NGVs Are Getting Ready To Roll

August 2012, Vol. 239 No. 8

Richard Nemec, Contributing Editor

Demand for natural gas as a transportation fuel in the United States is seen as growing as is fueling infrastructure to deliver it, and why not? The price of natural gas is low, the fuel is plentiful, and the pollution impact is minimal. On the surface it appears to be the brewing of a perfect storm for consumers and natural gas industry stakeholders.

But look a little closer, however, and there are a couple of essential missing ingredients – a steady stream of new vehicles able to use compressed natural gas (CNG) or liquefied natural gas (LNG), and a fully built national delivery system for fueling those vehicles to run on CNG or LNG.

While industry trade groups don’t necessarily keep score, many of their larger natural gas-providing members are individually and collaboratively attempting to hammer out the beginning of a natural gas fueling system for vehicles, focusing a lot on trucking fleets. But it is slow going with the constant “chicken-egg” question arising as to what comes first – more vehicles or more fueling stations?

There is a potential 1 Bcf/d added demand from natural gas vehicles (NGV) in the future U.S. gas markets, according to an industry brief published in mid-May by Raymond James & Associates, a Florida-based financial research firm. Its third annual assessment of the gas transportation fuel sector concludes that even without subsidies from a national energy bill, NGVs are destined to grow. How quickly, depends on several factors, including the ever-present chicken-egg issue, the assessment notes.

“To get to 1 Bcf/d going for transportation fuel, there would need to be a roughly ten-fold increase in the number of U.S. NGVs,” James said. “Is it realistic? Sure, just not anytime soon.”

Industry insiders like Kevin McCrackin, AGL Resources’ vice president for utility markets in its multi-state utility operations, says the NGV market “has never been stronger; the pricing differential (oil-to-gas) is driving a lot of interest in the market, and the market needs to respond with both more efficient conversion costs and more vehicles, along with additional fueling infrastructure.”

The NGV infrastructure is being boosted by Sempra Energy’s California utilities; AGL’s seven utilities now spread across numerous southern, midwest and eastern states; Questar Gas; Encana Corp. in Canada; and Pacific Northwest utilities and pipeline companies. Encana is facilitating NGV use in the oil/gas production fields; AGL in interstate commerce, and Sempra on a regional basis in Southern California.

In the first five months this year, these major gas industry players launched some aggressive efforts in moving toward an infrastructure that can provide CNG and LNG for transportation. In mid-May, a panel of experts, including a Wall Street investment banker, told the Alternative Clean Transportation (ACT) Expo 2012 conference in Long Beach, CA that NGVs have become a full-fledged commercial sector, it is “no longer a science project.”

Earlier on the same program, Wesley Clark, a four-star Army general, former NATO Supreme Allied Commander in Europe and a 2008 Democratic Party presidential candidate who now has global financial interests in energy, urged the competing alternative fuels to work more cooperatively arguing that there is about a 7 million b/d equivalent (market) in alternative fuels that could be split among about seven different options ranging from natural gas, propane and biofuels to electric vehicles, plug-in hybrids and fuel cell-powered transportation.

AGL’s McCrackin points out that the industry has increased it collaboration as evidenced by the creation in 2011 of the “Drive Natural Gas Initiative” that includes 28 utility members in the American Gas Association (AGA) and 30 production and service companies in America’s Natural Gas Alliance (ANGA). Representatives of major companies from both AGA and ANGA met this past spring with the CEO of Chrysler Corp. to share ideas on how to expand the NGV market.

Nevertheless, there is still a split between those who see the future of the NGVs riding on greatly increased national incentives for more utility involvement from Congress and the Federal Energy Regulatory Commission and others who want to resist any added encroachment from the regulated sector. The latter see market-based programs as the only long-term answer to persistent chicken-egg issues.

During the ACT expo, Encana displayed one of its mobile, 5,000-gallon LNG transportation fueling stations, of which there were six in commercial use at the time. Heckmann Water Resources, a major Encana customer, agreed to buy 200 NGV tractors and Encana later agreed to develop the fueling systems to allow Heckmann trucks to operate more economically and environmentally clean in various shale plays around North America.

At the same ACT conference, the CEO of Ryder Systems Inc.’s 200,000-vehicle fleet to rent and lease, Greg Swienton, expressed confidence that longer term the vehicles and the fueling stations will be developed to keep the momentum going in the move of fleet operators to prefer NGVs.

