Rising Gas Prices Fuels Transition to Natural Gas

by Jana Ritter - Published: 2/19/2013

The International Energy Agency (IEA) released its latest Medium-Term Gas Market Report.  Although the IEA sees the growth of gas in the power sector slowing, they also cite its emergence as "a significant transportation fuel."  More so, their projection says that gas over the next five years would have "a bigger impact on oil demand than biofuels and electric cars combined," in light of the US shale gas revolution and tougher pollution rules in China.


While Italy, Pakistan and several other countries already have well-established demand for compressed natural gas (CNG) for passenger cars, only 3% of gas is currently used in transportation, globally, based on analysis from Citigroup.  The IEA is forecasting that transportation growth will consume 10% of the projected global gas production increase of roughly 20 trillion cubic feet (TCF) per year by 2018.  That's 2 TCF per year of additional natural gas demand in the transport sector, equivalent to 1 million barrels per day of diesel fuel.

Dr. Michael Gallagher of Westport Innovations made a presentation at the Energy Information Administration's annual energy conference in Washington, DC last Monday.  He made a strong case for gas in heavy-duty trucking, starting with the low cost of US natural gas compared to oil and its products. Initial growth rates in several segments look encouraging, including transit buses and new trash trucks, for which natural gas now has around half the market.  Growth in China has apparently been even faster, with LNG vehicles increasing at over 100% per year (from a small base) and natural gas refueling stations growing at 33% per year since 2003.

In the US, trucking companies can save $1-2 per diesel-equivalent-gallon in fuel costs, while new heavy-duty trucks equipped with natural-gas-compatible engines and fuel tanks cost from $50-75,000 more than conventional diesel trucks. A successful transition to gas for trucking will require a combination of fuel availability, including retail infrastructure, along with high utilization to defray those up-front costs.

The IEA also forecasts an increase in US dry natural gas production (gas with the liquids removed) from 24 TCF last year to 28 TCF by 2018.  That's an increase of a little more than 11 billion cubic feet per day (BCFD.) The IEA report also cited US LNG export projects totaling more than 5 BCFD that already have either Department of Energy approval or signed contracts.  New gas supplies won't wait around for transportation demand to emerge.

But fuel transitions take time and one of Dr. Gallagher's charts showed that it took more than 40 years for diesel to displace gasoline from heavy-duty trucks in the mid-20th century.  A lot could happen along the way to a multi-decade shift from diesel to LNG and CNG, including new cellulosic biofuels or battery breakthroughs.  For now, though, gas looks like a strong contender to provide a cleaner, cheaper fuel with sufficient energy density to be practical for long-distance trucking.