Thursday, September 6, 2012

Gas Fuels More Growth

While the biggest immediate market for natural gas is to gain market share from coal in power production (see Dominion's announcement that it will convert its aging Bremo coal-fired power station to natural gas), new industrial uses are popping up all around.  Yesterday came the announcement from Egyptian company Orascom Construction Industries that it will build a $1.4 billion fertilizer plant in Iowa that will use natural gas.  The plant should be completed in 2015.

This follows previous announcements from Dow and Shell that they are building large scale manufacturing plants in Texas and Pennsylvania, respectively, based on natural gas.  While much is made of the low price of gas, I think a more important factor is the increased, predictable supply of natural gas that has decreased price volatility of the commodity and will allow companies to plan and hedge costs well into the future without the wild swings seen in the past.


Anonymous said...

I was reflecting on this post and it seems profound that businesses are dropping other fuels like they are hot and picking up natural gas. Business operate based on the bottom line and little else. Simplistic right? Contrast this with our government's refusal to offer any true benefit for converting to cng. In fact it is cost prohibitive in most cases unless you drive lots of miles and keep the car for a long time. So we, as voters, keep spending about 2 dollars more per gallon for the same thing. Where is the bottom line there?

Robert Hutchinson said...

Ha! What ARE you? A long-term thinker? We don't need that kind of talk around here!

Kidding aside, it is hard to find a lot of support for any kind of new energy subsidy (or any kind subsidy or spending) these days in Washington. It's sort of a shame. I realize we have debt concerns, but we also have the opportunity to make investments now that will benefit us in the short term (jobs, spending, etc.) and the long term (saving money, stronger infrastructure, etc.). Investments in energy transformations and investment in our crumbling physical infrastructure come to mind immediately.

Concerning natural gas for transportation, the real benefit comes from fleet vehicles and long haul transportation that run predictable routes and chew up lots of miles. I don't see a lot of political support for consumer CNG. That will have to be more of a market based solution, but if the proposed GE home fueling station that would cost around $500 comes to fruition, that will move the proverbial ball down the field in a hurry (

And, lest we forget, there are a bunch of companies out there making a lot of money off the consumer spending that extra $2/gallon to buy oil-based gasoline. CNG subsidies face an strong headwind.