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January 5, 2009

“Merry-go-rounds move, but wheels travel”

Some weeks back, I participated in a panel discussion at the Corporate Responsibility Officer CRO Conference in Chicago. I had the pleasure of participating with some very smart people, including executives from IBM, BT, McDonalds, Orbitz and Campbell Soup. One of the questions I was asked concerned energy policy and the viability of a national strategy of moving from gasoline and diesel for powering our nation’s vehicles to using natural gas. I didn’t express much enthusiasm for the plan. Here’s why:

1. FedEx vehicles, like most other commercial vehicles predominantly use diesel fuel, rather than gasoline or other alternative fuels like natural gas. Diesel usage has better fuel efficiency than these other fuels, which translates to lower carbon, or greenhouse gas, emissions as well. Any replacement fuel needs to improve the nation’s fuel economy from where we are today.

2. Passenger vehicles and light trucks predominantly use gasoline to a very high degree – the percentage is north of 90%.

3. To use natural gas vehicles, we, as a nation, would have to build a completely new fueling infrastructure for vehicle fueling.

4. To use natural gas vehicles, we, as a nation, would have to build a completely new natural gas vehicle population. And the infrastructure and the vehicle population present a “chicken-and-egg” scenario. Which comes first?

5. Even the installation of private fueling facilities for centrally-fueled fleet vehicles would require a public fueling infrastructure as backup. Why? Just consider that FedEx values service reliability. We must have the ability to power the vehicles that serve our customers. Without fueling backup, a facility with an inoperative fueling station would also have parked, non-operational vehicles – the worst kind of fuel economy.

6. Natural gas, like oil (which produces diesel fuel and gasoline) is a fossil fuel which emits carbon emissions when burned.

7. Natural gas, while plentiful within the U.S., is, like oil, a fungible commodity – meaning that it can be transported and sold in other markets that require natural gas – including foreign markets.

So, no matter that the fuel would be sourced locally in the United States – its price and availability, again, like oil, would be influenced by foreign demand. So, what’s the answer, or at least part of the answer?

Well, natural gas certainly has a role in some centrally-fueled fleet vehicle applications like municipal buses. And, it’s clear that this can and should continue. But, there is a more holistic approach for the nation – one that can accomplish a two-fold purpose.

Put simply, we should “green” the power generation utility grid with renewable energy and electrify a substantial portion of surface transportation using hybrid electrics, electric and plug-in electric vehicles. This would lower the nation’s carbon emissions, improve our energy efficiency and help diversify our energy supply. Doing this would require only one new infrastructure – the “green” power generation utility grid – connected to our traditional electricity grid.

This “greened” energy infrastructure, combined with the existing diesel and gasoline network, could then be sufficient in meeting both our electricity needs and supporting transportation, rather than having to also construct a natural gas infrastructure – yet another fossil fuel network.

Oh, yes, about my quote at the start of the post: “Merry-go-rounds move, but wheels travel.” The point is that substituting one fossil fuel for another may mean we’re shifting our energy supply, but it doesn’t necessarily mean we’re going anywhere.


Hear more about Mitch Jackson’s views on sustainability at the FedEx Multimedia Center.


    MP says:

    I agree that we need to look at alternative energy sources. We need to look at the possibility of producing and using availble energy sources that exist in the United States. Obviuosly, the cost to implement and supplies available need to outweigh the circumstances we as a nation find ourselves in. Also, we need to consider whether we cause more harm than good, such as more pollution and toxic waste, when we look at different solutions.

    Brent Pinsent(CA YOWA) says:

    Mr.Jackson,Thanks for your insight on this matter. Seems like everyone is trying to develop The next great energy plan and forget that the energy to set up this type of plan self defeats the actual intention,that of being conservation,air quaility ,etc.Millions of dollars are spent on research to get 10 more miles out of an engine while the same could be said if we reduced our hwy speed from 70 to 55miles per hour. Sometimes the simple changes by all of us as a collective can make a big impact.

    Simran Singh says:

    An article well written! I enjoyed reading your article and agree with your approach!


    Paul Cicio says:

    Excellent!! Well done.

    Brent Pinsent(CA YOWA) says:

    Mr Jackson ,your reference to greening the energy infrastructure hits the nail on the head! The electrical grid is already set up and we should add to this, as you said, by alternate energy means such as solar. It just makes since in these economic challenged times to work with what we have. We could learn a lot from our forefathers in keeping it simple.

    Murray Bodin says:

    Energy is a fungible item. The creation of usable energy for transportation and the DISTRIBUTION of energy for transportation are two separate items.

    And distributing energy for transportation is probably more important than how energy is produced. Creating a new distribution network is not the way to go.

    This article very clearly points this out.

    Dave Cohen says:

    Some of your criticisms are valid (e.g. infrastructure), some not so valid. For example, natural gas is only “fungible” via LNG (overseas) or pipelines (within the North American market). The lower 48 imports gas; Some gas is exported to Mexico and from Alaska to the Far East.

    When you say natural gas is “plentiful” in the US, you should note that we are talking about shale gas, a form of unconventional gas. I think the jury is still out on how much the ultimately recoverable (in Trillion Cubic Feet (TCF)) will be. More importantly, unconventional gas is also very expensive gas and will very likely remain so because technology improvements have already been factored in.

    I agree with your view that the Pickens Plan in not practical. On the other hand, electric transportation for long-haul trucking is also impractical. These problems are complex. It is likely that diesel will remain the fuel of choice for trucking for some time to come. One fix is to build electrified railroads to replace diesel.

