Even with the increasingly brighter domestic gas supply picture, the growth of the natural gas vehicle (NGV) market still faces daunting market and regulatory barriers, according to a panel discussion last Thursday sponsored by the National Regulatory Research Institute (NRRI). Speakers concentrated on what state regulators “should know and ask.”

Nevertheless, as gasoline pump prices continue to soar, proponents for more natural gas use as a transportation fuel are popping up around the nation, using environmental and economic drivers to promote their cause. Cities including Chicago and gas-rich states like Texas and Wyoming are getting in on the act.

With 110,000 natural gas vehicles (NGV) in the United States (12 million globally) and about 1,000 U.S. fueling stations, advocates including an NGV trade association are looking for growth in niche markets and in the numbers of fueling stations that have access for the general public. Chicago has an area-wide alternative fuels program that has latched on to the Department of Energy’s (DOE)-sponsored Clean Cities program.

With the NRRI panel, the driver for discussion was the assumption that current growing concerns about foreign oil import dependence and climate change have created increased interest in alternative transportation fuels. So, what better time than now for natural gas to rise to fulfill the potential NGV-backers have sought for several decades?

Panel moderator Ken Costello, a principal researcher at NRRI, saw disadvantages for natural gas relative to other clean transportation alternatives, given the challenges it faces in expanding an NGV fueling infrastructure nationally and lowering the price of the NGVs, compared to gasoline-powered vehicles.

“A big unanswered issue is who should pay for conversion more natural gas vehicles,” Costello said. Panelist Michele Beck, director of the Utah Office of Consumer Services, reiterated that gas utility customers under no circumstances should subsidize the creation of a NGV market. Costello called NGV technology “underdeveloped.”

“I think state regulatory commissions should be very careful about making public interest determinations that include reduced pollutants and improved national security,” Beck said. “These are issues best addressed by our elected officials, and they are certainly something that exists on a much larger scale than an individual utility service territory.

“And it is important that any incentives for NGVs come from external forces and not utility rates,” she added, noting that her comments shouldn’t be construed as her being “negative in any way” toward NGVs.

Washington, DC-based NGV America sees the growth continuing, however. “We’re seeing the vehicle numbers grow, and we’re seeing growth coming in the number of stations with public access,” according to a NGV America spokesperson, while acknowledging that there is still increased competition from other clean fuel alternatives for some segments of the fleet market.

“As soon as you get the public fueling, you get more and more fleets coming in. Hopefully as this year goes on we will see more and more fleets coming onboard. We’re seeing certain sectors growing faster and those are typically the heavy-duty vehicles.”

Qualifying his remarks as his own and not his agency’s, Joseph Rogers, an assistant attorney general in Massachusetts’ Office of Ratepayer Advocacy, recommended state regulators open generic proceedings to examine the many complex issues and questions tied to natural gas use as a transportation fuel. Rogers cited the rapid development of the Marcellus Shale gas play as having profound changes for the gas industry in the Northeast, and statewide proceedings could take into account rapidly changing developments that could impact the future of the NGV market.

“Here in the Northeast Marcellus Shale gas is really changing the whole market,” Rogers said. “In the recent Tennessee Gas Pipeline filing at the Federal Energy Regulatory Commission we see Tennessee redesigning its rates because the day of the long haul [for gas] from the Gulf of Mexico to Boston is over [see related story]. Because of Marcellus, gas is going the other direction.

“In addition, just about every major gas pipeline company in the Northeast seems to have some type of expansion project in the works. The forecast for cheap natural gas is for the foreseeable future, so if we open a generic investigation, I think the regulators need to focus on removing the market barriers that may impede the development of alternative fuel vehicles.”

Like Beck, Rogers said there will be some economic and environmental advantages to NGVs, but gas utility ratepayers should not subsidize the development of the technology. “Whether a substantial NGV market actually develops may depend on the types of technology developed for refueling.”

Ray Blatter, a senior regulatory manager with Pacific Gas and Electric Co., said there are some distinct cost differences and pros and cons between whether NGVs use compressed natural gas (CNG) or liquefied natural gas (LNG) technologies.

“One advantage to LNG is you can get a lot more in a tank, giving the vehicles a longer range,” Blatter said. “The cost of liquefying gas, however, is considerably higher than the cost of CNG, compressing it. My understanding is that for standard around-town use, the CNG option is really the predominant one. It is much easier to provide CNG fueling facilities. The types of applications that would be more suitable to LNG would be long-haul trucking, for example.”

Costello said to the extent that wholesale gas prices stay low, NGVs will be more competitive, however, there is also a potential flip side to that. “Since electric utilities use a lot of natural gas, the lower gas prices could result in lower retail electricity prices, which in turn would increase the competitiveness of electric vehicles relative to NGVs.”

Meanwhile, Texas Lt. Gov. David Dewhurst recently set statewide goals for increasing natural gas in both power generation and transportation, noting that the two in combination could push up Texas gas demand by 1-1.25 Bcf/d — about a 33% jump in overall gas consumption in the nation’s largest gas-consuming state. Similarly in Wyoming Gov. Matt Mead signed a bill (HB 235) authorizing the state transportation department to construct and operate publicly accessible NGV fueling stations, while setting regulations for the retrofit of NGVs and allowing natural gas conversions of state vehicles. In Florida, the Tampa International Airport announced recently that it was expanding a compressed natural gas (CNG) fueling facility under a lease and construction agreement with Seal Beach, CA-based Clean Energy Fuels Inc.

With $15 million in DOE Clean Cities grant money, Chicago is working with Clean Energy, Gas Technology Institute (GTI) and Groot Industries, Illinois’ largest solid waste management services company, in an effort that will involve the addition of what the local backers call record numbers of NGVs going into existing fleets at Groot, the city of Chicago and elsewhere.

GTI helped Groot secure another 20 CNG refuse trucks for its fleet last year using Clean Cities grants. Through a separate grant, the refuse hauler added 13 other NGVs, said a spokesperson for the Chicago Area Clean Cities Coalition. Groot had earlier constructed its own CNG refueling station. As the largest supplier of natural gas for transportation in the nation, Clean Energy is working with GTI to expand the NGV market by establishing two new fueling stations in the Chicago area. It is doing the development for Tax Medallion Management, a Chicago company that recently bought 38 NGVs for its taxicab fleet.

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