Natural Gas is the Transitional Fuel to the Green Future

James Woolsey, former director of the CIA, comments in the WSJ today on how to break our dependence on foreign oil. It is a sensible approach, which begins with three uncomfortable factoids:

  • If oil gushes to $125/barrel, OPEC will control half the world’s wealth
  • If we impose a carbon tax of (say) $20/tonne, it will only raise gas prices by 20c
  • If we “drill baby drill”, it helps save $1B/day of imports, but cannot close the gap

Something else is required, and besides improvements to internal combustion engines, requiring new cars to be flex-fuel, and promoting adoption of electric cars, he most importantly recommends rotating the fleet of heavy tricks and buses to natural gas. Renewables are not yet proven as an economical and scalable solution to energy independence. Nat gas is the transitional fuel.

Fracking has led to some huge natural gas finds in the US. (Fracking is the name for deep fracturing of shale, unleashing oil and gas trapped below.) We now have found large enough fields to potentially power the US for the next century. Besides the obvious places in TX, AK and LA, the Bakken formation in the Dakotas has huge potential, and the Marcellus formation under WV and PA is a super-giant which appears to have the second largest reserves globally. You can read more in this downloadable PDF.

Ironically, the recent discoveries have trashed the price of gas to make it 21 times cheaper than oil (comparing a barrel at $85 to a mcf of gas at $4) – and some gas producers are going to the “dark side” and now exploring for oil. Still the Casey Report notes that when seven US nukes were shut down (temporarily) last week, nat gas spiked up 20%, so there is potential upside in gas as the summer energy season comes.

(note: an MCF of gas has 1.03 MMBTU of energy, so $/mcf is very close to $/btu)

It is a curious story how we missed the Marcellus field in the places where oil was first discovered. It is also not clear how much of the potential is actually recoverable. The discovery came from fracking, a process which is stirring political resistance in Washington.

Nat gas has a number of wonderful properties, including easy distribution and relatively clean burning (especially when compared with coal or oil). It solves a huge problem in rotating the fleet from gasoline to electric vehicles:

  • It can power large trucks in a much cleaner fashion than diesel (trucks have the wrong weight ratio to be electrified)
  • It can (potentially) power electric cars by being converted to hydrogen and filling a fuel cell, extending the range and removing the need for a gasoline engine range extender

The EPA Co2 regs may be the next shoe to drop, substituting for fiat what could not be achieved via open politics. The EPA imposed new rules on cars, but their upcoming rules on power plants remain murky. It would be a supreme irony if we finally found the transitional fuel to move off imported oil just as political winds shifted against it, deepening our dependence as we chase unproven renewable methods of energy production.

About Duncan Davidson 228 Articles

Affiliation: NetService Ventures

Duncan is an advisor to NetService Ventures, where he focuses on digital media and the mobile Internet.

Previously he was at four start-ups: Xumii, a mobile social service based on a Social Addressbook; SkyPilot Networks, the performance leader of wireless mesh systems for last-mile access, where he was the founding CEO; Covad Communications (Amex: DVW, $9B market cap at the peak), the leading independent DSL access provider, where he was the founding Chairman; InterTrust Technologies ($9B market cap at the peak), the pioneer in digital rights management technologies, now owned by Sony and Philips, where he was SVP Business Development and the pitchman for the IPO.

Before these ventures, Duncan was a partner at Cambridge Venture Partners, an early-stage venture firm, and managing partner of Gemini McKenna, a joint venture between Regis McKenna's marketing firm and Gemini Consulting, the global management consulting arm of Cap Gemini.

He serves on the board or is an adviser to Aggregate Knowledge (content discovery), Livescribe (digital pen), AllVoices (citizen journalism), Xumii (mobile social addressbook), Verismo (Internet settop box), and Widevine (DRM for IPTV).

Visit: Duncan Davidson's Blogs

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