fracked” Gas, Based on 2012 Consumption Rates

Use(s) of Natural GasTotal “Burn Rate”
(Quadrillion BTU per year)
Resulting Life of Reserves
(years)
Present Uses (mostly
heating and industry)
22.61117
Present Uses and Replacing Electric Coal41.1964
Present Uses and
Replacing Transportation Oil
49.7553
Present Uses and Replacing
Both Electric Coal and Transportation Oil
68.3339

Conclusions. Thirty-nine years is not a lot of time. If we sell half our natural-gas production abroad, which we might do in a global market, we will have less than two decades. But it’s also possible that we might import some net gas from Canada (via pipeline) or from elsewhere in liquified form. So we probably have from two to four decades to make more sustainable solutions work.

That’s not a lot of leeway at the lower end. But it’s enough. And it will be an easy interim transition for both electric power and transportation.

For electric power, all we have to do is build natural-gas power plants, which are much simpler, smaller and cheaper than coal-fired ones, let alone nuclear plants. Gas plants also require less restrictive environmental regulation and provoke infinitely less NIMBY opposition. By building them to much smaller scale than coal plants, we can take better advantage of local natural-gas resources and put power sources closer to users, cutting transmission and distribution costs.

If engineers are clever, they can design the same steam turbines and generators for natural-gas plants to work later with solar thermal and safe nuclear power sources. Then only the burners, stacks and substructure of natural-gas plants need be depreciated when natural gas runs out or becomes too expensive with declining supply (like oil now!). Turbines and electric generators can be moved.

For transportation, all we have to do is change the fuel tanks, fuel injectors and some safety systems on our current vehicles. The rest of the vehicles can stay pretty much as is, although diesel engines may require some modification, turbine-style injectors, or higher-pressure tanks. The huge price advantage of natural gas over oil products will drive the transition without substantial government intervention in markets.

It’s kind of sad to think of a precious natural resource, which took Nature tens of millions of years to create, being all used up in an energy orgy a few decades long. But even that scenario is millions of times better than using coal instead. Our cities would become unlivable, like Beijing on a bad day, and our planet would heat up to a point where no one my age today would recognize it. And of course natural gas is much better than oil, whose increasing price will soon kill any chance at sustained economic recovery. (See 1, 2 and 3 [begin at “can foresee”)].)

If we switch to natural gas, global warming will continue to increase, but at a lower rate, and none of these shorter-term problems will arise. Before our fracked gas runs out, we should have more sustainable solutions in place, with far fewer carbon emissions.

But we have to start the transitions right now, to both natural gas and more sustainable solutions. Even as we convert to natural gas, we must continue building solar and wind farms, safe nuclear plants, and a smart grid to use them all.

As we walk and chew gum at the same time, natural-gas plants will serve as natural complements to solar and wind power. They will solve the intermittency or “baseload”problem simply and cheaply, without the horrendous pollution of coal or the expense, delay and risk of nuclear power. In fact, they can solve it better and cheaper because they can ramp up and cut down output faster and more easily.

Using natural gas in tandem with sun and wind will have another signal advantage. Every kilowatt-hour of electricity generated by wind and sun will save an equivalent amount of natural gas, thereby extending the life of our reserves and the transition deadline.

Solar, wind and natural-gas plants are also natural complements for yet another reason: they all have the same advantage of scalability. We can make them big or small, almost at will, to work together, to take advantage of local conditions, and to reduce transmission and distribution costs.

So natural-gas plants will serve as adjuncts to solar and wind power until we develop more durable solutions to intermittency, such as storing, pipelining and trading in electrolyzed hydrogen made with power from the sun and wind.

All these promises are impressive. But the chief reasons for using natural gas as a transition fuel now are economic. It will reduce the rising pressure to continue banging our heads against the oil-supply wall. It will cut transportation and power costs substantially. It will save us from ruining our cities and planet by returning to a nineteenth-century dirty fuel. And, as we switch to electric cars, it will allow us to ramp up our total electricity capacity much more quickly than nuclear or coal power and with much, much less pollution than coal.

So from the point of view of price, clean air, economic growth, energy independence, global warming, a smooth transition to better solutions, and consumer happiness—without which no energy policy is viable politically—it looks like full speed ahead for natural gas, with due care in “fracking.”

Table Notes:

1. Reserve lives are rounded to the nearest year. “Burn rates” are shown to four significant figures only to facilitate checking my sources.

2. The natural gas burn rate for 2012 is 22.61 quadrillion BTU, taken from this table, under “Total Energy Consumption.”

3. The “Electric Coal” burn rate for 2012 is 18.58 quadrillion BTU, taken from this table, under “Electric Power, Steam Coal.”

4. The “Oil for Transportation” burn rate for 2012 is 27.14 quadrillion BTU, taken from this table, under “Energy Use by Mode, Total,” but excluding lubricants and pipeline fuel.

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