Mark Williams from Affinity Research looks at an important bill in the US designed to cut taxes on LNG for vehicles.
The US is the global leader in generating economic growth through technical developments. Boeing, Apple and the hydraulic fracturing oil and gas drillers are good examples. The frackers may be about to get support from their government in the form of tax cuts for retail buyers of LNG.
Growing clamour for US energy independence has led to a bi-partisan bill being brought to Congress to alter tax levels on natural gas and LPG when sold as vehicle fuel. The bill’s sponsors, Representatives Todd Young, John Larson, Mac Thornberry and Ron Kind, say that, “highway use LNG produces 58% of the energy output of diesel, but is taxed at the same 24.3 cents per gallon rate. Similarly, propane produces 72% of the energy output of gasoline, but is taxed at the same 18.3 cents per gallon rate. The Alternative Fuel Tax Parity Act recognizes these disparities and sets energy equivalent rates for LNG (14.1 cents per gallon) and propane (13.2 cents per gallon). If the bill is successful, it could reduce the time in which buyers recoup the extra cost of buying a natural gas powered vehicle considerably. At the moment, payback time can be as low as two years for owners of large fleets (over 50 vehicles) but increases rapidly for smaller fleets and private owners. The bill is intended to encourage more private sector investment in LNG infrastructure and production in order to make LNG fuelled vehicles more attractive to buyers.
There is certainly a long way to go before LNG takes off for private vehicles and for LNG to be a competitor for gasoline and diesel. The EIA reported last week that US natural gas consumption was 73.5 billion cubic feet per day in 2014, and forecast an increase to 75.7 billion cf/d in 2015 and 76.2 billion cf/d in 2016. In the last few years, an average of 0.12% of total LNG consumption, that’s 90 million cf/d in 2014, is estimated to have been used as vehicle fuel. Forecasts of LNG production in the US suggest that promoting LNG as a road- going vehicle fuel could create a market for the superabundant energy source. LNG prices are expected to stay low, so low wholesale prices and lower taxes on natural gas may encourage more refuelling infrastructure to be built. One estimate is that fewer than 1,000 LNG filling stations at the junctions of interstate highways could fuel the entire US road freight industry. The US Deptartment of Energy currently counts just 70 LNG filling stations in the US (excluding private stations), but it counts 820 CNG filling stations and 2,812 LPG filling stations.
Nearly 70% of oil consumption in the US is of diesel and gasoline. Domestic LNG has the potential to grow quickly beyond use by municipal vehicles such as buses and garbage trucks. Increased infrastructure and lower taxes will eventually lower costs for private vehicle owners and might reduce overall diesel and gasoline consumption. US oil companies may then face even greater pressure to export refined products and even crude in search of substitute markets.
As an aside, the Australian car industry and oil refining industry are both struggling to compete with imports. Australians may end up being entirely dependent on imported diesel and gasoline fuelling imported cars. The government could support the car industry and Australia’s growing LNG industry by saying that all cars sold in the country by, say, 2020 have to be run on natural gas. It could then offer tax breaks to car manufacturers building LNG engine plants. What’s not to like?