Saturday 18 January 2020

Drive for natural-gas cars stalled by Tesla and cheap crude oil

Charging an electric car with the power cable. Stock image
Charging an electric car with the power cable. Stock image

Patrick Martin

The idea was nothing short of revolutionary: convert America's millions of trucks, buses and other commercial vehicles to run on natural gas instead of petrol and diesel.

Back in 2008, the proposal by energy magnate T Boone Pickens had some appeal. US oil production was plunging, and the world's biggest fuel-consuming country was becoming ever more dependent on foreign crude. Oil jumped to a record near $150 a barrel, while natural gas was comparatively cheap. Pickens co-founded Clean Energy Fuels to profit from the switch. The maker of natural gas filling stations was once valued at about $1.8bn.

But there was a different kind of revolution. New drilling techniques led to a boom in oil supplies from the US, and electric cars took off. Tesla, which had yet to deliver its first electric car a decade ago, now has 455,000 reservations for its Model 3 - almost 20 times the number of natural-gas vehicles on US roads as of 2015. Shares of Clean Energy Fuels are down 90pc from a 2012 peak, and the company concedes that natural gas may only be a niche market as a transportation fuel.

"I'm not sure America is set up for widespread use of passenger natural gas vehicles given all the infrastructure needed to get supplies to customers," Andrew Littlefair, Clean Energy Fuels' CEO, said.

"There are a lot of reasons it would make sense to look at that again, but I don't know that I'm ready to say that's going to happen."

Pickens, who made his first fortune as an oil wildcatter five decades ago, had high hopes for natural gas because he believed crude supplies were peaking.

But by 2011, US oil output began to surge with the shale boom.

Three years later, prices for crude, diesel and petrol were tumbling. While natural gas has become a staple for domestic power plants, supplanting coal, the prospect for cheaper alternatives made it less attractive as a vehicle fuel.

In April, the most recent month for data from the Department of Energy, liquefied natural gas sold for $2.52 per diesel-gallon-equivalent, compared with $2.55 for diesel.

That's hardly a bargain, considering Pavel Molchanov, an analyst at Raymond James Financial, estimates that trucks that run on LNG cost about $30,000 to $50,000 more than a comparable diesel rig.

Even though natural gas has remained cheap - trading at $2.948 per million British thermal units at 8am in New York on Tuesday - using it to fuel vehicles is "not something that has taken off", said Salim Morsy, an analyst at Bloomberg New Energy Finance in New York. He said while petrol and diesel are undoubtedly the cheapest in total cost of ownership as technology improves and batteries get cheaper the number of electric cars will at least double.

The number of plug-in cars in the US almost tripled between 2008 and 2015, government data show. Tesla has introduced three electric models since 2012, and other manufacturers are jumping into the market. Natural gas vehicles have seen their share of the auto market shrink. Honda discontinued a natural-gas-fueled model of the Civic in 2015.

Last year, with oil locked in a prolonged price slump, Pickens sold about four million shares of Clean Energy Fuels, which operates more than 500 natural gas filling stations.

While the company has declined in value, Tesla traded at a record high in June. (Bloomberg)

Irish Independent

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