Natural gas: A threat to biofuels?

Dan Piller  • Posted: Wednesday, November 16, 2011

3:39 PM, Nov. 15, 2011

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Beginning next month, the few motorists who own natural gas-powered autos will be able to fuel them at Iowa’s first natural gas pump at the Krueger’s BP on Highway 141 northwest of Des Moines.

The fuel is expected to sell for the equivalent of about $2 per gallon and cars will get about the same mileage as with refined gasoline.

Natural gas is now pushed as a transportation fuel, beyond its traditional role as a home heating source, because of expanded domestic production. Boosters call expanded domestic supplies of gas a “game changer” for U.S. energy.

But a changed game could pose a threat to biofuels such as ethanol and biodiesel, which now are a $15 billion-plus industry in Iowa.

While the next generation of biofuels is still unfinished in the laboratory, natural gas comes complete with longstanding production and transmission networks.

Energy analyst Amy Meyers Jaffe of Rice University in Houston has written that biofuels “don’t have commercial technology now.”

The American energy boom, says Jaffe, could endanger green-energy initiatives.

A natural gas-powered Noble, made in China and planned to sell for about $16,000, was on display at Gene Gabus’ Des Moines Imports dealership on Merle Hay Road in late October. The Noble joins the 2012 Honda Natural Gas Civic as the early natural gas-fueled entries on U.S. highways.

“This will be a fuel that comes from domestic sources, has the same mileage as conventional gasoline and will sell for the equivalent of $2 per gallon or less,” said James Huyser, director of business development for NatGas of Ankeny, a natural gas distributor that is helping to shepherd the introduction of natural gas into the Iowa automotive market.

Don Krueger, a 40-year veteran of gasoline retailing, said Iowa’s first natural gas pump should be installed for use next month at his BP-branded station and convenience store located on Iowa Highway 141 just north of I-235 northwest of Des Moines.

Eventually, natural gas-powered car owners could be able to fill their vehicles from their home gas lines, Huyser said.

An interested visitor at the Noble showing was Randy Olson, executive director of the Iowa Biodiesel Board, who said he was there to “listen and learn” about the natural gas car.

Olson said “it’s too early to tell” if natural gas represents a threat to biodiesel, but natural gas has clearly taken aim at the truck market in which soybean and animal tallow-based biodiesel has struggled to gain a foothold.

The U.S. trucking industry is looking beyond biodiesel for alternatives to high-priced diesel fuel. The Ruan companies of Des Moines are experimenting with natural gas-powered trucks.

Texas energy mogul T. Boone Pickens is not only talking a big game about natural gas, but also putting his money where his mouth is. Pickens is funding a venture to put natural gas dispensers at Pilot/Flying J truck stops in Iowa and elsewhere along the Interstate Highway system within the next 18 months.

The longterm question is whether any gains by natural gas come at the expense of biofuels. Corn ethanol now has 10 percent of the U.S. motor fuel transportation market, mostly because it was the only game in town in the middle of the last decade when high oil and gasoline prices caused a demand for alternative energy sources.

While the U.S. faced what appeared to be shortages of crude oil and natural gas just a half-decade ago, domestic production of both natural gas and crude oil are on the upswing in the U.S. for the first time in almost four decades.

Natural gas production in the U.S. is increasing at an annual rate of 6-7 percent thanks to big new fields in Texas, Arkansas, Lousiana and even more improbably, Ohio, Pennsylvania and West Virginia.

The U.S. Energy Information Agency has estimated the new shale reserves could amount to more than a 100-year supply of a fuel source entirely within U.S. borders, a figure that not even the most visionary natural gas booster would have considered likely even a decade ago.

Quietly, perhaps because the boom is happening more in North Dakota rather than Texas, domestic production of crude oil has begun to increase for the first time in more than three decades.

The huge new Bakken Field has quadrupled its production to 440,000 barrels per day since 2006, becoming the new hot “play” in oil lingo. In the last half-decade, North Dakota has surpassed Oklahoma and Louisiana in oil production and now stands along with California and Alaska behind U.S. production leader Texas.

The use of the same technologies of horizontal drilling and hydraulic fracturing to coax natural gas from previously impregnable shale rock are being used for oil production as well. In August of this year, the 171 million barrels of oil produced in the Lower 48 states was 17.6 percent greater than in the same month as recently as 2008.

A milestone of sorts was reached in August when the Baker Hughes weekly drilling rig count showed 1,003 rigs drilling for crude oil in the U.S., the first time the oil rig count had exceeded 1,000 since 1987.

Along the way the dependence of the U.S. on imported crude oil has dropped from around 60 percent three years ago to 48 percent this year, according to the U.S Department of Energy. Iowa’s biggest oil supplier is not Saudi Arabia or Venezuela, but Canada.

While crude oil and natural gas are beginning to put up some good numbers, the biofuels industry is on the defensive from a Congress and a public impatient to see exotic new non-corn-fed biofuels they’ve been promised for the last decade.

In Washington, lawmakers are considering the removal of tax deductions and even the once-sacred renewable fuels mandates that require oil companies to blend ethanol and biodiesel with conventional petroleum.

Biofuels advocates argue that natural gas has its drawbacks.

Robert Brown, who directs research at Iowa State University’s biofuels institute, said research on economics, environmental impact and sustainability made natural gas “the clear winner” among existing and potential new transportation fuels.

But Brown issues a cautionary word that could resonante with Iowans as the winter chill approaches.

“Do we want to begin to reserve a large portion of what has traditionally been a home heating fuel for transportation use?” Brown asks.

In a presentation slide titled “What is Boone Pickens Thinking?” that chides the Texas gas booster, Brown also raises an issue about natural gas that has troubled utility executives like MidAmerican Energy president Bill Fehrman: For all its abundant supply, the price of natural gas has tended to spike and plunge wildly in the last decade.

Since the year 2000, consumers of natural gas have paid anywhere between $2.50 and $14 per thousand cubic feet for natural gas, a price volatility that even crude oil can’t match.

The biofuels complex has the environmental movement on its side.

In late October the executive director of the Sierra Club, Michael Brune, warned President Barack Obama that approval of the Keystone Pipeline could cause environmental support for the president to wither in reelection campaign next year. The pipeline would bring oil from the Canadian tar sands into the U.S. Midwest, and most likely into Iowa gas tanks.

Nebraska has emerged as an unlikely energy/environmental battleground. The state’s conservative Republican governor called a special session of the legislature to figure out ways to reroute the Keystone Pipeline around Nebraska’s underground Ogallala Aquifer.

Brune made it clear that the Sierra Club “is opposed to expanded use of all fossil fuels because of the threat they pose for climate change.”

Natural gas isn’t getting off easy, either. Opponents have focused on hydraulic fracturing, or high-energy water injections into underground rock formations to release tight oil and gas, with claims that the practice threatens water supplies.

One showing of a “Sixty Minutes” segment featuring a blue natural gas flame coming out of a homeowners’ kitchen sink from an improperly cemented Pennsylvania well has set off a round of media investigations, legislative reviews and in New York, temporary suspension of natural gas drilling while the safety of fracturing can be determined.