New hope for natural gas autos
Natural gas is domestic and cheap and clean, so the story goes. So why are we still guzzling gasoline in our cars instead of sipping natural gas?
There are no easy answers, but Colorado Gov. John Hickenlooper has reached across party and state lines in search of one.
To push for the adoption of natural gas as a transportation fuel, Hickenlooper, a Democrat, signed a November 2011 memorandum of understanding (MOU) with Oklahoma Gov. Mary Fallin, Wyoming Gov. Matt Mead, and Pennsylvania Gov. Tom Corbett – all Republicans. The MOU has a stated goal "to attract automobile manufacturers in the U.S. to develop a functional and affordable original equipment manufacturer (OEM) fleet natural gas vehicle (NGV) that will also meet public demand."
The states committed to buy NGVs for their state fleets to buoy local natural gas producers and give the broader market a boost. Hickenlooper traveled to Detroit last July to discuss the issue with the auto industry’s leaders, and the conversation continued when manufacturer representatives visited Colorado in August.
"This bipartisan effort demonstrates the ability of government to work together to secure energy independence for the U.S.," says Tracee Bentley, the Hickenlooper administration’s director of policy and legislation. "Vehicle procurements on this scale provide economic development, promote jobs and utilize a lower-cost, cleaner burning fuel. The MOU is moving the transportation industry in a good direction."
Early Rewards of the MOU
Since the MOU’s genesis, 18 additional states have signed on, bringing the grand total to 22 states stretching from Maine to Utah. In 2013, the strategy is starting to bear fruit.
Oklahoma’s bid prices for NGVs and bifuel vehicles that can run on either natural gas or gasoline dropped by about 10 percent to 20 percent in 2013. The Sooner State’s price tag on the Honda Civic GX, the only OEM-made light-duty NGV on the U.S. market, fell from about $31,000 to $25,000. The bifuel Dodge Ram 2500 Crew Cab fell from $36,000 to just under $30,000.
In Colorado, the early results of the MOU have been less pronounced, but the state bids for the bifuel Ford F-250s were down more than 15 percent, while the bid for the Civic GX remained the same at $25,557.
But incremental cost dropped by much higher percentages, making NGVs an easier sell for high-mileage fleet operations. Also important for fleets, the breadth of options has widened: Colorado can choose from two light-duty NGVs and 15 bifuel trucks and vans in 2013, up from only five in 2012.
Thanks to historically low natural gas prices, the payback for fleet vehicles could be as little as two or three years. Estimates hold that Colorado would save $20,000 in fuel over five years with the compressed natural gas (CNG) Dodge Ram, but it costs about $10,000 more than a gasoline Ram.
"Natural gas is attractive because it’s cheap," says Alex Schroeder, senior manager for transportation fuels at the Colorado Energy Office. "Fleets and businesses are doing this for economic reasons." The volatile economics of petroleum-based fuel "is lifting all boats" in the uncharted alternative-fuel waters.
California and Utah are ahead of the curve, but "Colorado is catching up," Schroeder says. But if 22 states start aggressively buying NGVs for their fleets, he adds, "Now you’re talking numbers the manufacturers can respond to. It starts with the fleets. The big step now is implementation."
Broader consumer adoption will take longer, Schroeder says. "That’s not something that’s going to happen overnight. We’ve been using petroleum for 100 years." A five-year development cycle is the norm for the auto industry, and volume will help drive the price of NGVs closer to that of their petroleum-fueled peers.
Rich Kolodziej, president of NGVAmerica, a pro-NGV trade association in Washington, D.C., calls the MOU "a big deal" but laments that more OEMs have not responded. Instead, American automakers are largely working with aftermarket partners to offer conversions. "It’s slow because only a few states have gone through the bid process," Kolodziej says. "I think it’s going to pick up, because I think more states are going to sign on (to the MOU)."
Manufacturers "should be coming out with additional models," Kolodziej says. "That’s what we want to see. Right now, we’ve just got the Honda Civic."
Beyond the MOU, increased federal funding for natural-gas vehicle R&D and EPA policies would be the biggest catalysts for the industry, he adds. "The federal government could do a lot of different things. The MOU has provided an impetus at the state level. The automakers have to see demand. If they see demand, they’ll build it. It’s all about volume."
If this sounds like déjà vu, that’s because this played out over the course of the last decade. Light-duty NGV availability peaked in the U.S. in 2002 when buyers could choose from 18 models from American automakers. That dropped to five models in 2005 and dwindled to one – American Honda’s Civic GX – by 2007. Excluding aftermarket conversions, the light-duty NGV catalog hasn’t changed in the six years since: Beyond the Civic GX, no automaker currently has a light-duty NGV rolling off its assembly lines with the U.S. market in mind.
It follows that the domestic market penetration has likewise been minimal. Of the 14.8 million NGVs in operation worldwide – mostly in Latin America and the Middle East – only about 120,000 are in the U.S. Total U.S. NGV volume was about 8,400 vehicles in 2012, according to Pike Research. Pike analysts project that number will quadruple to more than 30,000 by 2016.
