Oil barons seem to scowl looking at the continued fall in oil
prices. Oil Prices dipped 40 cents on Jun 19 while Benchmark oil
for July delivery ebbed 85 cents to $94.53 per barrel at midday
Bangkok time in electronic trading on the New York Mercantile
The decline followed OPEC leaders' disclosure about boosting oil
output by 106,000 barrels a day in May. According to the U.S.
Department of Energy, crude oil supplies rose 1.8% year-over-year
to 394.1 million barrels last week.
On the other hand, although natural gas inventories rose 95 bcf
(billion cubic feet) to 2,347 bcf for the week ended June 7,
storage level went down 587 bcf or 20.0% from last year and 58
bcf or 2.4% from the five-year average. This clearly indicates an
increasing adoption of natgas.
Thanks to the shale gas boom in the U.S. More than 80% of the
world's natural gas is currently produced in North America and
estimates suggest that there is a sufficient domestic supply that
can last more than 150 years.
According to a study by
), nat gas is capable of substituting up to 1.8 million barrels
of oil a day or 5% of the current level of oil consumption in the
transportation sector by the end of this decade. So, could natgas
be a game changer in the energy market and overthrow the hegemony
of OPEC member states?
Natgas has been extensively used in two sectors that give rise to
a challenge to petroleum suppliers. They are automotive and
Considering the automotive industry, oil barons indeed face an
immense challenge. Being a much cheaper alternative, abundant and
environment friendly, natgas score much higher points than
traditional oil or gasoline in favor of the industry. Above all,
it reduces a nation's dependence on imported oil, which could
definitely act in favor of balance of payments, especially when
the global macro-economies have witnessed crisis after crisis.
American businessman T. Boone Pickens, through its Pickens Plan
energy policy (2008), has voted heavily against importing oil
from foreign lands. The plan proposed the conversion of vehicle
engines from gasoline to gas thereby reducing oil imports by
one-third within 10 years. Pickens believed that the plan could
curtail U.S. expenditure on oil imports by as much as $300
In this regard, a section of people has advocated using bi-fuel
engines rather than natural gas engines in vehicles as it gives
the convenience of using gasoline when natural gas is
unavailable. However, according to a U.S. Department of Energy
report, bi-fuel engines mainly suffer from lower power and
efficiency whereas engines running exclusively on nat gas can
have higher compression ratio due to its high octane rating,
leading to improved energy efficiency similar to that of a
However, using natgas as a transportation fuel has its own
downsides. Firstly, there is a lack of adequate natgas refueling
stations. A significant investment is yet to be made and
supporting infrastructure needs to be built by both the
government and corporate to address this problem.
Secondly, there are few CNG powered passenger vehicles available
in the market till date. Very few automakers, except
Honda Motor Co.
), dared to manufacture vehicles powered solely by CNG due to
underdeveloped infrastructure for natgas.
In fact, automakers prefer to focus on fleets rather than
passenger vehicles when the need to develop vehicles based on
natgas arise. This is because fleets have a particular driving
regime that makes them suitable for using natgas as
Fleets maintain a limited driving range and return to a
juncture most often in a day and that juncture could be the
refueling station. It is for this reason many large corporations
Verizon Communications Inc.
) are opting for CNG-powered fleets instead of high cost
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Thirdly, diesel-powered engines pose a major threat to adoption
of natural gas engines. However, despite being a cost-saving
option for consumers, diesel is less environment-friendly
compared to natural gas. As a result, if the natgas
infrastructure develops, this threat could be easily neutralized.
According to Edison Electric Institute, U.S. generates nearly 25%
from its electricity using shale gas. Given the abundance and
low-cost, it is highly probable that this percentage will go up
in the near future.
Unlike before, when natural gas is used only for "peaking power
plants," power companies now prefer to shift towards broader use
of nat gas because it is convenient to turn on and off compared
to coal due to its composition and help them reduce the
consumer's expenditure on power.
According to a study by Resources for the Future, the nat gas
boom could help electricity consumers save at least $70 billion
by the end of this decade. However, danger lurks as increasing
adoption of natgas by utility companies could result in a spike
in their prices.
Adoption of natgas could definitely be a game changer in the
energy market given the increasing concern about green house gas
emissions, cheap production and development of advanced engines
and technologies. Although, slow adoption and underdeveloped
infrastructure of natgas still put the oil barons on the winning
side, they could only be a temporary solace.