With U.S. oil imports hitting a 17-year low, the mainstream media has awoken to the fact that, as I pointed out in a Fortune.com article 3 years ago, peak oil is not happening anytime soon.  Charles Mann’s excellent cover story in this month’s Atlantic, “What If We Never Run Out of Oil?” focuses on an obscure though potentially vast source of energy: methane hydrates, or crystalline natural gas trapped below the seabed.  If early exploration ventures by Japan and other countries succeed, this gas “could free not just Japan but much of the world from the dependence on Middle Eastern oil that has bedeviled politicians since Churchill’s day.”

An Associated Press story last week reached a similar conclusion about “unconventionals” in general: companies are opening huge deposits of shale gas, “tight oil,” and other hard to reach petroleum sources that will essentially flip the energy world upside down, as the United States regains its status among the world’s largest exporters of petroleum.

Both of these stories, though, share a common misconception, captured in the AP article’s headline: “New Technology Propels Old Energy Boom.”

In fact, the technologies underlying today’s petro-boom are not new at all; they are innovative applications and refinements of technology that has existed for decades.  The boom’s core technology is hydraulic fracturing, or fracking.  And drillers have been fracking wells for nearly 60 years.  More than 1 million wells have been developed using fracking since the 1940s, according to EnergyFromShale.org, an industry-supported website.

The early use of fracking to get at reserves previously thought of as unrecoverable, emerged in the early 2000s after exploration companies began examining geologic formations using x-ray computed tomography, or CT scanners.  The CT scanner was invented in 1967.

Tinker Imaginatively

What’s happening today is not a new-technology revolution; it’s an evolution of new applications for existing technology.  We are doing things that we’ve been doing for decades more efficiently, more effectively, and in much wider applications.

That may sound like a fine distinction, but it’s an important one: Silicon Valley has for years invested in sexy new technologies, from smartphones to social media to exotic solar power materials.  The cleantech industry itself has not benefited from a fascination with the new, the exotic, and the high-tech.  The technology for embedding sensors in a drill head so that technicians on the surface can map a formation as they drill is not all that sexy, and it didn’t come from a VC-funded startup in a Mountain View garage.  It came from drilling engineers in the field figuring out, incrementally, how to do things better, cheaper, and smarter.  Often, as in the case of the 21st century oil and gas boom, imaginative tinkering can be more fruitful than reinvention or laboratory R&D.

Leaving aside, for the purposes of this blog, the question of how we can move toward a carbon-free energy system in a world suddenly awash in hydrocarbons, the next phase of technology will almost certainly focus on how to better store, transport, and distribute the seemingly limitless supplies of natural gas now becoming available.  The difficulty and expense of liquefying and transporting natural gas have been a drag on the wider use of the relatively clean fuel for many years, particularly in the transportation sector.  In 2012, GE Oil and Gas introduced its Micro LNG plant to power remote industrial locations and fuel long haul trucks and locomotives, and last month the company debuted its LNG In A Box system for small-scale retail fueling stations.  The Norwegian gas producer and distributor Gasnor in 2009 launched the world’s first specialized, small-scale LNG carrier, the Coral Methane, designed to deliver fuel to remote ports along Norway’s coastline.

These are not “new technologies,” and they’re not being developed and funded as such.  But they’re exciting innovations.  And they are helping to power an energy transformation that will shape the world’s economy and its geopolitics through the rest of this century.

Low prices for abundant natural gas, along with smoother regulations and volatile gasoline and diesel prices, are driving operators of fleets to increase their consideration of both compressed natural gas (CNG) and liquid natural gas (LNG) as a fuel.  Additionally, the impending launch of the Cummins Westport ISX12 G engine is generating real excitement in the natural gas truck market.  This 400 hp engine slots between Cummins Westport’s ISL 8.9L and Westport’s 15L engines.  The result is a vehicle market that is expected to grow at a rate of 14% this year in North America (compared to a global rate of about half a percent).

The two forms of natural gas vehicle fuels are both growing, but although CNG systems are more compact and cheaper to install on trucks, LNG systems give longer vehicle range.  The result, as The New York Times reports, is that the long distance trucking industry is increasingly looking toward LNG as an option to replace diesel.

But that’s only half the story.  The number of LNG stations is set to grow significantly in the next couple of years.  Navigant Research forecasts that about 200 new LNG stations will be open in the United States by 2015, with more in the works.  This expansion is critical to sustain sales growth in the vehicle market.  At the moment, in answering the chicken-and-egg question of whether vehicles or refueling stations have to come first, the answer is clearly that vehicles are ahead of the stations.

Rising Demand, Rising Prices

At the same time, there are new concerns about the price of natural gas.  The Henry Hub gulf coast spot price is $3.81/million BTUs, its highest point since September 2011, and well above the low of $1.95 seen last April.  Demand for natural gas is on the rise for electricity production as well as vehicles, but supply continues to outstrip demand.  At the moment, natural gas cannot be exported to countries without free trade agreements with the United States, but that may change.  President Obama’s new Department of Energy nominee, Ernest Moniz has stated that he supports LNG exports to non-free trade agreement countries, which could have a greater impact on demand.  Charles Ebinger of the Brookings Institute, however, testified that the price of electricity would not be significantly affected by wider LNG exports.

