I wanted to see what the latest thinking was on the future of natural gas as a transportation fuel and looked to the new Energy Information Administration’s latest Energy Outlook that was released Dec 16th. This 30 year forecast is updated annually to factor in new information and trends and certainly the use of natural gas in transportation has evolved a lot just in this past year.
With the launch of a new heavy duty natural gas engine from Cummins that is now going mainstream the demand for both Compressed Natural Gas (CNG) and Liquefied Natural Gas (LNG) is poised to grow. The question is how much and how fast?
Well looking first at the next five years we can see that the existing use in Automotive and School Bus applications is fairly flat. The growth is expected to be Transit Bus use where we have a proven workhorse engine, and in Heavy Duty Trucking. Over all sectors the EIA expects the use of Natural Gas as a transportation fuel to grow 31% over the next 5 years to almost 600 million gallons. This seems conservative given the amount of demand I have seen developing with our customers, and I would love to hear your best guess.
Now looking 30 years out may not be much better than asking your crystal ball what is going to happen, but it is interesting to look at where the curve starts to bend north in a big way and what drives that growth. From that perspective we can see that the real impact does start to hit more in 10 years than in 5 and that is comes from the scale up of those Heavy Duty engines.
So if demand is going to go from roughly 400 million gallons now to the equivalent of over 8 billion gallons in 2040 wouldn’t that destroy the price advantage of natural gas compared with gasoline and diesel? It is after all that price advantage that is driving all this.
Well I think no is the answer to that question. Even at that level of consumption the amount of natural gas we’d be consuming for transportation compared with the overall market is small. No I take that back, not small, tiny. The chart below shows just how tiny with transportation use being the small red slice. I don’t know of any major commodity market where 3% of the use is going to drive overall prices up.
Now prices could go up anyway as we are talking about a massive increase in natural gas use for power generation, but with the shale boom getting bigger every day it seems we have strong consensus that there is more than enough natural gas to go around.
This is just one man’s opinion, well I guess in this case one government agency’s opinion actually. What do you think?