Introduction
The USA is the largest oil consumer in the world, followed by Europe, Asia and other regions. It consumes an estimated 20 million barrels of oil every day, which is 50% more than the oil consumption of the whole of the European Union with 60% more population density than the USA (Knittel 2012). The oil consumption of the USA is also twice the rate of the same in China. The USA is the largest oil importer in the world, importing more than 13.5 million barrels of oil per day, thereby accounting for more than 63% of the total daily oil consumption in the country (Cavell 2012). The USA accounts for roughly 10 million barrels of oil production every day, contributing to about 10% of the global oil production (Knittel 2012). Ever since, technological development in horizontal drilling deep underground has led to large scale discoveries of natural gas reserves in the USA, there has been a round of discussion going on the probability of the natural gas to replace oil. This paper will discuss in detail the future of natural gas in the USA, touching upon the benefits of replacing natural gas with oil, the use of natural gas in the transportation industry, the challenges standing as barrier to the use of natural gas and how these barriers can be overcome.
Benefits of the Use of Natural Gas as a Replacement for Oil
As per the estimation of the U.S. Energy Information Administration, the USA has approximately 2,266 trillion cubic feet (Tcf) of dry natural gas as of 1st January, 2012 ("How much natural gas” 2012). The rate of natural gas consumption in the USA as estimated in 2012 was about 26 Tcf per year and taking this rate of consumption into account, the U.S. Energy Information Administration concludes that the USA has sufficient quantity of natural gas to last the country for about 87 years, though the actual number of years may vary depending on the quantity of natural gas consumption per year, additions to natural gas reserves, and imports and exports of the same ("How much natural gas” 2012). The discovery of this huge amount of natural gas reserves has the potential to revolutionize the use of energy by replacing oil with natural gas. The use of natural gas as a replacement of oil involves three primary benefits.
First of all, natural gas can curb the over dependence of the USA on oil by being a replacement for oil. The over dependence of the US on oil imported from the Middle East keeps the country constantly on an edge as this dependence influences the decisions of the country to engage in military conflicts and expand the size of its military. Natural gas does not involve such military-related externalities as its production is either based in Canada or domestic (Knittel 2012). Furthermore, the over dependence on oil makes the economy of the USA susceptible to macroeconomic downslides triggered by oil shocks (Knittel 2012). As per the estimation of the National Highway Traffic Safety Association (NHTSA), the increased risk of oil shock driven recession costs the country from 8 cents to 27 cents per gallon of gasoline. The use of natural gas will abate this cost (Knittel 2012).
Secondly, natural gas, when compared to oil and coal, is more environment-friendly, energy efficient and cost-effective. It produces 45% less CO2 than electricity, 50% less CO2 than coal and 30% less CO2 than oil. It generates fewer amounts of nitrogen oxides, sulfur dioxide, and particulate matter than coal and oil (Connors et al. 2010). As per the U.S. Environmental Protection Agency (EPA), the greenhouse gas emissions from compressed natural gas (CNG) vehicles is about 25% lower than gasoline run vehicles (Knittel 2012). Since the impact of natural gas on the environment is less severe, the costs associated with preventing gas equipments from causing harm to the environment are also less than other fuels. The appliances run on natural gas are more energy efficient than the ones run on other fossil fuels (Connors et al. 2010). Studies show that oil consumption leads to local pollution, which attributes to increased health care costs and mortality rate. The health care costs due to local pollution are 60 cents per gallon for diesel and 30 cents per gallon for gasoline (Knittel 2012). There is evidence that shows that light-duty vehicles run on natural gas produce less local pollution than the ones run on gasoline. In heavy-duty vehicles, the use of natural gas can reduce the negative externality by 60 cents per gallon as local pollution caused by diesel engines is significantly high (Knittel 2012). Because of all these reasons, the use of natural gas replacing the use of other fossil fuels will not only be an economical alternative, but will also be an environment-friendly alternative that will reduce the greenhouse gas emissions in the USA and health related problems caused by pollution.
Thirdly, if natural gas is used as a replacement for oil, it will add to the profits of the USA associated with the production of fossil fuels and create favorable economic opportunities for the country (Knittel 2012).
The Use of Natural Gas in the Transportation Industry
The transportation industry, which is the major user of gasoline in the USA, can be the potential future market for natural gas. In the transportation market, natural gas can replace oil in three ways.
Firstly, by converting natural gas into methanol that shares similar properties with ethanol, it can be used in internal combustion engines through slight vehicle modifications (Knittel 2012).
Secondly, compressed natural gas (CNG) can be used in light- and medium-duty vehicles that have existing engine technologies in place. Since natural gas is compressed in CNG at a pressure of about 3000 psi, it allows more storage space than the existing gasoline tanks. Therefore, without refueling, the natural gas run vehicles will be able to cover more distance than the conventional gasoline cars (Knittel 2012). An array of CNG vehicles are also bi-fuel vehicles than can run both on CNG and gasoline in the engines.
Thirdly, heavy and medium-duty vehicles can run both on CNG or liquefied natural gas (LNG). LNG requires 30% less space than CNG making it more worthwhile for cover long distance. However, keeping LNG stored for a longer period is expensive because of which LNG is used as a replacement fuel for heavy-duty vehicles that are continuously in use (Knittel 2012).
