Miller/Howard Investments

The Numbers Behind Electric Cars and Natural Gas

June 17, 2016  |  Michael Roomberg, CFA, Portfolio Manager/Research Analyst

Michael Roomberg: Electric cars—the topic on the minds of many electric vehicle-owning clients of ours. We believe the impact of EVs will be highly favorable for our natural gas-oriented investment portfolios over time. We've actually quantified this and we'll share it here.

What would it mean if we woke up tomorrow and every gasoline-powered car could be taken to an auto body shop and converted to natural gas? We ran the numbers on this. It takes about 25 kilowatt hours to charge an electric car, which provides 100 miles of travel. These 25 kilowatt hours are equivalent to running 136 LED light bulbs for 24 hours a day. The average American car travels about 15,000 miles per year. That's 150 charges, or 3.8 megawatts per car per year. In the US car fleet, there are about 250 million cars on the road, meaning, those cars in total will require 37.5 billion charges every year. That's 938 million gigawatt hours in total demand, equivalent to the output of 120 gigawatt, gas-fired power plant operating at full capacity for 8,766 hours straight, also known as one year.

That doesn't sound like too much, but to put it in perspective, there are no 120 gigawatt power plants in the United States. The largest natural gas power plant in the United States is located in Midland, Michigan. It produces only 1.6 gigawatts. The second largest plant produces just 1.1 gigawatts and other plant capacities drop sharply from there. Clearly, hundreds of these things will be needed to provide for that additional power supply.

Luckily, the US has about 430 gigawatts of gas-fired generation capacity today in operation, and it's only about 40% utilized at any given point in time, as at nighttime and in colder seasons, power consumption drops dramatically. In total, 172 gigawatts of current annual US natural gas power generation comes from about 22 1/2 billion cubic feet of gas per day. This 22 1/2 billion cubic feet [output] is about 30% of all the natural gas that's used in the US. The remainder is used for things like residential and commercial heating and industrial manufacturing.

Based on these ratios, if 100% of the incremental 120 gigawatts needed to power electric vehicles were met with unused natural gas fired generation, it would require another 16 BCF of additional gas production in the United States, which is about 22% more than the American gas industry produces today in all. Without factoring in any electric cars, we currently expect that natural gas consumption will grow in the United States by about 30% in coming decades. Knowing what we know today, in a scenario where electric vehicles completely displaced gasoline powered cars, the electricity needs associated with that could improve the natural gas growth story—which we've talked so much about―by another 70% in magnitude. So while there are clearly so many moving parts to the future energy equation in the United States and abroad, and we don't know exactly the course of events to come, at Miller/Howard we think very deeply about these issues and will position our clients' portfolios appropriately to take advantage of these trends.

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