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Natural Gas as Transportation Fuel? Slim Chance, Say Execs

Don't look for ExxonMobil Corp. to place any big bets on using natural gas as a transportation fuel. "We think gas as a transportation fuel has a lot of limitations," CEO Rex Tillerson told financial analysts Thursday. Auto executives speaking at CERAWeek in Houston also said they believe gas-fueled vehicles will remain a niche market.

Tillerson, who helmed the annual investor meeting at the New York Stock Exchange last week, was asked to comment about whether a viable market exists to use natural gas as a widespread transportation fuel. If the questioner was looking for a positive reply, he was wrong.

"We've done studies," Tillerson said, and he noted that the Energy Information Administration also completed a study in 2009, "with which we concur, that natural gas as a transportation fuel has never been particularly attractive."

The problem is physics, he explained.

"The density of fuel aboard a vehicle has limitations that can't compete with gasoline or biofuels...Density is a problem...To get more compressed energy on board, you have to pump to higher pressures or add bigger storage tanks...And there are limitations there with respect to the range of the vehicle, opportunities in terms of size, limitations on fueling -- not just the fact that there aren't enough refueling stations -- but to build a refueling station would cost about a million bucks."

The high cost to add compressed natural gas (CNG) stations to "mom and pop stations" wouldn't be feasible for many, Tillerson noted. "Then when you pull up, it takes a little longer than when you are putting on board a liquid fuel."

Some in the industry want CNG to be more widely used by the trucking industry. "For all the reasons I just described, you can't make the math work," said Tillerson. "I don't see why anybody would want to do that."

The American Trucking Associations last year said natural gas currently was not a viable option for most long-haul operations (see Daily GPI, Nov. 19, 2009). However, oilman and natural gas promoter T. Boone Pickens is pushing for more CNG use, part of his "Pickens Plan" to reduce U.S. dependence on foreign oil (see Daily GPI, July 9, 2008).

"CNG vehicles have been around a long time, 30-40 years," said Tillerson. "The technology itself is nothing new...There's not much to do to the basic dynamics. Where there are fleet operations -- municipal buses, taxicabs -- where the vehicles all come back to one central location in the evening and you can afford the cost and the time for refueling stations, and then there's enough fuel on board to make daily rounds, that could make sense for someone."

But there's still another hurdle, said the CEO. "The cost of converting vehicles is not insignificant...

"For all of those reasons, I don't see natural gas as a viable transportation fuel. The consumer won't be pleased with what they have to do, from an economic standpoint, there's not enough of a gain there than what people think...In the best case...there might be a 20% reduction in CO2 [carbon dioxide] emissions versus an internal combustion engine. And there's a lot of room for the internal combustion engine to get better."

Across the country in Houston at the annual IHS Cambridge Energy Research Associates (CERA) CERAWeek, energy and auto executives disagreed about whether natural gas would gain market share in the United States. While natural gas-fueled vehicles are popular in some small markets in Europe and Asia where the population is denser, the United States has huge rural areas. It's just not as doable here, said some auto and energy executives, despite Pickens' expensive public relations push.

Jeffrey Jacobs, the vice president of Chevron Technology Ventures, said gas-powered transportation works where there is a lot of infrastructure in place. The United States is diverse, he said, and unless infrastructure was mandated and built across the country, using natural gas as a transport fuel beyond commercial fleets would not work.

"Natural gas is not a good fit," said Jacobs. "We don't see a significant penetration beyond that we have now."

"We see natural gas vehicles remaining a niche market," said John Viera, who directs Ford Motor Co.'s Sustainability & Environmental Policy unit. Efficiency gains from using gas in stationary sources, such as displacing coal at power plants, are a better bet, he said.

Automakers instead are building vehicles with more efficient internal combustion engines and lighter-but-stronger chassis. Also gaining in popularity are low-emission and hydrogen vehicles.

"Let's take advantage of fuel cells," said General Motors' Britta Gross, who heads Global Energy Systems and Infrastructure Commercialization.

IHS CERA analyst Julius Pretterebner acknowledged that there are enough domestic supplies to make a case for more natural gas-fueled vehicles. However, he too pointed to the infrastructure problems.

"It would be a huge financial burden," said Pretterebner. CNG stations are four times as expensive as gasoline and diesel stations, he noted.

Apache Corp. CEO Steven Farris was more optimistic about the growth of natural gas as a transportation fuel. He told an audience at CERAWeek that his company is converting its entire fleet to natural gas. If 25% of all the vehicle fleets in the United States were converted to natural gas, 8% of U.S. greenhouse gas emissions would be reduced, he said.

"I truly believe we're going to use more natural gas," said Farris. "I believe it as an American."

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