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Natural gas is gaining traction but not without scrutiny

By Jeff Berman, Group News Editor
June 29, 2011

Even a casual media observer likely knows that natural gas is high up on the list of “topic du jour” lately.

It is not all that surprising, considering that the price of diesel fuel—while down in recent weeks—is still about a dollar more per gallon than it was a year ago.

As I have mentioned in this space before, when gas prices go up we panic and when they go down, we more or less act like it never happened. It is human nature, I guess.

In any event, the merits of natural gas from a price and efficiency standpoint have been touched upon in the past on this site and in the pages of LM. Look no further than the recent keynote address made by T. Boone Pickens at last month’s Transplace Shipper Symposium.

Pickens maintains that switching to natural gas as a transportation fuel and for power generation can replace more than one-third of U.S. foreign oil imports in ten years.

And as our coverage of his Transplace speech noted, a one-third reduction is no small sum, especially when considering that the U.S. imports oil from OPEC at a cost of roughly $1 billion per day or about $1 trillion per year. And of that $1 trillion annual tally, the U.S. is on the hook for 25 percent of that bill on a daily basis, said Pickens.

“Out of the 20 billion barrels we use per day, we produce seven and import 13,” said Pickens. “There are 270 million vehicles in America, and we are importing 65 percent of all oil we use, with 70 percent of all the oil produced goes to transportation. Washington does not understand the problem we have here. If we go ten more years and do nothing but just import more oil, we will be importing 75 percent of all oil, with the price per gallon of diesel and oil barrels going to $300-to-$400.”

Look at the quote above again: 70 percent of all the oil produced goes to transportation. When I heard Pickens say that, all I could think was “wow—that’s a lot.”
Based on news from Ryder this week, it is clear that I am not alone with that line of thinking.

The freight transportation and logistics services provider said that it has secured lease agreements for 87 heavy-duty natural gas trucks for “customers looking to take advantage of the fuel cost savings and environmental benefits of alternative fuel powered vehicles.”

Ryder also heralded its 65 natural gas vehicles that are part of its Southern California-based natural gas fleet through the Ryder/San Bernardino Associated Governments (SANBAG) Natural Gas Vehicle project, which it said is part of a $38.7 million joint public/private partnership between the U.S. Department of Energy, the California Energy Commission, San Bernardino Associated Governments, Southern California Association of Governments, and Ryder.

This effort is comprised of 202 natural gas vehicles available for lease or rent, three strategically located natural gas compliant maintenance shops in Rancho Dominguez, Orange, and Fontana, and two fueling stations.  Ryder took delivery of 70 vehicles in May and is expected to have the balance of the full 202 SANBAG natural gas vehicle order in its fleet by the end of 2011.

Back to Pickens for a second. When we hear that natural gas is a legitimate difference maker, or at least has the potential to be, there appears to be sound data to support that claim.

If the 8 million class 8 vehicles on the road today in the U.S. switched from diesel to natural gas, that would represent a reduction of 2.5 million barrels in imported oil per day and cut down on the 35 billion gallons of diesel consumed per day by the trucking industry, with a $1-$2 dollar per gallon decrease, too, according to Pickens.

But as usual, there is more to this than meets the eye.

A New York Times article published earlier this week notes that support for natural gas runs deep among both Republicans and Democrats, citing President Obama as saying “the potential for natural gas is enormous.”

Other positive takeaways for natural gas include support from the Department of Energy’s Energy Information Administration, which, according to the NYT report, has steadily increased its estimates of domestic supplies of natural gas, and investors and the oil and gas industry have repeated them widely to make their case about a prosperous future.

The article then goes in a less rosy direction, though, explaining that there is a heavy amount of skepticism when it comes to the promise and potential of natural gas. One of the main takeaways comes from internal e-mails from EIA officials in the NYT report that indicate industry estimates might overstate the amount of natural gas companies can affordably get out of the ground. Other concerns pointed out include how long natural gas wells will be productive and the high prices companies will pay to lease mineral rights, and the unpredictability of shale gas drilling.

As you can see, the jury on natural gas is still out. There appear to be both causes for optimism and concern. We are still a diesel and oil-driven nation, and that will not change anytime soon. And while there are real concerns about natural gas, which are mentioned above, it is clear that more due diligence, research, and a lot more money is required when we talk about alternative energy sources.

This may be viewed as a starting point more than anything else, but it is better than nothing.

About the Author

Jeff Berman headshot
Jeff Berman
Group News Editor

Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling, and Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and materials handling sectors on a daily basis. .(JavaScript must be enabled to view this email address).


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