    Peter Taglia says:

    There are a couple of misconceptions about natural gas in Mr. Jackson’s analysis. First, natural gas is much less fungible than petroleum because liquefying natural gas requires very large facilities and specialized ships. For this reason, and because of the expanding production of natural gas from domestic shale formations, the U.S. currently imports only a very small percentage (<2%) of natural gas as a liquid (LNG). The fact is that pipeline natural gas prices in North America have been consistently lower than global LNG prices. Thus, relying more on natural gas for transportation does not subject us to the same global market price issues as petroleum. The second area that is missing in Mr. Jackson's environmental conclusions is the fact that natural gas can and is produced from renewable resources such as manure, wastewater and landfills (the latter of course not completely renewable). There is much potential for expanding the production of renewable natural gas in the U.S. Finally, why limit ourselves to one solution? Compressed natural gas for long-distance routes and hybrids (potentially natural gas hybrids) for more urban routes.

    First, let me state that I admire the efforts that FedEx and you have made to improve fuel efficiency on fleet vehicles. I read your blog because I value your opinion and while every one has an opinion, not many people or organizations have put up the results that FedEx and you have. Now, it is with regret that I must differ in opinion with you on your points and hope to persuade you to reconsider.

    1. Historically, natural gas has a lower price than diesel. While this is a black swan relationship, there are fundamental cost advantages that natural gas has over diesel that make me think the relationship will hold over time. For example, natural gas requires little processing before usage… primarily filtering, drying, odorizing, and compressing; while diesel needs to be transported in the form of oil from overseas in high polluting ships, then refined generating more emissions. Per dollar and per emission, my ballpark guess is natural gas wins the comparison.
    2. New public-private partnership arrangements will create access for passenger and light trucks. My company works with Municipalities to create and finance these partnerships.
    3. The underground distribution network for natural gas already exists. The problem to date has been how to begin the process of identifying which potential users of CNG should go first, and then how to leverage the preceding demand to create incentives for new demand.
    4. Heavy daily users of diesel fuel go first. They possess the largest financial incentive to do so. The demand for CNG vehicles will create economies of scale and lower the costs for the next group of users and the cycle repeats.
    5. the reliability problem is being solved by multi compressor stations and combinations of time fill and direct fill applications.
    6. Except for what I said earlier, I agree that this is a wash.
    7. Again I agree. The price of natural gas in not related to its domestic location. However, the cost to the U.S. of securing our access to oil does not show up in the price. It shows up in our taxes and should be added into the price per gallon for any meaningful comparison. Additionally, the supply of oil is fragile and partially controlled by governments that are neither stable nor popular. This makes the price hard to predict. Finally, the economic argument for domestic fuel versus foreign is predicated on the concept of currency velocity. If you have a dollar and you buy something from me and I buy something from Joe, who in turn buys something from you; then our currency acts as a lubricant for each of us to facilitate the exchange of goods between each other. The example works the same way if you do the transactions with foreigners, but only so long as the amount of money going out is returned equally for goods that have a similar effect on the nation’s wealth. Currently, the transfer in not equal on two levels: first, we buy more from foreigners than they buy from us…second, in the case of oil, we buy something that gets burnt and destroyed, the foreigners take our money and buy our companies, real estate, and technological advantages. Were this money to stay domestically it would drastically improve the future wealth of US citizens. As global manufacturing and the global middle class grows, the competition for energy will intensify and should we do nothing the effect of the wealth transfer will intensify also.

    Currently electric and hybrid technology are not achievable at a large scale, however, for potential users like FedEx, CNG is viable immediately. I joined the Alternative Energy industry from the Investment industry. Before I chose CNG, I also looked at battery technology companies. I talked to executives of several different battery manufacturers about the constraints specific to their industry. I did the same for the CNG fueling industry. In the end, I based my decision on a belief that there is immediate demand for CNG fueling from large scale users of diesel fuel, which will expand to cover all vehicles…even hybrid. I could not see the same foothold to expansion scenario for new or existing battery technology companies.

    Louis Penney says:

    Pickens has merit… I think Mr. Pickens natural gas/wind plan has merit as does the hybrid/plug-in electric. The truth and “real” actionable strategic solution is likely in-between.
    At the heart of both plans is how we transform our rapidly aging electric generation, transmission, and distribution systems and process. I encourage everyone to keep an open mind.

    Madhukar Puniani says:

    I wonder sir if you have changed your stance today. While I agree with some points you have made, I would like to draw your attention to two important points and include a real world example:-

    1) There is no one solution to the problem – we need to diversify the total fleet based an application – for example the emergence of Hydraulic Hybrids and Electric Hybrids offer solutions for stop and go commercial vehicle use to substantially improve efficiency and reduce wear and tear. Similarly for fixed route transportation, car and people moving fleets CNG/LNG have proven to be effective – a real world example is the city of New Delhi which has cut pollution, enhanced public transport and viability and reduced fleet running costs and scientifically proven this.
    Advancements in lubrication technologies such as nano particles and micro ceramics to reduce frictional losses must be fully deployed. Further more – more efficient designs for tractor trailers to reduce drag will add to a comprehensive solution to reduce fuel consumption. Basically there has to be a short, mid and long term action plan to fully harness the potential technology now offers us.

    2) What no one seems to be taking to account today is that crude oil does not magically covert into diesel or gasoline – it requires a process of refining , processing and storing that pose much larger energy , water and environmental challenges than CNG/LNG processing do.
    Water will be at a premium soon and must also be considered part of this equation, and so should the air pollution created by refining and transportation of fuel, not to mention the possible leakage of lead and BTEX through storage accidents and spills. I will be happy to discuss this aspect and contrast the two fuels for any expert panel.

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