Can Natural Gas Break Our Oil Habit?

Shale gas may be the easiest and least controversial of these resources to mine. But it has only been in recent years that new technology—a form of horizontal drilling initially perfected and used to great success in the Barrett shale of north Texas—has made shale gas accessible. Accordingly, estimates of the size of U.S. shale gas deposits are rising. The Potential Gas Committee, an independent U.S. body of energy experts, delivers its biennial report on U.S. gas reserves in April; it says it expects to note that there has been "a significant increase in technically recoverable shale gas resources."

Still, even the rosiest scenarios could be tripped up by cost. Mining unconventional gas is a much more expensive proposition than releasing it from traditional sources. "There's definitely a lot of gas in the ground," says Tony Meggs, BP's recently retired group vice president for research and technology. "The issue is not whether it's there as much as whether you can get it out at any reasonable cost."

Here's the quandary: If natural gas prices are low enough to make it an attractive alternative to consumers, it may not be financially worthwhile to extract the hard-to-get stuff from shale or the seas. Last summer, natural gas was selling for around $14 per million British thermal units; by December, the price was under $6. The result? In December 2008, there were 400 fewer gas rigs operating in the United States than six months earlier. It's also difficult to argue that natural gas is a cheaper alternative to oil, because its price tends to move in tandem with oil prices. And when the price of gas occasionally decouples itself from oil, that's not necessary a good thing. "Its price is often more volatile than oil's," Pumphrey says.

Power switch. Even if the economics and technologies of extraction somehow converge to produce a plentiful supply, it would be difficult and costly for the United States to switch from gasoline to natural gas to power automobiles. Gasoline's retail infrastructure is as convenient as it is efficient, and most Americans are never very far from a filling station. Building a new and just-as-easy-to-use natural-gas retail distribution system from scratch would cost billions of dollars, and it's not clear who would pay for it, particularly if there are doubts about consumer demand. "That's something I can't get my arms around," admits Melanie Kenderdine, an associate director at MIT's Energy Initiative. "If you can't, to a maximum extent, use the existing infrastructure, you will run into enormous resistance."

For a switch to work fully and extend beyond truck and bus fleets, it would also require millions of consumers to convert their cars to run on natural gas instead of gasoline. The time, effort, and cost it would take for manufacturers to make—and for consumers to buy—a new breed of car that's affordable would be enormous, even if automakers were willing to produce it. The only natural-gas car on the market today, the Honda Civic GX, is hardly a bargain. It has a sticker price of $25,190—nearly $10,000 more than a normal Civic— and can travel only 170 miles on a tank of fuel.

Pricey. Can millions of consumers be persuaded to retrofit their cars? The cost of converting a gasoline car to natural gas ranges from $12,500 to $22,500. That's pretty expensive, even though 50 to 80 percent of the cost can by offset by federal tax credits. And, in fact, only a handful of large sedans, pickups, and passenger vans currently are capable of being retrofitted. Meanwhile, a gallon equivalent of compressed natural gas at the pump is less than a dollar cheaper than a gallon of gasoline. That's not the kind of price break likely to compel many people to make such a big upfront investment. "When oil was $140 a barrel, a lot of things that looked economical then no longer look so economical now," Gabriel says. Of course, many oil experts say that once the recession ends, oil prices will skyrocket once again; the EIA predicts a barrel of oil will sell for $189 by 2030.

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