A market dilemma
The Colorado Energy Office’s Schroeder says there is a "chicken-and-egg problem" with natural gas vehicles: Infrastructure is the egg and NGVs are the chicken, or maybe it’s the other way around.
"There are no vehicles out there," says Schroeder, thus there aren’t many service stations where you can fill up on natural gas. "The feeling is we can bring both the chicken and the egg together."
Beyond the MOU, Schroeder’s vision of chicken-egg oneness might be catalyzed by legislation. Signed into law last May, Colorado HB-1258 deregulates the resale of natural gas and electricity at service stations.
But there are still only about 20 retailers where you can fill up on compressed or liquefied natural gas in Colorado, most of them on the Front Range.
More are on the way. Clean Energy will have 150 trucking-oriented filling locations coast to coast by the end of 2013 and Shell has plans for another 100. There is also the possibility of at-home fueling for households with an appliance like the BRC FuelMaker Phill.
NGVAmerica’s Kolodziej says early diesel customers traded convenience in finding a pump for high mileage and were willing to drive to a truck stop in the post-Arab oil embargo 1970s. He says NGV infrastructure will follow a similar curve. "There are 150,000 gas stations in the U.S.," he says "People assume we have to blanket the entire country. That’s not true. If there were 5,000 stations offering natural gas, we wouldn’t be having this conversation, but there are only 1,000 right now. But we certainly don’t have to have 150,000."
Instead, he says a slight fraction will suffice, noting that Los Angeles has about 100 stations offering compressed or liquefied natural gas. "It’s not a surprise that Honda sells more natural-gas Civics in L.A. than anywhere else."
It follows that Kolodziej sees NGVs will first emerge as a commuter-friendly second or third car in the consumer market, and not a good option for one-car households. "We want to go after people with two or three cars to do things they do around town." After 200 miles, they can rely on vehicle No. 1 or No. 2 and not have to worry about where to fill up on natural gas on a trip to the Grand Canyon.
Matchmaking, NGV style
As the Denver-based manager of market development for Oklahoma City’s Chesapeake Energy, the country’s No. 2 natural gas producer, Dan Genovese is striving to "be the Chuck Woolery" of the industry to make a love connection between the private and public sector and get natural gas-fueled vehicles off of the drawing boards and onto the roads.
"We’re going to pull this beast through the needle," Genovese says. "We’re pushing and pulling the market."
His lofty projection is that natural gas could replace 15 percent of the nation’s motor fuels in five short years. Both economic and environmental concerns are driving the trend. "There’s kind of a double bonus," Genovese says. "If you adopt a fuel that has 25 percent to 30 percent less of a carbon footprint, it’s a double win: more miles per dollar and less carbon."
Genovese says companies aren’t going to be able to hit new Corporate Average Fuel Economy (CAFE) standards, calling for 54.5 miles per gallon by 2025 with incremental increases in interceding years, "so they look for credits. Electric vehicles will give them credits, and now natural gas vehicles give them credits."
If fleets adopt NGVs in a big way, the pathway to the consumer becomes a much shorter and easier route. "We suspect that natural gas vehicles will be cheaper and easier for consumers to adopt," says Genovese on why he sees the NGV as a better bet than the EV. "Auto manufacturers might find that an easier way to get credits. We think there’s a lot of optimism and opportunity for natural gas vehicles with auto manufacturers."
Genovese praises South America’s diverse transportation fuel markets; in Brazil, ethanol accounts for nearly 20 percent of transportation energy, and bifuel vehicles are common. "If we switch half of our transportation to natural gas, that’s going to increase the price of natural gas and decrease the price of oil," he says. "I say that’s the best thing that ever happened. If you have substitution, prices begin to reach parity, and you have a real stability to it, too."
The Colorado Energy Office’s Schroeder calls it "resource hedging," noting that the state is aggressively pursuing other sources of transportation fuel beyond oil and gas.
The changing economics of natural gas
"Traditionally, BTUs (British Thermal Units), or energy content, whether it was oil, natural gas or another commodity, all tracked together," says Chesapeake’s Genovese. "If oil went up, natural gas went up, ethanol went up, and all these other things. They cycled up and down with each other. When we started producing all of this shale gas in 2006, you saw this decoupling. As oil went up, natural gas went down. Therein lies the long-term advantage for natural gas as a transportation fuel. It no longer tracks the cost of oil."
Early 2013 prices for natural gas were around $3.25 per million BTUs, or about 75 percent cheaper than oil. A decade ago, the equivalent-energy price for natural gas was sky high, a bit higher than gasoline. Fracking brought those prices down to the ground.
But are today’s low natural gas prices artificially depressed? There’s a pretty good argument that they are: The market is closed (although some exports have been OKed by courts this year), and storage is nearly maxed out.