Similarly, Sempra’s Southern California Gas Co. (SoCalGas) utility has taken steps to expand NGV fueling options throughout its service area in the southern half of California. “One of the core responsibilities (of our) NGV program is to assist customers in the construction of public and private stations throughout our service territory,” says a Los Angeles-based Sempra spokesperson.

SoCalGas works closely with the natural gas transportation fueling sector to provide gas utility pipeline extensions and upgrades to accommodate station operators’ individual needs. The Sempra gas-only utility also has a proposal pending at the state regulatory commission seeking to establish a compression tariff that will make it easier for private- and public-sector organizations to establish commercial NGV fueling stations.

However, earlier this year SoCalGas drew strong opposition from one of its usual allies, Seal Beach, CA-based Clean Energy Fuels Corp., regarding the utility’s proposal to provide gas pipeline extensions and upgrades. Clean Energy is alleging that the SoCalGas plan is anti-competitive. There are actually two fights ongoing – both pitting former SoCalGas executives now with Clean Energy against the nation’s largest monopoly gas utility, which is unleashing an aggressive push in the NGV market.

The broader controversy is SoCalGas’ filing late last year asking for the establishment of a broad-based compression tariff. That has been deemed by a CPUC regulatory judge to be a rate-setting case requiring hearings (this past June) and a long administrative law process. A final decision was slated for the end of 2012.

In addition, the Los Angeles-based utility stirred the pot of controversy a second time in the first quarter of this year with a letter informing the CPUC that SoCalGas had signed an agreement for providing compression services to the Los Angeles Unified School District (LAUSD), the nation’s second-biggest public school district. Over a barrage of nay-saying from Clean Energy, the utility argued that the school district contract does not have to await the broader rate-setting case because it is with a government agency and is exempt from normal CPUC oversight.

Under the proposal, which is applicable to combined heat-power (CHP) and peaking power plants in addition to NGV fueling operations, the utility owns and operates gas compressors and related equipment on the customer’s site to provide gas at special, customer-specified pressures. SoCalGas does not intend to own or operate the fueling equipment itself, and specifies as such in the tariff.

Normally the utility gas service comes at pressures ranging from a fraction of a pound to several hundred pounds-per-square-inch (psi). Under standard tariffs, SoCalGas does not guarantee a certain pressure, but with a special compression tariff the utility agrees to “design, procure, construct, own, operate and maintain on customer premises” the equipment needed to meet specific pressure requirements that are called for in NGV fueling.

All nonresidential customers are eligible for the special tariff, while the utility has the ultimate say in whether or not the tariff is granted.

Anticipating continued growth in demand for NGV infrastructure, SoCalGas early in 2012 made a commitment to upgrading six of its own public-access CNG stations by the end of 2014. “We are installing new or additional compressors and expanding fuel storage capacity at the stations,” the spokesperson says. “We are seeing an increase in the volume of fuel and the number of transactions at (our) current fueling stations.”
In April, for example, SoCalGas fuel volume was 18% higher than it was in March, and the number of fueling transactions for the month increased by 15%, the spokesperson said. “By the end of 2015, we will have also constructed two additional new public stations.” It also plans to add 1,000 NGVs to its utility fleet during that period.

Earlier this year, Encana rolled out an LNG truck fueling station in Louisiana at the Relay Station in Frierson, teaming with its water trucking partner Heckman, and Atlanta-based AGL Resources, one of whose units fuels the project from one of its existing LNG supply facilities. Encana’s Eric Marsh, a senior executive in the U.S. division, called the project an “innovative Canadian-American solution to expand the use of LNG (in transportation).”

Back in Georgia, AGL’s Atlanta Gas Light utility is pursuing a state-approved $12 million, five-year program for expanding the CNG fueling station network in the state. It envisions the fueling stations servicing commercial fleet and private passenger vehicles.

AGL’s utility used this summer to finalize contracts with the city of Atlanta and seven private sector organizations that indicated in a utility competitive solicitation they want to build CNG fueling stations in the Atlanta metropolitan area and three other Georgia cities (Macon, Savannah and Valdosta).

Atlanta Gas President Steve Lindsey said the response to the utility solicitation for fueling proposals indicates there is “a strong support for natural gas to fuel vehicles,” and this demand should help ignite more work to make CNG more accessible to citizens throughout his state.

