What are the consequences and alternatives?
From FuturePundit
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?
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.
