Sunday, August 30, 2009

Money Well Spent for CNG Vehicles

The DOE awarded almost $300 million in grants this week to promote non-petroleum fuels in transportation. There were 25 grants to 24 different entities nationwide, because South Coast Air Management District received two separate grants. SCAQMD is the air pollution control district in Southern California with jurisdiction including Los Angeles. The combined effect of the program is to eliminate 38 million gallons per year of petroleum products consumption, in favor of more consumption of natural gas and bio-fuels. However, some of the vehicles will burn propane, which is produced both from petroleum and as a co-product of natural gas.

The savings of 38 million gallons per year sounds impressive, but place in context of total petroleum demand, it is barely a drop in the ocean. 38 million gallons per year is the same as 2,523 barrels per day. The U.S. consumes approximately 11 million barrels per day. Still, this is a move in the right direction.

As T. Boone Pickens advocates, more wind power frees up natural gas that would have been burned to produce that power. The natural gas is then available for vehicle consumption. Furthermore, every barrel of gasoline replaced by natural gas means that we import two fewer barrels of oil. When diesel fuel is replaced by natural gas, we import three fewer barrels of oil. This is somewhat simplified, but is not far off the mark.

The interesting thing is the cost effectiveness of these programs. The money will be spent on creating refueling infrastructure, plus purchasing trucks and other vehicles that will consume the alternative fuels. The DOE money represents approximately $7 .70 per gallon, one-time cost. Looked at another way, that is $118,000 per barrel per day. A new refinery costs approximately $28,000 per barrel per day, so DOE is spending roughly 4 times what a new refinery would cost on a per-barrel basis.

It could be worse. The federal government is known to spend money on some ridiculously frivolous things; at least this time the money is spent on reducing oil imports, and reducing transportation fuel costs by consuming natural gas. The bio-fuel and electric hybrid portion, though, will increase transportation fuel costs.

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