Compressed Gas Hits the Metals Markets

By Dave Dubyne 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 gridlocked 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. Currently 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.

Going West in China

by David DuByne As I gazed out my office window into the grey smog covering Chongqing, a city district of 30+ million people in central China, I began to think about the expansion of this economy. Here are my thoughts. The Chinese government continues the Go West Campaign. It is designed to convince those who are heading into big cities looking for work to go to the western cities and spur the same economic boom that is occurring along the east coast. This includes upgraded and new infrastructure, additional energy generation, and the intensification of natural resource extraction in the western regions. Every road throughout the nation is being refinished with concrete. From highways to one lane roads that were formerly dirt, nearly every road in every province is being upgraded to allow movement of goods and people at a faster pace. This would account for China’s usage of 45% of the world’s cement year upon year. This is expected to grow at an average annual rate of 8.5% (or 90 million metric tons) during the 2006-2007 period. Traveling by rail through Sichuan Province and everywhere else, parallel rail lines beside existing lines are being built for rapid transit and high speed delivery of goods and people. From now to 2010 the Chinese government plans to complete an additional 19,800 kilometers of new tracks and up grade 15,000 kilometers of existing routes. Where development and economic growth compete against environmentalism, conservation always falls on deaf ears. One of the most pristine areas in the western part of Yunnan province is the Nujiang Valley, which will have a series of 13 dams built that will cover a 700 kilometer section of the valley built by Huadian Corporation. This one of the last two major dam-free rivers in China. The 100 billion kilowatts per hour of generated electricity would be for factories on the EAST coast of the country. In addition the power will be used in new factory complexes that are slated to come into the western region to take advantage of tax breaks and special incentives to relocate there. One of the biggest tourist draws in Yunnan province for trekking is in the Tiger Leaping gorge, but a series of eight dams along a 564 kilometer section of the Jinsha River to provide power will alter the gorge. Lancangjiang Hydropower Development Corporation, a subsidiary of China Huaneng Group states “the dam will have an overall capacity of 20 million kilowatts, it is almost the same size as the Three Gorges Dam, but the water storage capacity in Tiger Leaping Gorge reservoir will be even bigger.” In addition to electricity generation, this dam is supposed to help solve the siltation problem that is threatening to block the Yangtze Three Gorges Dam 1500 kilometers downriver. The new hydroelectric power sources will be for mining operations in the western portions of China as resource extraction heats up. China’s internal mining capacity will only keep consumption of metals for manufacturing at the break even point. Mining as an industry has seen 20% growth year on year. Antimony and Molybdenum along with Gold, Silver, Copper, Aluminum, Zinc, Nickel and Lead are leading the growth. Roads leading to the Myannmar border are being expanded to four lanes as new sea ports and oil loading platforms are within easy reach and accessible in the Bay of Bengal from the west of China. A new natural gas field discovery containing 3.8 trillion cubic meters near Dazhou in the N.E. part of Sichuan Province was instantly slated for smelters, in addition to the hydroelectric power set to come on line. The new find of oil in Bohai Bay is just a drop in the bucket compared to the needs of this insatiable economy; at best it will add 200,000 barrels per day of production, and that was the amount of new increased oil usage country wide for last year alone. The Chinese government is giving incentives for recent graduates to relocate, or “population transfer” as its sometimes called, to the second and third-tier cities of the west. Job placement and minimum guaranteed salaries are but a few of the gems offered. Additionally students who use state loans to finish their university studies may have their loans waived. The loan, up to 24,000 yuan (US$4,000) per student, is paid by the Chinese government if the graduate promises to work in a western or remote region for at least three years. On a recycling note not a single plastic bottle, cardboard box or glass container goes uncollected by the endless stream of individual collectors digging through the road side rubbish bins, back alleys and street curbs looking for the new treasure of China, recyclables. Cities are scoured by collectors daily for anything that can be sold as scrap. I watched as an old apartment building was torn down by hand and a woman emerged from the building with a bag if old light switches. At first I thought she would use the complete switch, but she took out a small hammer and broke them into pieces, carefully separating the copper from the plastic. Recycling is an enormous multi-billion dollar business, gobbling up our western throw away products and growing expodentialy larger every year. Ethanol production is skyrocketing as the largest ethanol producer China Agri Industries which is the grain-processing unit of Cofco Ltd., China's largest grain trader is planning to open two more refineries this year, a 100,000 ton project in Hubei and a 300,000 ton project in Liaoning.These projects will use sweet potatoes as the feed stock. An additional 1 million tons of capacity, awaiting permission, will be added by the end of 2008. China Agri is using several different feedstock grains and plant to produce ethanol. As it was explained, diversifying feedstocks reduces the reliance on a single crop in case of crop failures. Sinopec and PetroChina have teamed up with China Agri in the downstream ethanol blending business. Lastly, as I listen to the never ending car horns below, I remembered reading a recent article stating that an estimated 3000 cars are added to Chongqing's roads every day and presently 70% of the city’s road space is filled during the day. My own experience of traveling six miles the other day taking me two and a half hours, with 30-40 storey buildings along the entire distance makes me a believer. There is much talk around the world saying again and again that China’s 8-10% growth rate cannot be sustained, that may be true along the east coast, but as economic productivity flattens out in that part of the country it grows in the west. New land routes to the sea via Myannmar are providing an economic kick start in this region. The boom is in its infancy, and if it turns out anything like the massive growth in the east, the growth will be long and continuous.

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.