April 10, 2011
China Oil Use Surpassing USA In 2018?
Steve Kopits says oil demand from China will surpass that of the United in just 7 years. To translate that into practical matters: Your price for gasoline will be a lot higher. You need to use something else to power your car (natural gas in his view) or use gasoline far more efficiently.
In evidence to the US House of Representatives Subcommittee on Energy and Power's hearing, April 4th, regarding the "The American Energy Initiative", Douglas-Westwood LLP's Managing Director, .Steve Kopits, gave dire warnings about the likely development of China's future energy demand
"China's oil demand will likely keep pressure on oil prices for the indefinite future," said Kopits. "China consumes 10 million barrels of oil per day (mbpd) on global consumption of about 88 mbpd. ...it is already the second biggest consumer of oil in the world ...we see China surpassing US consumption levels around 2018."
Kopits thinks we should seriously think about shifting part of our transportation energy demand to natural gas and I agree. Western nations need to get their energy demand basically out of the way of rising Asian energy demand. When faced with a zero sum game (or worse) the wise thing to do is find another game to play. Kopits thinks we are at considerable risk of an oil price shock in 2012. The Kopits slide show (pasted into an article with commentary by Gail Tverberg) there includes his observation that compressed natural gas tanks for vehicles in the US cost too much. He suspects safety regulations or other regulations are boosting their cost far more than makes sense. Kopits shows up in the comments of econbrowser.com blog posts by James Hamilton (UCSD economist who does a lot of research on energy economics). Back in December 2010 Kopits stated that the biggest factor holding back natural gas cars is the cost of the storage tanks.
The key to natural gas vehicles, based on our research in conjunction with Columbia University, is the price of the vehicle in the showroom. CNG vehicles have to be priced the same as gasoline powered ones. The fuel station appears to be a dependent variable ("Buy it and they will build.")
So no need to worry about the refueling infrastructure. But he identifies the key issue: why do natural gas vehicles cost so much? Low production volume? Safety regulations? Other?
Kopits thinks if the price premium for natural gas vehicles declined from $10k to $1k then they'd take off without any additional government intervention needed to encourage their use.
As I mentioned yesterday, I tesitified to the House Energy and Power Subcommittee on Monday, ostensibly on China's oil and gas, but all the Congressmen had their own wish list: one from Kansas wanted a coal-fired power plant; one from California wanted a nuke; one from Massachusetts wanted a lot of wind turbines.
All of these would be closer to realization if natural gas moved into use as a transportation fuel. At present, nat gas costs about $4 / mmbtu; as a transportation fuel, it would currently be valued (at steady state consumption) at around $12 / mmbtu. Thus, nat gas would tend to migrate out of power gen and into transport, leaving behind it space for more coal, nukes, wind. Onshore wind, for example, is thought competitive around $8 / mmbtu, so it would be comfortably in the money. (Yes, this is pure Picken's Plan. Don't let the Oklahoma twang fool you: the man is a very solid analyst.)
To make this happen, we need a CNG tank which can be delivered at the showroom at a variable cost no more than $1000 (ie, a payback period of less than 2 years). The Indians can do this for $200; in the US, the differential is well over $10,000. I believe (but am not entirely sure) that the high US differential is the result of CNG tank regulation, which is geared for safety and environmental protection without consideration of market constraints. That's enough to put CNG out of the money ($3,000+), and then low vehicle sales volumes and large allocated overheads do the rest. For example, Honda typically sold 1,000 CNG GX's per year. If you had only $10 million of overhead associated with this effort (not a lot by auto industry standards), then you'd have to allocate $10,000 per car to break even.
So, that's what we need: a $1,000 CNG tank. That's it. Our research with Columbia University suggests that neither filling stations nor energy companies need to be subsidized. Nat gas vehicles must be priced in the showroom the same as their gasoline counterparts. If you have that, you'll get market acceptance.
So, for me, CNG as a transport fuel is priority No. 3 for energy policy. Shouldn't be that hard to do.
Again, why do CNG vehicles cost so much? Does any reader know the answer?
A separate topic: Will the huge price premium of oil over natural gas remain? Looks like natural gas might go up to $7/mmBTU. That'd still make it much cheaper than gasoline, especially if gasoline keeps going up in price. Even $8/mmBTU would make natural gas useful for transportation if (as I expect) oil prices go much higher in coming years.
Update: Think Saudi Arabia is going to ramp up production? Saudi oil production peaked in 1981 and Saudi domestic consumption is causing declining exports on flat production.
NG is sold by the million BTUs (~1.055GJ). Oil is sold by the barrel, and is not a uniform commodity. But, a barrel of oil ~= 6 million BTU. Right now, NG at Henry Hub is under $4.20. Oil is $110/bbl at Cushing, but $120 at Brent, so it is around 4 or 5 times as expensive as NG per BTU.
