1. Natural Gas as a Transportation
Fuel: Overview and Context
Benjamin Schlesinger and Associates, LLC
Bethesda, Maryland
2013 Summer Meeting of the Freight, Marine and Planning Committees
Transportation Research Board
The National Academies
Washington, DC – July 18, 2013
1

2. Outline
u Introduction
u Gas supply: shale gas (and shale oil)
u Gas demand in crisis – transportation and other ‘new’ uses
u Conclusions.
2
Here, ‘gas’ is methane = natural gas (compressed or
liquefied), not liquid propane gas (LPG), natural gas
liquids (NGLs) or gasoline

3. BSA – 29 years of gas and energy advisory
services.
u Economics, pipeline tariffs,
contracting, price risks.
– Research & training
– Negotiation of gas contracts
– Due diligence – Review for lenders
in financing of LNG, power plants,
gas storage
– Expert in courts & arbitrations,
testified in 16 jurisdictions.
u 600+ assignments
u 27 countries.
Cients: Energy buyers & sellers, electricity
and heating plants, gas and oil pipelines,
banks, governments, universities.
Expertise Major Assignments
Power generators
Lenders
Pipelines/traders
LNG projects
Regulators
Expert testimony
UNECE
European pipelines
GdF Suez, Repsol, BG
Eastern Europe
West African pipeline
Sonatrach (Bechtel)
Japan gas utilities
Mitsubishi
Philippine NPC
3

4. Despite all the words and numbers, people
still don’t really grasp this.
u The ship arrives.
u Were it a country, domestic shale-
fields would be the world’s 3rd
largest gas producer.
u Many policy, economic, academic
and environmental studies are
very outdated, e.g., from Internet/
Google.
u Shale ‘debate’ is lost on most
people.
4
Estm. US Shale Gas Production, Bcf/day
0
5
10
15
20
25
30
2000 2002 2004 2006 2008 2010 2012
Rest of US
Bakken (ND)
Eagle Ford (TX)
Marcellus (PA and WV)
Haynesville (LA and TX)
Woodford (OK)
Fayetteville (AR)
Barnett (TX)
Antrim (MI, IN, and OH)
Source: EIAAdministrator Adam Sieminski, 5/2013.

5. US has added 4.6 MBD equivalent of shale
gas production since 2001.
1.1 2.0 2.7
4.2
2.7
3.7
11.5
-
2.0
4.0
6.0
8.0
10.0
12.0
14.0
Holland Norway Qatar EU, Total Venezuela Iran Saudi
MBD,equivalent
Annual US shale gas production (just the growth)
Source: BSA 2013, from BP Statistical Review 2013 & EIA (est. shale production).
Gas Production, 2012 Oil Production, 2012
5
…plus: over 2 MBD rise in US shale oil
production, so far.

6. How long will North America’s big
hydrocarbons price gap persist?
Source: BSA 2013, from EIA, CME-NYMEX, July 12, 2013 Settlements. 6
$0.00
$2.00
$4.00
$6.00
$8.00
$10.00
$12.00
$14.00
$16.00
$18.00
$20.00
$22.00
$24.00
Jan-01
Mar-02
May-03
Jul-04
Sep-05
Nov-06
Jan-08
Mar-09
May-10
Jul-11
Sep-12
Nov-13
Jan-15
Mar-16
May-17
Jul-18
Sep-19
Nov-20
Henry Hub Futures
Henry Hub Acutals
WTI Actuals
Brent Actuals
WTI Futures
Brent Futures

7. High crude oil prices attract rigs away
from gas-prone shale fields.
-
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
Jan-01
Jan-03
Jan-05
Jan-07
Jan-09
Jan-11
Jan-13
Jan-15
Jan-17
Jan-19
WTI/HH Actuals WTI/HH Futures
Oil Rigs/Gas Rigs
u Past: Crude prices rose while gas
prices fell, until crude prices
averaged 6x gas price in 2012 –
drillers moved off to oily shales:
– Eagle Ford, Texas
– Bakken, North Dakota
– Utica, Ohio
u Today: $96 crude oil is 4x gas
($16.55/MMBtu versus $4.10).
u Outlook: Oil prices and oil drilling
rigs both at 3-to-one over natural
gas, until gas production falls and
its price rises.
7
Crude Oil-to-Gas Ratio
Price of crude / gas
(actual)
Price of crude / gas
(NYMEX futures)
Rigs drilling for
crude / gas
Source: BSA 2013, from CME-NYMEX, futures at 3/28/13, Baker Hughes U.S. weekly rig count.

8. US production of tight oil and NGLs is now
rising as dramatically as natural gas did.
u Emerging shale plays are forcing
new technologies:
– Multi-well/multi-stage
– Recycling of return waters
– New tech (dry fracking, CO2).
u Major challenges:
– Low gas and NGL prices (tends to
self-correct)
– Pipeline bottlenecks, both gas and
oil (flaring)
– High cost of rail
– Environmental & safety issues?
– Skilled labor shortages.
8
MBD
Source (chart): EIAAdministrator Adam Sieminski, June 2013.

