Buyer’s market

Nov. 10, 2014
Abundant NG resources provide a positive long-term price forecast

If your fleet is  considering or currently utilizing natural gas-fueled operations, your head is likely spinning from the sea of conflicting predictions on natural gas vehicle sales and long-term gas prices. Natural gas truck sales have lagged behind forecasts, causing some to question whether the industry adoption predictions were simply “hype.” Some attribute this to fueling infrastructure still being in its infancy, while others point to the high premium cost for a natural gas truck.

As the industry feverishly works to address these concerns, skeptics argue that even as headway is made, the 30% to 50% price disparity between the two fuels is simply unsustainable and that increased demand will put upward pressure on natural gas prices. What will the economics of natural gas look like in 5, 10, or 20 years with accelerated adoption in the transportation and electric generation sectors?

There is a revolution in energy resources happening in the U.S., providing a strong indication that natural gas prices will remain stable for the long term. Rapid technology advancements in hydraulic fracturing and dry well recovery processes have unlocked vast reserves of natural gas from shale formations that were previously too expensive to extract. Since the beginning of 2005, natural gas production in the U.S. has increased 30%, and the Energy Information Administration’s most recent 2014 figures show a stunning 56% projected increase in total natural gas production from 2012 to 2040.

With this abundant resource, countries around the world are likely lining up to import natural gas from the U.S., right? Not quite. Refined extraction methods are not only impacting North America’s natural gas supply; in the coming years, this technology will enable Russia, China, North Africa, Argentina, Mexico, and other countries to extract gas from 47 global shale basins. With emerging supply regions for natural gas around the world, prices will be fairly low everywhere. When nearly everyone has access to cheap gas, what’s the impetus to import ours?

The same technologies used for gas extraction are increasing oil supplies as well. Currently, oil prices are falling, down from their July peak of around $102/barrel to around $92/barrel at the start of October. While this is true, the price per barrel is still close to an all-time high. Experts generally agree that unconventional oil will stay in the ground at prices less than $80/barrel. Further, as the world’s  population climbs above 8 billion within the next 10 years, as political unrest intensifies in the Middle East, and as the slow but steady global economic recovery increases both domestic and international demand for diesel fuel, prices at the pump are unlikely to fall below today’s “lows” of about $3.75/gal.

In addition to these broad market factors, competition for low-sulfur fuels is about to markedly increase. In both North America and Europe, stricter international marine regulations governing the sulfur content of ship fuel will go into effect on Jan. 1, 2015. As fuel-hungry ships switch from heavy fuel oil and marine diesel to cleaner low-sulfur diesel, which is refined from the same crude product as ULSD, the on-road truck market may find price increases at the pump.

While no one has a crystal ball, there are clear signs that natural gas pricing will remain relatively stable for the long term, enabling natural gas pricing at the pump to remain in the $2 per diesel gallon equivalent range. While diesel prices could certainly drop, in the global marketplace, the days of $18/barrel that we saw in 1998 and $42/barrel in 2009 are likely long gone. Fleet owners can feel confident about general pricing forecasts as they begin to examine alternative fuels like CNG and LNG. From my firm’s view, natural gas-powered vehicles are here to stay.

Erik Neandross is CEO of Gladstein, Neandross & Associates (GNA), the clean transportation and energy consulting firm that organizes the Alternative Clean Transportation (ACT) Expo. Learn more at www.gladstein.org and www.actexpo.com.
 

About the Author

Erik Neandross | Contributing editor

Erik Neandross is CEO of Gladstein, Neandross & Associates (GNA), the clean transportation and energy consulting firm that organizes the Alternative Clean Transportation (ACT) Expo. Learn more at www.gladstein.org and www.actexpo.com.

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