The Paradox of Natural Gas: Why Obama's Energy Plan Could Be Stuck in Neutral

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The White House wants to put more natural gas powered trucks on the road. To do it, he'll have to create a whole infrastructure network and a commercial market from scratch.  

615_Truck_Refueling_Gas_Pump_Reuters.jpgReuters

If you haven't spent much of your life thinking about the future of natural gas-powered vehicles, don't worry, you're not alone. Less sexy than electric car, and in many ways even more impractical, they've never been much more than a footnote in the long debate about how to wean the United States off its oil dependence.

But these days, natural gas vehicles have a big fan in the White House. President Obama is making a hard push for them, and he spent part of a campaign stop Thursday in Las Vegas plugging his plans. His strategy focuses on providing incentives for companies with large truck fleets to buy natural gas-powered models while encouraging the construction of more fueling stations along major highways. 

There's logic to promoting natural gas at this juncture. Oil prices are high. As the world gets richer, there will be more drivers, and prices will keep going up. Meanwhile, massive shale discoveries have turned the U.S. into the world's top producer of natural gas. We've drilled for so much of the stuff that prices are now at historic lows. Why wouldn't we want to put it in our cars?

There might be some policy reasons to argue against it. Natural gas is used to generate electricity and heat homes. If it were to become a popular vehicle fuel, its price would likely rise along with consumers' utility bills. Manufacturers, which are heavy users of natural gas, would also like to keep prices of their fuel stock low. 

But there's a much more practical issue to consider: Logistics.

THE CATCH-22 OF NATURAL GAS

Right now, there isn't an infrastructure network to support the widespread adoption of natural gas powered cars or large trucks. There are two major problems standing in the way of creating one. And both of them are nasty Catch-22s. 


First, companies don't buy natural gas trucks because they're expensive. And they're expensive, in part, because not enough companies buy them. According to the Wall Street Journal, there are fewer than 1,000 natural gas-powered 18-wheeler tractors rolling in the United States. As one source told the paper, the market is so small that they are "just about being hand-built, much like a Rolls Royce." Prices won't come down until there's enough demand to jumpstart mass production. 

The second Catch-22 is that nobody wants to drive a natural gas vehicle unless there's a place to refuel it. And almost nobody wants to build a re-fueling station until there are people driving natural gas vehicles.

These problems aren't unique to natural gas. Electric cars have faced almost the exact same hurdles. But electric car makers have found creative ways to get around the infrastructure issue, either by marketing their vehicles to commuters or adding small gas engines for extended range. And some well-off car buyers are willing to pay a premium for an environmentally friendly ride. 

With natural gas, there's less wiggle room. For 18-wheelers to use it, you need fueling stations along the route, plain and simple.* And companies aren't likely pay for an expensive truck unless it makes strict economic sense. 

WHAT DO WE NEED: SUBSIDIES OR CERTAINTIES?

The administration seems to think it can overcome those obstacles with a generous round of subsidies. After receiving a $5.5 million stimulus grant, UPS purchased 48 new natural gas trucks and partnered with Clean Energy Fuels Corp., the company part-owned by billionaire natural gas advocate T. Boone Pickens, to build a refueling station between Salt Lake City and Los Angeles. On Thursday, Obama spoke at a UPS plant, where he advocated tax incentives for companies that buy natural gas trucks and promised to work with the private sector to develop five "natural gas corridors" along U.S. highways where the vehicles will be able to easily fill up their tanks. 

The president's proposal is similar to the Nat Gas Act, a pending bipartisan bill that would provide large tax breaks for investments in both natural gas trucks and fueling equipment. Cost estimates range between $5 billion and $9 billion, and Pickens, one of the legislation's most vocal public supporters, claims it would put 140,000 trucks on the road along with enough fueling stations to service them. But pulling that off would almost certainly require an incredible amount of coordination along the lines of what his company achieved with UPS. After all, how many businesses will take advantage of a tax deduction for a large capital investment based on the mere possibility that someone else will build out the infrastructure necessary to use it? Meanwhile, even with a write-off for the initial investment, gas station owners might not want a little used pump taking up real estate on their property. It sounds minor, but it's an actual concern I heard while reporting on this topic a few years ago. 

No, to make natural gas take off, both sides will need a degree of certainty. The subsidies alone won't do it. 

Obama's natural gas plan does have a second, more easily achievable half. He wants federal agencies and local governments to buy more natural gas vehicles for their fleets. Think natural gas powered post office trucks and school buses, for instance. That goal is simpler, since most government fleets are fueled at a central location, where they return each day. Install a pump, and you're good to go. 

But encouraging natural gas fleets won't influence what happens in the long-haul trucking industry. That's because post office trucks, school buses, and secret-service SUVs would run on compressed natural gas. That's a different form of fuel than the liquified natural gas cargo trucks use and requires a separate pump to deliver. Encouraging truck stops to carry liquefied natural gas will take its own separate effort. 

Cooperation between the public and private sector has become the Obama administration's big rallying cry of late. Getting natural gas trucks on the road would be a small but tough test of his ability to actually make it happen. 
__________________

*There are bi-fuel vehicles available, which can run on diesel or natural gas. But, as the Department of Energy points out, they perform worse than dedicated natural gas vehicles. 
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Jordan Weissmann is a senior associate editor at The Atlantic.

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