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Compressed gas hits the metals markets

In mid-June, Chongqing City held its tenth anniversary as a Special Economic Zone in western China. The city government held a fireworks display on the waterfront, with 120,000 fireworks explode in the sky.

Traffic was a gridlocked mess and the business district came to a standstill. Bus engines idled and drivers continued to blow their horns as if doing so would move traffic.

Walking along, I noticed the relative lack of air pollution for the large amount of vehicles. The thought dawned on me that if I were in Bangkok the air would be a toxic black cloud.

Why are there such pollution differences in gridlocked Asian traffic, and how does all this relate to Peak Oil?

In his book GeoDestinies, Walter Youngquist argues that the fuel of the future will be electricity, rather than a liquid we pump from the ground. Wandering along through grid-locked traffic I saw all around me a vital interim step between fossil fuel liquids and electricity: Compressed Natural Gas (CNG). You may not see the connection, but for me - I live in China and study the commodities markets there - the light bulb clicked on.

Presently several cities in China run their entire public transportation systems on CNG: from taxis and buses to city utility vehicles, it's all CNG. Shortly, as the world wakes up to the fact that crude oil supply will soon peak and then decline, there will be a panic for better alternatives for our transportation and delivery networks.

I spotted a taxi with its hood open and gave the driver 10 Yuan (about $1.50) for a tour of the vehicle's CNG system. I wanted to see the main components, and what they were made of. Then I conducted a thought experiment, imagining what the implications would be if the world converted all its vehicles to natural gas.

To convert and re-fit every car, bus and truck on our planet, the sheer volume of metal required would drive base metal prices to never-before-seen levels. In 2004, there were 880 million motor vehicles worldwide; this included passenger vehicles, heavy trucks and buses. To convert all of these vehicles, the world would need tanks fabricated from high-strength steel, aluminum or wound fiberglass to contain compressed natural gas, base plates for the tanks, stainless steel hoses, brass couplers, aluminum or steel brackets to hold the tank in place, all of the metal screws, nuts and bolts for the complete assembly of each unit, fuel control valves, oxygen sensors, vacuum hoses, vacuum fittings, fuses, tee fittings, high- and low-pressure regulators and particulate filters, plus solder and welding rods to hold it all together.

As you can see, the list is long and each component uses a different metal or combination of metal alloys, and each component is assembled and manufactured at a different location that is dependent on a functioning delivery system. Supply and demand for metals in the re-fitting of our transportation fleet will affect commodity prices worldwide. Entire industries would need to be created to mass-produce pressure-testing kits and to make sure the units were installed properly.

Re-fitting vehicles is but one facet of a larger undertaking. We would also need to construct CNG refilling stations throughout the world. Many countries including Argentina, Brazil, China and Italy already use CNG and have a spattering of refilling locations, but in reality CNG charging stations would have to be as numerous as present-day liquid petrol pumping stations.

The typical CNG station is expensive, because of the special equipment needed to store and dispense a liquid at a temperature of -200 to -260 degrees Fahrenheit and a pressure of 25 to 135 pounds per square inch. The tanks have to be very large and are usually constructed from magnesium pressure-plated steel, which also needs a base plate and brackets. These gas storage vessels then need to be connected to gas dispensers at the pump.

Beyond the use of large amounts of metals, specialized safety equipment needs to be installed at the pumping station. This includes an air extraction system; a lighting system with anti-explosive elements; a manual ventilation system that can be activated from a remote location; remote switching boards for an automatic ventilation system; a fire control system; wires, hoses and couplers to connect everything; and a thick, walled bunker to house everything in case of explosion.

In 2006 there were 167,476 petrol stations in America alone, but only 30,000 CNG stations worldwide. Research at the Idaho National Engineering and Environmental Laboratory puts the minimum cost of construction for each CNG filling station at $100,000. You do the math. And don't forget to include stations for the other 200 countries on our planet.

Another often-overlooked part of the switchover is space lost where the tank is mounted in the vehicle. In a bus, the last four seats in the rear are displaced; in a car, the high-pressure tank reduces trunk space by 30 per cent. Delivery trucks are another issue altogether: reduced load means more trips and more natural gas to deliver the same amount of goods. To convert a bus to CNG costs $25,000-$35,000. Even in China, where parts and labour are cheaper than in other regions of the world, automobile conversion costs $1,000-$2,000.

