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Citi GPS - Energy 2020: Trucks, Trains, and Automobiles

23-Oct-2014

Author: Edward L Morse, Head of Global Commodities Research, Citi GPS. 

Page Count: 76

Date: June 2013

Source: Citi GPS: Global Perspectives and Solutions

From the document:

The four base trends fostering the natural gas challenge are: 1) the accelerating growth rate of natural gas availability globally, with newly booked gas reserve bookings now consistently about double new oil reserves; 2) the breaking of the traditional link between wellhead oil and gas prices – especially in North America – and the overwhelming economic incentives to develop mechanisms to change the link breakage into a cost advantage in the transportation fuel market; 3) the ability of governments, especially in emerging markets with abundant gas resources, to cap natural gas prices at levels that allow compressed natural gas (CNG) and perhaps liquefied natural gas (LNG) vehicles to be more attractive to vehicle owners; and 4) the popular and growing concerns about environmental damage associated with petroleum product use, leading to tightening specifications of petroleum products that open the door for natural gas (via CNG or LNG) to play a growing role in the marine transportation, heavy duty truck and rail transport markets.

Looking across the various sectors for which there are clear opportunities for natural gas to substitute for oil – specifically bunker fuel for ships, natural gas vehicles (NGVs) replacing primarily gasoline-powered light duty vehicles (LDVs), heavy duty trucks both in and ex-US, power generation, petrochemicals and various industrial processes – we model the progressive substitution using fairly conservative assumptions and the resulting impact on oil demand growth, which comes in at a formidable 3.5-mb/d by 2020. Taken together, the improvement in global fleet efficiency and the substitution of natural gas for oil could be enough to put in a plateau for global oil demand by the end of this decade.

The document begins with a basic overview and discusses the drivers that could make natural gas an oil substitute for transportation.  This is followed by a discussion of NGVs in the US, China, in Europe and other regions.  The final section covers other types of conversions such as rail and marine.