Critique of the Pickens Plan – Part 2 (Transportation)

In Part 1, I looked at how the Pickens Plan has problems in his goal of converting natural gas electricity generation to wind and solar powered generation.  In this part, I’m going to look at the second half of his plan: using natural gas as a power source for transportation in the US to reduce reliability on foreign oil.

I have three issues with using natural gas as a fuel in transportation: economical, political and technological.

1. Political ProblemsWhile most people complain about gas prices quite heavily, the retail gasoline market is probably of the few markets today that fit the definition of a Competive Market. Illustrating this point is the fact that most retailers of gasoline make a very small profit on each gallon of gasoline, which is what economic theory would predict for a competitive market. So much that ExxonMobil doesn’t want to have anything to do with it anymore.

   So what problem do I have moving to natural gas distribution? We’re moving from a competitive market with lots of choices to a market with lots of monopolies and run at almost every part of the supply chain by government bureaucrats. Let me explain. Natural gas is lot like electricity where one company has dominion over a certain territory and controls all of the sales in the area. There are certain areas where you can choose whom you get the physical gas from but not who delivers it. That is controlled by the government. Contrast this with gasoline, where no one company has dominion over a territory (by anti-trust law) and there are many players in each market, from national brands to mom and pop stores selling generics.

   While government has involvement in the composition and selling of gas, it has very little say in the pricing of gas. This is not the case for natural gas, where local companies have their prices SET by the government. (This doesn’t apply to states that have open-choice markets, see a list here). So there would be further government involvement in the use and consumption of transportation fuel, with completely new territory of regulating the PRICE of these fuels. This will not be a positive transition for those who believe in limited government. Those who think consumers are getting shafted will welcome the change, no matter what the consequences (shortages mostly).

2. Technological Problems

   While using natural gas for propulsion is alot further along than, let say electricity, there’s still mostly infrastructure issues to be dealt with. Mostly the dearth of fueling stations, but also some safety issues. There’s a reason that natural gas has the rotten egg smell added to it. It’s a gas, and there’s the risk of explosions, which gasoline does not have. There’s a fire risk with gas, but not with natural gas. Also there’s the accident factor, which could make both filling tanks and collisions alot more… spectacular and less likely to survive in (just imagine the shrapnel). I’d imagine that the self-serve natural gas station may start off being the case, but is one or two high-profile accidents from making natural gas like gasoline in New Jersey and Oregon. Which will only serve to increase costs, both from wasted time and wasted money.

   Finally, there’s the running out of natural gas issue. The idea of running out of gas is problematic but solvable. You get a gas can and you bring it to the car, problem solved. Bringing a tank of natural gas might be a bit more of a problem. I could see it being like a propane tank, but there’s connection issues and how much would be needed to get the car to the nearest filling station (again bringing up the issue of the development of distribution infrastructure, especially in rural areas).

3. Economical ProblemsOne of the benefits that Pickens uses in his commercials to tout his plan is that natural gas is cheaper than gasoline, so moving to this technology will make things cheaper. However, it’s pretty ignorant to use today’s situation and pricing to extrapolate to what things will look like when everyone is using natural gas to power their vehicles. The transportation demand is extremely weak, and even suggesting that moving all of natural gas from electricity to transport will result in no net gain in demand is kinda silly. Especially if the technology takes off.

   In addition, there’s no current incentives for developing more natural gas in the US. Natural gas is found and developed in the same way that oil is. So when Pickens says “We can’t drill our way out of this problem,” he’s making the assumption that we’re not bringing more natural gas online, in the same way that we’re not bringing more oil online. So supply remains the same… well at least in the US.

   Which brings us to the other economic criticism of Pickens’ Plan, which is the transfer of money overseas. Combining increasing demand with non-increasing supply will mean a big gaping hole in the market. Which means that prices will rise further OR other suppliers will enter the market. Like those nasty foreigners that Pickens’ complains that are causing economic ruin in the US. Currently, 16% of natural gas consumption is taken in by imports and that figure has been rising along with oil imports. Of course, most of this right now is coming from Canada, but there’s only so much we can get from Canada. So this limited supply will only go to further increase reliance on foreign sources of energy in the future.

   So what’s the end result of the Pickens’ Plan? Definitely increased prices with increased government control of energy use, especially in the transportation sector, in exchange for cleaner emissions. If that’s the trade you want, that’s fine. But don’t think of Pickens’ Plan as a panacea to all things energy related.