Markets, like horse races, are made out of disagreements. Although NG is not trading at $7, so if you think it is going to $7, you should buy some 2012 contracts for $4.50. http://www.cmegroup.com/trading/energy/natural-gas/natural-gas.html
Not only that, but NG is not taxed as a motor vehicle fuel. A gallon of gasoline has about 125,000 BTUs, so a million BTUs equals about eight gallons of gasoline. Gasoline carries a tax in the US of about $0.50/gal. A comparable burden would double the price of NG.
If the use of NG as a motor vehicle fuel is to be promoted, it will have to be taxed.
The real problem with NG as a motor vehicle fuel, is that it is low density. So it must be compressed or liquefied. In either compressed or liquid form it is hard to handle. CNG carries a risk of explosion that could make otherwise survivable accidents spectacularly fatal.
The good news is that NG is not hard to convert into liquid hydrocarbons that can be used in existing vehicles and with the existing fueling infrastructure. If the shale gas phenomenon is for real and it is long term, and the hydrocarbon business is allowed to do it, they will have every economic incentive to do exactly that.
The bad news is that between the existing rent seekers (e.g. ethanol) and the "visionary" politicians who think an industrial economy can be run on unicorn farts and bottled rainbows, there is little likelihood of this happening.
In Australia virtually all small commercial vehicles, such as taxis, vans and light trucks, and many private cars run on gas, and have done for years. There have been very few problems, and the cost of conversion is of the order of $1000.
EPA regulations make CNG conversion way more expensive than it should be. But states can opt out.
"CNG conversion costs are only high because of an old EPA licensing requirement, says Marc Raush:
“For an individual (or shop) to be licensed to do a conversion, the person must pay $10,000 per year, per engine type, per year of manufacture. So that if a conversion shop wanted to do conversions in 2009 for Camrys for the years 1995 to 2005, the shop owner would have to pay the government $100,000 in licensing fees. “
“Then, if he wanted to do conversions on the same models in 2010, he would have to pay the $100,000 again, even though they are the exact same models and engines that he has been licensed on already. And if there is more than one engine involved, i.e., a 6-cylinder and 8-cylinder, the cost would double.”
“Therefore, if a shop owner wanted to do 10 model years of Camrys and Corollas and Celicas, and well as Honda Accords and Civics, unless there were common engines being used in these five models the licensing cost (for just one engine per) would be a half million dollars, which would have to be paid again in 2010.“
Arthur Berman has been saying the same things for the last several years. If his analysis is correct, then where are the other scientists and analysts in the field that have been convinced of it? There's been more than enough time and evidence collected.
Science advances by contrary ideas, but it starts to look rather suspicious when no one else finds the arguments convincing.
Arthur Berman has been claiming Shale Gas is hype.
One really nice thing about cheap NG is that it makes oil from oil sand more profitable, meaning more investment, and a possible tripling of oil sands production in the next 10 years.
Of course a certain group is trying to prevent more oil sands to flow into the US from Alberta, so Alberta is thinking of building a pipeline to BC so that oil can be sold to China.
The market disagrees with berman and groppe, both of which are on a roll, being wrong for 2 years and climbing. Oil, despite being in prolonged near full storage worldwide hasn't stopped it's mythical rise while gas remains dead. The difference is the reality on future gas supplies for more than a few years. The AGA and the eco-flakes will eventually sell gas as the panacea for everything and guarantee yet another pricing disaster as they have in the past.
It seems odd how it is barnett is going on 30 years of ever increasing production and besides the sierra clubs' presence in kennedy country being the real threat to development, why berman thinks the other shale formations are so expensive and short lived.
Australia's taxi's etc. run on LPG which has an energy density per litre almost three times greater than CNG. This makes it much easier to convert a gasoline powered car to LPG than CNG as the required tank is much smaller.
Using more oil is usually a sign of inefficiency.
The problem with LPG is that propane is heavier than air. It can pool in a trunk if there is a leak. When propane taxi's became popular in my city, every once in a while a driver with a cigarette would open the trunk and blow himself up.
The shale gas revolution is real. There may be some disappointments (possibly the Haynesville) or regulatory problems (the Marcellus or fracing opposition from enviros who hate hydrocarbons), but there are thousands of trillions of cubic feet of gas that can be economically produced from the dozen or more shales so far identified (Barnett, Haynesville, Marcellus, Utica, Niobrara, Woodford, Eagleford, Montney, etc.). Its why natgas prices have fallen while oil has risen. The typical price ratio of oil to nat gas is 10:1 (the price of a bbl of oil is 10 times the price of one MMBtu of nat gas--bear in mind this is not an energy equivalency, that was given earlier). Currently its greater than 25:1 and all because of the shale revolution. BTW, you know its real when several large foreign companies (CNOOC, Total, Sasoil, Reliance, KNOOC, etc) have payed billions of $$ to partner up in shale plays.
One mistake that is being made is the wholesale price of natgas is being cited. However, your local distribution company is charging a hefty price (I would guess $1-2/MMBtu--includes taxes) to deliver gas to your home or business. Its good news/bad news. Its not as cheap (although still much cheaper than motor gasoline), but on the other hand the infrastructure is already in place. You could refuel at home, overnight, or more likely large fleets like UPS or FedEx could do so at their warehouse. Unlike electric, which will need huge infrastructure built to move electricity from those windmills to your house. In addition, natgas refueling stations can refuel an NGV very rapidly because the gas would be under pressure. However, a battery can take hours.
