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NGV Market Holds 1Bcf/d Potential, Raymond James Says

If expected growth and diversity in fueling infrastructure and vehicles develops as anticipated, natural gas vehicles (NGV) could become 1 Bcf/d of added demand in the U.S. gas market, according to an analysis released Monday by Raymond James & Associates Inc.

That is the expectation, but the challenges are twofold, Raymond James' Industry Brief said: building a "much more widespread" fueling system, and "increased availability and diversity" of factory built cars and trucks that run on compressed natural gas (CNG) or liquefied natural gas (LNG). The infrastructure and the vehicles are not likely to greatly increase anytime soon, the report said.

The analysis by Raymond James' Pavel Molchanov said it is "purely a matter of time" for these two developments to take hold, given "how much investment is gravitating into this space. There is no reason why NGVs can't eventually contribute 1 Bcf/d of gas demand -- up roughly ten times from current levels, and perhaps even more."

While stating that the past year confirmed that NGVs are "for real," the analysis pointed out the reality of the current very tiny penetration of natural gas into the transportation fuel market (120,000 to 150,000 NGVs on the road in the United States, less than 0.1% of the U.S. vehicles and less than 1% of NGVs worldwide).

"To get to 1 Bcf/d would mean a roughly ten-fold increase in the number of U.S. NGVs. Is that realistic? Sure, just not anytime soon," said the Raymond James' analysis, noting that gas-rich nations such as Brazil and Iran already have in excess of a million NGVs on the road in each country.

"The bottom line is that U.S. CNG/LNG sales are still marginal in the context of overall fuel consumption, but by definition there are gains in market share." The analysis cited the largest U.S. natural gas transportation fuel supplier, Clean Energy Fuels Corp.'s, annual sales growth averaging 18% since 2005 when U.S. oil demand began to drop.

Despite the modest growth, the economics favoring CNG use in transportation remain strong, Raymond James said. "CNG still comes out ahead with an all-in, 'leaving the refinery' cost of $1.31/gallon of gasoline equivalent, compared with gasoline at $2.65/gallon -- a savings of 50%."

The analysis concludes that NGVs will pick up with current plans from various automakers to build more original equipment CNG and LNG vehicles, and when current plans for added fueling infrastructure materialize. Growth is assumed without government subsidies since the NAT GAS Act failed to pass in Congress.

"To accelerate the adoption curve, a more potent commitment from Washington, DC, along the lines of NAT GAS Act, would be useful, but the key point about natural gas fuels is that their growth is set to continue even without any subsidies."

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