Genovese sees $4.50 as a good price for a million BTUs of natural gas. "I think there’s a point in time where all the valves are turned on but also the drilling rigs start going back to drill those reserves that are out there. Markets achieve equilibrium."
Laws restricting energy exports "are old rules," he says. "There’s a tremendous amount of talk of exporting now."
Exports wouldn’t have a big long-term impact on price because "shale is everywhere," adds Genovese. "You might well see shale production in other countries. It’s been advanced and perfected here in America, but it’s not necessarily a technique that’s been exported."
Environmental pros and cons
There is considerable debate over the environmental merits of natural gas. Gov. Hickenlooper sparred with activists at a December meeting of the Colorado Climate Network, an association of local governments seeking to mitigate and adapt to climate change.
According to a December 11 article in the Durango Herald, Hickenlooper argued at the Aurora conference that natural gas was the only way forward to cut greenhouse gas emissions in the near term. Anti-fracking activists pushed the governor for a move away from fossil fuels, but Hickenlooper said horizontal drilling and fracking have put the country on a course to significantly cut emissions.
Time was too short to wait for a renewable replacement for all fossil fuels, he added. "I’m willing to push the political reality as hard as I can, but I think it’s morally reckless not to embrace natural gas as a short-term transition fuel."
NGVAmerica’s Kolodziej says that federal standards have made for cleaner cars of all varieties, and NGVs are about 25 percent cleaner than gasoline vehicles, but every car is cleaner than it was a few years ago. "The EPA gets a lot abuse, but I just went to L.A. and I saw mountains I didn’t used to see."
The environmental conversation on NGVs "has become a major liar’s contest, and many of the environmental groups are the biggest liars," Kolodziej says. "They used to support natural gas vehicles, but they stopped because it’s taking away from the luster of electric vehicles."
Kolodziej says the environmental lobby’s support for natural gas at power plants but not on the highways amounts to hypocrisy. "Their logic doesn’t make any sense. They want to use natural gas to power electric vehicles but they don’t want NGVs because they are a threat to EVs.
"The data assumes the natural gas industry leaks or throws away a couple of billion dollars of natural gas every year. That’s a nonsensical position. There are leaks, but it’s not that bad."
Kolodziej cites a 2009 study by TIAX, a Massachusetts-based consulting firm, for the California Air Resources Board that found NGVs emit 29 percent less greenhouse gases than traditional gasoline vehicles.
"Many people claim there are environmental upsides to NGVs," says Mark Brownstein, chief counsel for the Environmental Defense Fund’s Energy Program. "That can be true, but there are major questions about fugitive methane emissions. Relatively small leak rates in the supply chain can undo the greenhouse gas benefits you think you are getting. For NGVs to be a win in terms of climate, more attention needs to be paid to the magnitude of the leaks and where they’re coming from."
The potency of methane as a greenhouse gas is far higher than carbon dioxide, the argument goes, and leakage rates could be 2 percent. The threshold for a positive climate outcome from mass adoption of NGVs is closer to 1 percent, says Brownstein.
"There is no definitive data what the leakage rates are," he adds. "The engineering estimates vary widely. We need to get better data and make it publicly available."
Asked whether the environmental lobby’s push for natural gas to replace coal at power plants was contradictory to resistance for NGVs on the country’s highways, Brownstein says it’s a matter of relative evils. "Coal is much more carbon-intensive than oil," he says.
The fact that natural gas releases 25 percent less carbon emissions than diesel "is a relatively easy set of talking points to rattle off," Brownstein adds. "We’re not rooting for NGVs to fail, but we’re looking to have them address this issue of fugitive emissions."
Ford’s NGV road map
Chrysler is building its bifuel Ram on the assembly line in Mexico and GM is working with one Indiana upfitter to convert a few trucks and vans, but Ford has seven upfitters working on aftermarket NGV conversions of the whole spectrum of vehicles, from light-duty to cargo vans, says Jon Coleman, Ph.D., Ford’s fleet sustainability and technology manager in Dearborn, Mich.
He says Ford’s strategy fits the bill for state fleets, just like the MOU ordered. "What the states have asked for is breadth of portfolio," Coleman says. "If you’re going to invest in infrastructure, you want to spread it around every vehicle you have. That’s an affirmation of our strategy moving forward."
Ford’s plan is to continue working with upfitters rather than build NGVs on the assembly lines. "It’s a question of market demand," Coleman explains. "The last three years, Ford has made about 25,000 NGVs, which is about twice GM and Chrysler combined. In an industry where the total volume is 15 million, 25,000 is a rounding error."
To wit, Honda made only 2,000 natural-gas Civics in 2012, versus about 220,000 gasoline-powered Civics.
Coleman says he sees the MOU as something of a road map to the future for NGVs and gives Detroit a good indicator of market demand, but his optimism is tempered by the reality of the market.
"I’ve spent a fair amount of time at the governor’s office in Denver trying to make this work for Colorado," he adds. "I think we’ve made some good first steps, but this is going to take a concerted effort over a long period of time."