AGL officials, like their counterparts in other parts of North America, cite the large spreads between natural gas prices and the cost of both gasoline and diesel transportation fuels as part of the growing stimulus for building more NGV-fueling infrastructure.

In the Pacific Northwest, Dan Kirschner, the executive director at the Northwest Gas Association (NGA), designated Vancouver, BC-based FortisBC, the gas-electric utility provider in the western-most Canadian province, as the regional leader in NGVs on both sides of the international border. Others, such as Avista, NW Natural and Puget Sound Energy, are still “working there ways into the NGV sector,” Kirschner said.

In May the BC government announced a program to encourage the adoption of natural gas for transportation and reduce greenhouse gas emissions in the Canadian province, and FortisBC has been authorized to provide incentive funding to qualified heavy-duty fleet owners in BC, a Fortis spokesperson said. Program highlights include:
* Incentive funding to offset the incremental cost between a new NGVs and their diesel equivalent;
* A variety of eligible vehicles, including heavy-duty trucks, vocational trucks, buses and marine vessels;
* A program budget of up to C$62 million, including approximately C$10 million in funding for 2012;
* A program length of five years (ending in 2017).
In the Rocky Mountain region, Salt Lake City-based Questar’s utility makes all of its 33 CNG stations for its company operations spread around Utah available to the general public. Stations tend to be located along the I-15 corridor, the main interstate highway bisecting the state.

“We’ve upgraded all of these stations over the past three years,” said Darren Sheppard, a Questar spokesperson. “We’ve also got new stations coming on this year. We’re certainly trying to meet demand and support NGVs. We see the volumes of gas increase every month, and so far, it is going very well.”

Questar’s system is all CNG. There is one LNG station, operated by a third party, at this point in the state, but it also dispenses CNG, too. “There are still some good incentives for people to run on natural gas in Utah,” Sheppard said.

Questar is getting a lot of requests from private trucking companies for the utility to help them set up their refueling facilities, but as a monopoly utility, it can’t. That is why early in 2012, the parent company established to new non-utility business to do that. It began in March as Questar Fueling.

In Oregon and Washington, local utilities are further behind, although the interest in NGVs is picking up decidedly. Portland, OR-based NW Natural this spring was considering making its CNG-fueling stations for its own fleet open to the public. The company is also closely monitoring the development of a viable home-refueling device and intends to conduct a pilot project as soon as such a device is available.

“We view the sale of natural gas for transportation as part of our core utility business and will work with our utility commissions (in Oregon and Washington) to support the development of infrastructure, but what they may look like is yet to be determined,” a utility spokesperson said.

In Oregon, there is also some interest in the state Legislature to create incentives for the use of NGVs and for building more fueling infrastructure. No action is expected until the 2013 legislative session.

Bellevue, WA-based Puget Sound Energy (PSE) is “very much ramping up” it NGV work, according to Grant Ringel, a communications manager. The combination electric-gas utility is investigating how best it can support clean transportation on both the electric and gas sides.

“We have not launched a specific investment, but we are supporting a number of things going on,” said Ringel, who characterized PSE’s current NGV work as being in the “research and planning phase. We intend to put in motion a strategy around our investment in NGVs.”

In the midst of this increased attention from the industry to NGVs, an energy economist at the Massachusetts Institute of Technology (MIT) published a paper for an academic energy conference at Stanford University in June, touting the need for natural gas as a transportation fuel to get a smoother track on which to compete. Thus, Christopher Knittel said there needs to be a shift in public policy beginning in Washington, DC with Congress and regulators.

While policies have been benefiting ethanol and electric vehicles, Knittel urges a shift to NGVs, given the “historic disconnect” of about six-to-one that he sees between the price of oil and natural gas on an equivalent per-unit of energy basis. The academic economist presented a roadmap for leveling the playing field for natural gas through seven recommendations, three of which deal with getting more infrastructure in place.

For energy suppliers/transporters, Knittel sounds the bell for opportunity knocking. It probably behooves all sectors of the gas industry to pay attention and listen carefully. There could be a whole new market to serve, and new infrastructure is a key to that service.

Author
Richard Nemec
is a Los Angeles-based West Coast correspondent for P&GJ. He can be reached at: rnemec@ca.rr.com.