9. EIA’s US Gas Production to 2035
9Source: EIA, AEO 2013 Reference Case.
US natural gas markets
are saturated; need more
places to put gas!

10. Most near-term surplus gas will be spent
replacing coal in aging power plants.
- 20 40 60
10Source: BSA 2012, coal plants in 20 Northeast and Mid-West states from EIA, plus Ontario; map from AEP.
Newer than 30 years, 12%
30-40 years, 27%
40-50 years, 33%
50 years or older, 28%
Coal-Fired Plants, MW Retiring Coal-Fired Plants

11. The good news: Replacing old coal with
new gas reduces CO2 emissions by 63-72%.
Average
Age of
Plants
at
Retire-
ment
No. of
Plants
Retired
in Each
Year
Total Net
Summer
Capacity,
GW
CO2
Reduction
Replacing
Bituminous
Coal with
Gas
2009 50 12 0.5 67.7%
2010 54 35 1.5 69.4%
2011 62 31 2.5 63.3%
2012 56 57 8.9 63.9%
2013 55 14 2.1 71.7%
2014 57 34 4.7 64.4%
2015 57 61 9.9 63.1%
u GHG reduction due to:
– Chemical advantage: Gas burning
emits 46% less CO2 than coal.
– Efficiency advantage of new gas
CCGTs versus old coal boilers:
55-60% vs. 31-33%.
– Carbon emissions savings from fuel
cycle as well.
u Other criteria air emissions
reduced/prevented, especially
sulfur, particulates, oxidants.
u But the “low-hanging fruit”
might all be picked by 2020.
11Source: BSA 2012, from EIA and Siemens data.

12. Global firms plan to spend $80 billion on
new US gas-based industries.
u About 100 new manufacturing
plants in development:
– Chemicals & petrochemicals
– Fertilizers
– Steel & aluminum
– Tires, plastics
– Gas to liquids
u Most sited near the Gulf Coast.
u If all proceed, added gas
demand will reach 11 Bcf/day
by 2035.
12
0
2
4
6
8
10
12
2018 2035Bcfperday
Incremental gas demand
Source: Dow Chemical, 2012.

13. Natural gas (CNG and LNG) has begun to
find markets trucking, rail and ships.
13Source: Westport Innovations Inc., Vancouver, BC.

14. Why doesn’t America have 20 million
natural gas vehicles by now?
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
$4.50
Natural Gas 87 Octane
$/MMBtu
Henry Hub Mid & Marketing
WGL Delivery Compression
Road Tax Pump Price
u Favorable economics since 1980s!
u Natural gas is best used in large
vehicles, high-mileage fleets:
– LNG: Long-distance trucks and
railroads, buses, shipping
– CNG: UPS, Dulles Flyer cabs.
forklifts, compressors
u Lower mileage personal vehicles
will benefit more from electricity:
– $4 natural gas vs. $32 gasoline
(per MMBtu)
– 61% efficient CCCTs vs. 26%
efficient piston engines
– No wonder electricity = 79 c/gal!
14Source: BSA 2011, from NYMEX, EIA data.

15. In some regions, battery EVs are, in effect,
just very high-efficiency NGVs.
u Production of methanol and gasoline from natural gas (GTL) will also
become options, as price differentials remains favorable.
15Source: Schlesinger / Tesla Motors.

16. Benjamin Schlesinger and Associates, LLC
The Bethesda Gateway
7201 Wisconsin Avenue, Suite 740
Bethesda, MD 20814
Phone: (301) 951-7266 Fax: (301) 951-3381
Visit us at www.BSAenergy.com
16

17. 17
Extra Slides

18. Gas supplies 27% of US primary
energy – coal supplies 42% electricity.
18Source: BSA 2013, from EIA data for 12-mo. year-ending 10/31/2012.
0
5
10
15
20
25
30
35
40
Buildings Industry Transport Elec Gen
QBtu
Elec Sys Losses
Elec Retail
Renewable
Hydro
Nuclear
Oil
Gas
Coal

19. Gas prices among markets differ greatly
from one continent to another.
19Source:
UNECE
WPG
LNG
report,
Chapter
1,
update
courtesy
Ken
Medlock,
James
K.
Baker
III
Institute,
Rice
Univ
.

20. Source: IEA World Energy Outlook 2012. 20
LNG exports from the US are sought after
for strategic and economic reasons.

21. Global shale gas may provide a basis to
substitute for oil in the future.
0 10 20 30 40 50 60
India and Pakistan
Australia
Europe (excl. Russia)
South America
Africa
China
North America
Total US
Canada Mexico
South Africa Other Africa
Argentina Brazil
Other So. America Poland
France Other Europe
u Most foreign gas markets are
dominated by long-term
contracts tied to fuel oil.
u European, Asian and Russian
shale gas resources may
remain in place absent:
– Vibrant independent producing
sector
– Technical expertise
– Institutional reform/TPA
– Education.
21
Potential Shale Gas, Tcm
Source: BSA 2011, from US EIA.