Does that mean the price of CNG and LNG as a vehicle fuel will also be relatively unaffected?  This question is challenging to answer, because prices for CNG and LNG will not going be influenced in the same ways.  In looking at CNG, Navigant Research estimates that about 17% of the gasoline gallon equivalent (GGE) price at the nozzle is related to the price of natural gas (about $0.35 to $0.40).  The remaining 83% of the price is determined by the cost to compress and cool the gas, profit margins, taxes, and so on.  So, even if the price of natural gas does eventually hit the $8/MBTUs that Forbes contributor Richard Finger expects, CNG will see a about a $1.40 GGE increase but will likely still be priced below gas and diesel.  According to America’s Natural Gas Alliance, the natural gas price component of LNG, on the other hand, consists of about 45% the diesel gallon equivalent (DGE), so an increase in the cost of natural gas has a bigger impact on the LNG price.

The result is the price of natural gas has to remain low in order to help grow the LNG truck market.  The incremental costs for an LNG truck can run between 60% and 80% more than a diesel truck.  The result is that the combination of government vehicle purchase incentives and the fuel incentive ($0.50 per GGE) become even more critical to keeping the payback on the LNG trucks attractive as the price of natural gas climbs.

The discovery of extensive shale oil reserves in North America has led to heightened expectations for using the domestic energy source as a transportation fuel. While environmental challenges exist for extracting and distributing fuel (safe fracking, pipeline expansion, and so on), the biggest hurdles to expanding natural gas as a fuel for passenger vehicles are related to pumping the gas into a tank and keeping it there safely. The U.S. Department of Energy (DOE) has been focusing on these challenges by providing funding to several basic research projects, which were a significant topic of discussion at this spring’s ARPA-E Summit meeting in Washington, D.C.

Natural gas vehicles (NGVs) typically require multiple cylinder tanks in order to store enough fuel to provide a range similar to that of a gasoline car.  In larger vans and trucks, this may require three or four tanks. Ford Motor Company has described the current state of storage tanks as “too large, heavy, shape limited and expensive to properly facilitate the widespread adoption of natural gas vehicles.” Through an ARPA-E grant, Ford is working on a 3-year project to develop an adsorption tank system that would increase the energy density of compressed natural gas at lower pressures. The system would enable natural gas to be stored at lower pressure while providing a driving range comparable to that of gasoline car.

Fill ‘Er Up, at Home

The DOE’s Pacific Northwest National Laboratory, located in Richland, Washington, is addressing the cost and efficiency of storage tanks with its ARPA-E grant. The lab is working on developing a ball-shaped tank that would increase the storage efficiency over current rectangular tanks by 90% while using less expensive materials.

Meanwhile, General Electric (GE) is resurrecting the concept of home refueling of natural gas (which was unsuccessfully pitched previously by makers of the Phill) with a low-cost natural gas system that is also being developed thanks to an ARPA-E grant. The system chills the gas to a very low temperature (-50°C) to separate water from gas, which otherwise requires a complicated multistep process. GE hopes to reduce the cost of a home refueling station to less than $500.

As detailed in Navigant Research’s 2012 Light Duty Natural Gas Vehicles report, attempts at popularizing home refueling have failed in both Europe and North America due to the cost of the equipment and limited availability of vehicles. Nevertheless, sales of NGVs in the United States are expected to surpass 30,000 vehicles annually by 2019.

Annual Light Duty NGV Sales, North America: 2012-2019

 (Source: Navigant Research)

Automotive analysts – including this one – have been predicting a comeback for diesel cars in the United States for several years.  Demand in the United States has indeed been steadily rising in recent years.  According to the HybridCars Dashboard, sales rose from just over 58,000 in 2009 to 125,522 in 2012, a compound annual growth rate of 29%. Despite these rising sales, though, diesel’s share of total passenger car sales has persistently remained well below 1%.  In 2010, diesels captured 0.7% of U.S. passenger car sales, while in 2012, diesels captured 0.87%.  So why the hype over clean diesels in the United States?

First, the reality is that all alternatives to conventional gasoline cars are but a tiny portion of the total U.S. car market.  Hybrids are selling around 3 times the number of diesel cars – which means that, more than 15 years after the Prius was introduced, hybrids still only capture 3% of the market.  Plug-in vehicles are receiving a huge amount of attention, as they represent the potential to be a disruptive technology.  However, while we’ve seen a significant uptick in sales in the United States, from roughly 18,000 in 2011 to 53,000 in 2012, PEVs are an even smaller percentage of the U.S. car market than diesels.

Annual Sales of Clean Diesel and Hybrid Passenger Cars, United States: 2009-2012

(Source: HybridCars Dashboard)

Second, as has been discussed in this blog, automakers must come up with an array of fuel-efficient options to meet the stringent federal Corporate Average Fuel Economy (CAFE) standards for 2017 and beyond.  While automakers will primarily focus on modifications to conventional gas cars, diesels may well appeal to a different demographic than small, fuel-efficient gas cars.  The diesel Chevrolet Cruze, to be introduced for model year 2014, offers an example.  The diesel Cruze gets 42 mpg on the highway.  While this is the same highway mpg as the gasoline-powered Chevrolet Cruze Eco, the Eco is equipped with a manual transmission, and U.S. drivers are not big fans of manual transmissions.

Volkswagen (VW) just released the results of a survey that found that the likely clean diesel customer is also different from the average hybrid customer.  VW’s survey indicated that, while both groups are concerned with fuel efficiency, diesel buyers tend to be more concerned about torque and acceleration, while the hybrid drivers are more motivated by the car’s eco-friendliness.  These results suggest that the soon-to-be-introduced hybrid Jetta will not compete with the diesel Jetta – the best-selling diesel in the United States – but will expand VW’s appeal to a different type of efficiency-conscious consumer.  This survey will be heartening to automakers as they marshal a combination of diesel, hybrid, start-stop, plug-in technology, and other options to meet the CAFE standards.