Businessman T. Boone Pickens and other proponents of energy subsidies claim Congress must subsidize the conversion of trucks to natural gas in order for companies to convert from petroleum-based fuels to less expensive natural gas. But contrary to Mr. Pickens’ claims, this transition is happening already without government subsidies.
Fortune 500 company Waste Management recently announced that over the next five years, 80 percent of the trucks it purchases for its waste-collection business will be fueled by natural gas. Although the trucks will cost about $30,000 more than traditional models, the company calculated that the decision will save $27,000 a year per truck because of the present cost of diesel and the falling cost of natural gas.
Other companies that either provide transportation services or are dependent on the use of trucks to transport goods are following suit. Caterpillar recently inked a deal with Westport Innovations, a natural-gas engine manufacturer, to develop engines for off-road equipment such as mining trucks and trains, and Shell recently announced it would offer liquefied natural gas (LNG) for heavy-duty trucks at 100 fueling stations across the United States starting next year.
Scott Perry, a vice president of the truck-leasing and commercial-goods transportation company Ryder System said that for his business, “the economics favoring natural gas are overwhelming.” With natural gas prices hovering near a 10-year low for most of the year, the landscape for commercial transportation fuels looks entirely different than it did even two years ago, when wellhead prices for natural gas were almost twice the price of today.
The remarkable drop in the price of natural gas is because of the recent advances in the use of hydraulic fracturing, a drilling technology that was pioneered in the United States in the 1940s but has been transformed recently. The combination of hydraulic fracturing with horizontal drilling has enabled producers to access huge new reservoirs of unconventional shale gas, which could not be produced in an economic fashion with previous technology. In 2007, shale gas production was essentially nonexistent; yet in 2010, the United States produced 4.3 trillion cubic feet of natural gas from shale gas wells. This has been an enormously important development for our energy-security prospects, to say the least.
Moreover, the advent of shale gas and the commercial sector’s embrace of natural-gas trucks is a testament to what the free market can do when allowed to function properly. Since 2008, Mr. Pickens has advocated relentlessly for taxpayer-funded subsidies for natural gas (and wind, in the beginning) which he argues are “necessary” to jump-start a new energy revolution in the United States and wean our country off oil. As such, he has asked Congress to approve subsidies of up to $64,000 per truck and $100,000 for fueling stations - never mind that as of last year Mr. Pickens himself owns 41 percent of the nation’s largest provider of natural-gas fuel for transportation.
Fortunately, Congress has not yet acted to approve Pickens-backed legislation, dubbed the NAT GAS Act, and today, we see the needlessness of those policies realized. Subsidies inevitably distort the market toward a product that neither producers nor consumers would naturally prefer, and the adverse consequences of using taxpayer resources to pick winners and losers have been outsized in cases like Solyndra.
Today, the United States is the world’s largest producer of natural gas, and despite warnings just a few years ago of declining national gas production, it is actually on the rise. The switch Waste Management and other companies are making to natural-gas-powered vehicles demonstrates that when something makes economic sense, the changes happen without subsidies or special government favors.
Thomas J. Pyle is president of the American Energy Alliance.