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 advanced lithium ion battery in a plug-in electric vehicle (PEV) accounts for as much as one-third of the vehicle’s cost. Without government incentives, PEV premiums can top $10,000 over a similar conventional gas-powered vehicle. Even with lucrative government incentives, EVs are still a hard sell. However, automakers are diligently working out ways to bring purchase costs down so that potential owners can absorb the PEV initial purchase costs over time.

In Europe, automakers Renault, Daimler, and Mia Electrique have pioneered the battery lease option, whereby PEV owners buy the vehicle but lease the battery for a monthly fee. In the states, automakers have not warmed to the idea, instead offering cheap lease deals with low signing dues. That could change, beginning when Daimler deploys its smart fortwo ED to the United States next month with a battery lease option.

In Europe, the battery-leasing option for the fortwo ED reduces the vehicle’s purchase price by over $6,700, but requires the vehicle owner to pay roughly $83 a month for the battery. In other words, the purchase price discount accounts for about 80 monthly payments. Under the lease agreement, Daimler, which retains ownership of the battery, ensures its life, thus easing concerns PEV owners may have over battery longevity. Theoretically this option also enables Daimler to find additional value from the batteries by reusing them for stationary energy storage applications once they’ve been removed from the vehicle. The appeal of the offer is clear, as around 97% of the fortwo EDs bought or leased in Europe have included this option.

Swap It Out

Battery leasing has also been pursued by battery swap developers like Better Place which has deployed more than 50 battery swap stations for national networks in Israel and Denmark, and the State Grid Corporation of China (SGCC), which has more than 200 battery swap stations in various Chinese cities. These two companies take the battery lease concept a step further by literally separating the battery from the vehicle. Their business models require both companies to keep excess batteries on hand to supply customers. This allows them to generate additional revenues from the unattached batteries through grid-tied energy storage services.

The major challenge to the battery swap business model is that each company needs automakers to develop vehicles compatible with their systems, and few have. Renault has built the Fluence Z.E. to be compatible with Better Place’s system, while Chinese automakers Kandi Technologies, Zotye, and Zap Jonway are building or have built PEVs compatible with the SGCC system.

The terms of Daimler’s battery lease option for the states have not yet been released. Even without the option, the fortwo ED will be the lowest-priced highway-capable PEV available in the United States, with a $25,750 MSRP before federal and state incentives. When coupled with government incentives and the lease option, the fortwo ED will have a significant impact on the world’s strongest market for PEVs.

If the lease is as enticing in Europe as it is in the states, then other automakers will take note and more battery lease options for PEVs will follow. Nissan has already announced it is entering the fray as it plans to sell the LEAF with a battery lease option in the United Kingdom this year.  As automakers become more comfortable with the idea of battery leasing, they will also become more comfortable with developing vehicles that are battery swap-capable, allowing a third party like Better Place to manage the battery liabilities, lease arrangements, and the recycling.

The European Cycling Federation (ECF) recently said that for every car sold in Europe, almost two bicycles are sold.  Car sales in the EU27 in 2011 were 13,146,770, according to the European Automobile Manufacturers’ Association (AECA), while Coliped reports that 20,039,000 bicycles were sold that year.   Additionally, ECF data shows that between 2010 and 2011, e-bicycle sales grew by 22% while car sales declined by 2%.  In 2012, car sales declined an additional 8%.  Perhaps worse news for automakers, AECA is reporting that 1Q 2013 sales were down almost 9%.

Annual Bicycle, E-Bicycle, and Passenger Car Sales, European Union: 2000-2012

(Sources: European Automobile Manufacturers’ Association, Coliped, Navigant Research)

Navigant Research expects the growth of e-bicycles in Europe to continue.  According to our recent report, Electric Bicycles, the market in Europe is on track to grow to between 1.0 million and 1.2 million sales in 2013.  But the question remains: Does this mean that Europeans are shunning cars for bicycles and e-bicycles?

On its own, the sales data is not necessarily an indication of the causal relationship between car and bicycle purchases.  However, it can’t be ignored that riders in Europe are using their bikes more for transportation.  Even the French market, where all bicycle sales are down 9%, saw the smallest decline in city bicycles (-4%) while e-bicycles increased 15%.  The increasing use of bicycles and e-bicycles designed for cities or commuting clearly hits at the one of the core points of passenger cars.

Cyclists Have More Fun

Perhaps more compelling is the fact that bicycle mileage is increasing.  CBS (Statistics Netherlands) data shows that e-bicycles in the Netherlands have contributed to a 9% increase in the distance cycled, surpassing train mileage in 2011 to rank second behind cars.  The bicycle rental service OV-Fiets saw a 32% increase in round trips between 2010 and 2011, reaching 1.1 million.  While the Netherlands is often considered a somewhat special case because of its massive advantages in bicycle infrastructure, the developments there are not considered unusual in other parts of Europe.

This points to two important trends: More people are using traditional and e-bicycles than have in the past, and those that use e-bicycles are likely to travel further than traditional bicycles (3 km further, according to research completed in 2008).  Add to that the many efforts in Europe to make bicycle travel easier, such as the increasing bicycle-friendliness of trains, and the result is likely moving European commuters out of the driver’s seat and into the saddle.  This doesn’t spell the end of the European car market, but it does point to increasing challenges in getting back to the 15 million sales mark of the mid-2000s.  Or perhaps we are overthinking this, and people just want to have more fun while they commute.