The natural gas market is heading toward disaster this Fall, as storage fills up, production continues to increase and prices head down. While some believe that production is on the verge of a precipitous decline due to the drop in the rig count, others have suggested the more radical idea of converting the U.S. transportation infrastructure from gasoline powered vehicles to natural gas powered vehicles.

This will have the dual effect of creating perpetual future demand for the huge reserves of natural gas being developed in the various shale plays across North America, and also reducing our dependence on imported oil.

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Other advantages of compressed natural gas (CNG) vehicles include less green house gas emissions and a price equivalence of about $1 per gallon.

Driving it Home
The major auto companies are manufacturing vehicles that run on CNG, but only the Civic GX, made by Honda Motor (NYSE:HMC), is available in the U.S. There are only 150,000 CNG vehicles in the U.S., out of 8.7 million worldwide.

Compressed natural gas vehicles have made much larger inroads into fleet sales in the U.S., with 12-15% of public transport bus fleets running on CNG. Statistics show that 20% of all buses on order in the U.S. are CNG vehicles.

Flipping the Switch
General Motors
(NYSE:GM) manufactures the Chevrolet Optra, which can switch back and forth between gasoline and natural gas at the option of the owner. Toyota Motor (NYSE:TM) introduced a CNG light vehicle at an auto show in 2008, but has no current production plans in the U.S. There is also an active after market for converting Ford Motor (NYSE:F) vehicles like the Focus or Fusion to run on CNG. (Learn a little more about the "non" part of this nonrenewable resource, read Peak Oil: Problems And Possibilities.)

Getting more CNG vehicles sold in the U.S. is only one part of the problem, as these owners would find it difficult to find places to refuel, until the large base of gas stations owned by Exxon Mobil (NYSE:XOM), Murphy Oil (NYSE:MUR) and others convert part of that base to CNG.

To Big Brother's Credit
This is where the government comes in, as what is needed are tax credits to promote the purchase of natural gas powered vehicles, and conversion of the thousands of gas stations across the country. There are separate bills in the House and Senate that would give tax credits to individuals up to $12,500 for the purchase of CNG vehicles, and up to $64,000 for fleet vehicles. Opening a CNG filling station would earn you a $100,000 credit. (Learn about tax savings beyond natural gas, see Tax Credits You Shouldn't Miss.)

The Bottom Line
This audacious plan to convert our base transportation fuel from gasoline to CNG requires untold billions of dollars, and would take at least a decade. But better we start now, particularly if the peak oil theorists are correct, as I haven't heard anyone mention the phrase "peak natural gas" in quite some time.

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Tickers in this Article: TM, HMA, GM, F, XOM, MUR

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