Barriers to the Use of Natural Gas
However, there are a few problems stopping the usage of natural gas in the transportation industry. Firstly, most of the vehicles produced till date come in two fuel variants only: gasoline and diesel ("U.S. Gas Production” 2011). There are very few cars and trucks that support natural gas as fuel for the engine. Change in engine fuel type is a slow process and often requires a huge capital investment for research and development before introducing such engine in the market (Paltsev et al. 2010). With a stagnant automobile market, most of the automakers are not currently poised to change their engine types to support natural gas.
Secondly, even if there are a few vehicles available to use natural gas as fuel, the main problem is the availability of fuel pumping stations. Apart from a few big cities and some specific areas in the USA, most part of the country still does not have fuel stations to supply natural gas (Knittel 2012). Finally, the cost of natural gas powered engines is presently higher than gasoline based engines. Almost all the automobile players have one or two engine variants that support natural gas, but because of their higher price, customers are not willing to buy those. Even though the fuel efficiency is higher for natural gas, still the initial higher cost of investment is stopping the customers from buying a natural gas powered car (Paltsev et al. 2010). As and when the cost of such cars and vehicles comes down in the future and the overall natural gas availability in the fuel stations increases, people will be more inclined towards using natural gas powered vehicles.
Recommendations on Overcoming the Barriers
Previous sections highlighted the present state of natural gas in the transportation industry. However, the cost implication of natural gas on an individual and on the society is another aspect that needs more detailed discussion. Presently, the cost for natural gas and oil per million British thermal unit (btu) is almost same, whereas an engine running on gasoline emits 30% more CO2 than an engine running on natural gas ("U.S. Gas Production” 2011). That means that a gasoline powered engine is polluting the environment more than natural gas. If somehow this social cost can be included in the price of gasoline, then gasoline will be 30% more costly than natural gas ("U.S. Gas Production” 2011). Unfortunately, there is no mechanism presently to include social costs into the product cost. With no price advantage and a weak network infrastructure for natural gas, it will be difficult for natural gas to replace oil anytime soon.
In order to utilize the benefit of natural gas for the society as a whole and for the transportation industry, the government needs to address the challenges creating barrier to the use of natural gas as a fuel. Firstly, taking into account the limited number of natural gas fueling stations in the USA, the government needs to set up an infrastructure for fueling the natural gas run vehicles more conveniently and cost-effectively. The government needs to encourage home refueling for CNG vehicles by pricing natural gas at efficient rates (Knittel 2012). The state utility commissions should encourage the local distribution companies to build more natural gas fueling stations. The Department of Energy must create a network of natural gas refueling stations along the interstate routes to ensure the fairness in the pricing of LNG (Knittel 2012).
The policy makers need to create a tri-fuel mandate making vehicles capable of running on gasoline, ethanol and methanol. Creating an open fuel standard policy to allow the tri-fuel mandate will provide Americans with an opportunity to diversify their fuel resources in the case of price hike of gasoline (Knittel 2012). Policymakers also need to create a level playing field by including social costs into the oil and natural gas pricing. This can be done by providing subsidy for manufacturers and customers who manufacture or use natural gas based engines. Then one of the barriers preventing the customers from buying natural gas will be removed. The gasoline powered vehicles will be available at the same price as the natural gas powered vehicles (Knittel 2012). Another way social costs can be included in the economy is through the introduction of CO2 cess tax on gasoline. This will make gasoline costlier than natural gas. The overall operational cost of running a gas powered vehicle will go up, thereby motivating the customers to buy natural gas vehicles. These two pricing options can level the playing field between oil and natural gas.
Conclusion
The USA, which is the largest oil user and oil importer in the world, has been contemplating a shift to the use of natural gas to replace oil ever since the discoveries of natural gas reserves have come to the fore. Primarily, there are three benefits of using natural gas as replacement for oil. Firstly, the use of natural gas will reduce the over dependence of the USA on oil by being its replacement. Secondly, natural gas is more environment-friendly, energy efficient and cost-effective than oil and coal. Thirdly, the use of natural gas will create favorable economic opportunities for the USA, adding to its profit. The transportation industry being the major user of gasoline in the USA can serve as a potential future market for natural gas. In the transportation industry, oil can be replaced by natural gas by converting natural gas into methanol, using CNG in light- and medium-duty vehicles, and using LNG in heavy and medium-duty vehicles. However, the problems of fewer natural gas fueling stations in the country and the lack of natural gas supportive engines stand as a barrier to the transition from oil to the natural gas. In order to utilize the benefit of natural gas, the US government and policy makers need to build the natural gas fueling infrastructure and a consortium of natural gas fueling networks to facilitate the transition. Also, policy makers sould create tri-fuel mandate and provide subsidy to the customers and manufacturers for using and manufacturing natural gas based engines. By taking these measures, the government can encourage the public to use the natural gas and make it a perfect substitute for oil.
Work Cited
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Paltsev, Sergey et al. "The Future of U.S. Natural Gas Production, Use, and Trade". MIT Joint Program on the Science and Policy of Global Change. June 2010. Web. 23 Jul 2015 <http://globalchange.mit.edu/files/document/MITJPSPGC_Rpt186.pdf>
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