By JASON MA
Cheap natural gas is becoming an energy option for an increasingly diverse range of U.S. businesses, helping ease the blow from the surge in oil prices.
Utilities and manufacturers are benefiting, but hospitality, health care, food and shipping are among the sectors turning to natural gas as well. Even retailers are inquiring about using gas generators, at least part of the time, to cut costs.
“Depending on the size of the retail facility, it could be a significant savings for them to come off the grid,” said Paul Bowers, vice president of sales at Generac’s (GNRC) industrial group.
Big-rig truck makers like Paccar (PCAR) sell models powered by compressed natural gas, and companies like Waste Management (WM) and UPS (UPS) have been converting trucks to CNG as well. Reducing emissions is a factor, but bigger savings are now possible too.
About one-third of the spike in gasoline prices has been offset by lower natural gas prices and utility bills, Deutsche Bank chief U.S. economist Joseph LaVorgna estimated last month.
Natural gas production has boomed, with 2011 output up 17% from a decade earlier and 31% from 20 years ago, according to the Energy Dept. The limited capacity to export natural gas overseas, for now, means most of that production stays here.
U.S. natural gas futures on Monday hit a fresh 10-year closing low of $2.226 per million British thermal units, with the mild winter also depressing demand for heat. European and Japanese natgas costs are far higher.
Those cheap U.S. prices won’t necessarily translate to utility customers, though those in deregulated markets will see savings. The Energy Department estimates that electricity prices for commercial and industrial end users will stay flat this year and rise slightly next year.
Last year, Caterpillar’s (CAT) orders for natural gas generators were up more than 50% in North America, said Tim Scott, the company’s electric power gas marketing manager. That far outstripped the 20% order growth globally.
Customers have ranged from manufacturers and utilities to large greenhouses, universities, hotels and resorts, he said. Demand has been especially good for cogeneration units, which burn gas and harness waste heat.
“It’s not a new idea, but it’s getting a fresh look,” Scott said, adding that manufacturers can improve energy efficiency by up to 30%.
Low gas prices have shortened the time that buyers of gas generators can earn back their investments to 2-3 years from 5 years and longer, he said.
Some users of natural gas generators have switched from diesel-powered units. Diesel generators have grown pricier to buy, and some firms prefer to get re-fueled via gas pipelines instead of tanker trucks, which are less reliable in severe weather, said Generac’s Bowers.
A business with a natural gas generator can also receive a rebate from some utilities by switching to backup generators when the electrical grid is strained, he noted.
To be sure, natural gas won’t stay this cheap for long. Energy companies are drilling less for it, and others are preparing to export more overseas where they can fetch higher prices. Moody’s sees prices averaging $2.75 per million BTU this year and $3.25 next year.
But prices can rise to around $4.50 and still support continued drilling as well as cost advantages for users, said James Williams, energy economist at WTRG Economics. “It’s a long-term advantage as long as prices are relatively low,” he said.
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