BTW, I'm not sure I agree that LNG is the answer. Natgas has to be cooled to -260 degrees to liquefy, that's not easy or cheap.
"One mistake that is being made is the wholesale price of natgas is being cited. "
I keep checking Utah because they have a lot of competition.
1.27 per gge is the going rate at pumps in Utah. Oklahoma is a little more expensive. Seattle is closer to 2$.
Home prices will be cheaper.
Where I live, gas is priced to homes at the wholesale rate + a fixed monthly fee.
LPG's ease of handling and lower supply means it costs a lot more than natural gas - at least in the United States. Here natural gas is half or a third or less the price of gasoline to drive the same distance.
LNG can work for long haul trucks because they can burn it before it warms up and evaporates. Any vehicle that drives hundreds of miles every day is a much better candidate for LNG.
The shale gas revolution is real? I hope so. We could stand to have a cheap transitional fuel that is moderately less convenient to use while we wait for batteries to mature.
Here's how I see energy trending over the next 5-10 years:
Natural gas begins to replace gasoline in vehicles.
Wind, solar, nuclear, geothermal, coal replace natural gas in electric power generation once vehicle usage of natural gas pushes up its price high enough.
I suspect NG will be very important for commercial freight, and unimportant for personal vehicles.
Infrastructure requirements are very different: NG compression or liquefaction is affordable for fleets, while home charging from 110 outlets is easy, and 220 isn't that hard. Further, storage tanks and limited range aren't problems for trucks.
I'm fascinated by EV/hybrid conversions, like this: http://www.xlhybrids.com/products/conversion
"Positive Return on Investment
Reduces fuel consumption by 15-30% (city driving).
Financing available, so owners see instant value.
No Impact to Your Operations
Fast conversion - installation on existing vehicles takes place in hours. Easy maintenance in your existing shop by your technicians.
Same reliability and durability as a regular vehicle - use your existing spare parts and expertise.
Low risk - our parallel hybrid conversion does not remove anything; if our system were to need maintenance, your vehicle would still operate as normal (only without the benefit of fuel savings) until a repair is made.
Warranty and service support - offered by XL Hybrids and our installation partners.
Lower Total Cost of Ownership
Fuel savings now
Higher residual value later
Impressive total return on investment"
"CNG vehicles have lower fuel efficiency than hybrid vehicles. A Civic GX, for example, averages 32 mpg, while a Civic Hybrid is rated at 43 mpg. So while a GGE of CNG is cheaper, the Civic GX needs more fuel to operate, and therefore costs per mile are actually higher."
Hybrids like the prius even with lead foot drivers still get significantly better mileage than the typical ICE, the indiana test using municipal workers still averaged in the mid forties, the mileage can easily go into the 60mpg range including highway driving if the driver is looking for high mileage results. The flexibility of changing driving habits make some hybrids less vulnerable to fuel price volatility, something ngas won't be immune to for long. It's the same illogic EV fans have that 11 cent/kwh rates won't change after the avg US household halves again or doubles its monthly use.
1.25 per gge of CNG in Utah = 3.9 cents per mile for the GX
3.45 per gallon of gas in Utah = 8.02 cents per mile for the Hybrid
CNG would have to be 2.60 per gge for the Hybrid to be cheaper.
Which link or commenter are you quoting about the Civic GX?
Yes, in Utah the natural gas cost advantage is large enough to overwhelm the efficiency advantage of the hybrid.
But what about car price? Here are 2011 Honda Civic prices including hybrid and GX prices. The cheapest hybrid is $23,950 and the GX is $25,490. So the CNG option costs about $1500 more than the hybrid option. CNG is most expensive.
It is not clear whether their trim levels are equivalent. The cheapest Civic 4 door automatic is only $16,605. So both CNG and Hybrid cost quite a bit more. Though, again, trim levels are probably different.
Hybrid has a big advantage over CNG: Easier to take longer trips away from home. But if you are just going to use a car for local trips and commuting and if you have natural gas service at home then a home compressor would let you never go to gas stations. That's an advantage for some people.
One thing I'm not clear on though: What's the electric power cost of home natural gas compression? Is that a substantial cost? Also, how often do home compressors need service and at what cost?
Many of the technologies used in hybrids would work in a NGV. They're not mutually exclusive.
Randall, from this, section 3, what they don't say is what winter would do to the results, obviously the gasoline engine would run more.
CNG filling stations in ca and ny are already $2.60/gge.
Sure, a car company could build a natural gas hybrid. But they don't do it for the same reason diesel hybrids are rare: higher total cost and declining marginal benefit.
Now, put gasoline at, say, $10 per gallon and lots of expensive combinations of technologies start to make more economic sense. But if you have to spend more to do the same thing your living standard goes down. Higher energy costs lower living standards.