This transition to compressed natural gas for transportation is dependent on the continued free market access to minerals and commodities worldwide. Many knowledgeable people see more OPEC reductions of crude oil production as a possibility, but I rarely hear talk of a base metals embargo. If resource nationalism became the norm, and the supply of base and rare metals on the world market began to decline, the switchover to natural gas or electricity could find it hard to proceed.

This idea is not as odd as it may seem; take a look at China. The government began an export quota on two metals - indium and molybdenum - on June 18. China's molybdenum product exports are set to decrease by 10 per cent or 830,000 tonnes; export permission will only be granted to exporters with a trade export volume during the last three years of more than 3,000 tonnes. China is also the world's largest producer of indium, accounting for more than 30 per cent of global total, along with 90 per cent of global tungsten production. What happens if Russia, Canada, Brazil or any of the African nations decide to follow in China's footsteps and begin export quotas or withhold commodity sales to drive up prices? Oil embargo or commodities embargo: which would be more devastating for the world economy?

More usage of natural gas would mean more volume of a product that needs to be produced, stored and transported. New spider webs of natural gas pipelines and compression stations would be required to keep it all moving. We would need to increase production of both crude oil and natural gas, which are different fuels and need to be stored, produced and transported by different means and use different infrastructure to do so. In addition, we as a world would need to increase natural gas production as we went ahead full throttle finding, developing and producing from the remaining oil fields. This also means more metal usage. More pipes, more metal, so an increase in metal consumption and metal prices will follow.

Not to worry: container ships and trains can continue to chug along burning heavy-sulfur crude oil, which the world will produce more of, especially the new projects coming online from Saudi Arabia and the Caspian Sea Basin. Keep in mind, CNG is only the middle transition stage of fuel sources to keep goods moving around our globalized planet. The final fuel source will be electricity, which requires its own set of infrastructure to generate. Once again, the volume of metals used in those developments will be huge.

This unique set of circumstances presents a Catch 22 for all societies on earth. We need to use fossil fuels to extract and manufacture resources to allow a transition to a liquefied natural gas infrastructure. Then our societies will have to use the remaining natural gas reserves to exploit even more minerals and commodities to transition to electric infrastructure. Regardless of nationality, religious background or social status, we as a people will have to complete this conversion process together. We must begin now to convert our transportation systems from liquids to compressed gas to, ultimately, electricity, and to do so will be resource-intensive.

To say I expect a continuing bull market in metals would be an understatement.

David DuByne is from the United States and is presently living and teaching Business English in Chongqing, China. He and webmaster Marc Hastenteufel are translating www.daveseslbiofuel.com, an English teaching web site devoted to bio-fuel and oil depletion, for those studying English around the planet into Mandarin Chinese. Robert Rapier, an expert on cellulose ethanol, gas-to-liquids (GTL), and butanol production, also provides technical assistance for content throughout daveseslbiofuel in the renewables and conservation section.

Editorial Notes: UPDATE (Aug 6, 2007): reader morenus writes: In his article, Mr. DuByne engages in an intriguing "thought experiment", imagining what would happen if every vehicle on the planet were retrofitted (at once) to run on Compressed Natural Gas (CNG). Unfortunately, he managed to conclude that metal prices will go up, up, up. Metals might go up for other reasons, but not as a result of wholesale conversion of all vehicles to CNG, because that will not happen. Some of the consequences that Mr. DuByne imagined are reason enough to prevent this -- the high cost, or the sacrifice of the back seat or trunk. But mainly, in the United States at least, while city buses may certainly run on CNG, privately owned cars and trucks are not going to be converted to it, in any great numbers, or in any hurry. Americans do not modify old vehicles, except as a hobby. They sell or junk their old ones, and buy new ones. None of the major automakers is selling CNG cars. When CNG cars and trucks become a substantial part of the offerings from Toyota or Nissan, then there will be an impact. What is green and actually selling is hybrid vehicles. These also represent a path towards a future powered by electricity. Not only that, but their engines would all turn off in Mr. DuByne's traffic jam (air-conditioning units permitting). Surely that's even better than a road jammed with idling CNG vehicles! Thus, although a wholesale and immediate retrofit of all the world's vehicles to CNG might indeed require a great deal of metal, this event will not actually occur. Instead, CNG will have its niche, alongside biofuel and other alternatives, as a supplement to hybrid technology, on the road to an electric future.

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