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Posted: October 01, 2011

State of the state: Energy

Hickenlooper Looks to Fleet to Promote Natural Gas

Allen Best

As part of its economic development strategy, the administration of Colorado Gov. John Hickenlooper has set out to expand the in-state market for natural gas by promoting its use in transportation.

Switching fleet vehicles such as school buses and delivery vans to natural gas could displace 10 percent of oil consumed in Colorado, state officials say.
"Compressed natural gas is not going to displace all of the oil we use, but if we can do 10 to 20 percent in five years, that will be appreciable," says TJ Dejora, director of the Governor's Energy Office.

The vast majority of natural gas extracted in Colorado is exported out of state. In presentations before various groups recently, Dejora has reported that only 36 percent of the gas was consumed within in Colorado, as of 2009. That same year, it imported 79 percent of its oil, mostly from Canada.
Natural gas burns more cleanly than petroleum, producing half the emissions of nitrogen oxide and sulfur oxide. That advantage is already part of the strategy to reduce ground-level ozone in the Denver-Fort Collins area.

"We really see this as a market-based solution," said Dejora of the evolving market for natural gas. "But right now the market needs a nudge, a hand or a shove - whatever is appropriate."

Compressed natural gas also has a strong price advantage that is becoming apparent to waste-haulers and other fleet operators. Nearly 100 trash companies in Colorado have begun converting to natural gas engines.

"The natural gas truck does cost you a little more than $32,000 more than a diesel truck, but you get all the environmental benefits, longer intervals between oil changes, and less of a carbon footprint," said Shannon Smith, general manager of Alpine Waste & Recycling, a Commerce City-based company that operates in metropolitan Denver.

Trucks operating 10 hours per day burn 40 gallons of diesel. Switching to natural gas saves $41 per day, or $938 per month. At that rate, it takes two or three years to make back the original investment.

The federal government had previously offered tax incentives of $32,000 per vehicle, reducing the return on investment to almost no time at all. "That has since disappeared, but we are looking for it to come back," Smith says.

Alpine Waste bought its first natural gas-burning truck in 2009 and now routinely does so. Next year, for example, it will buy eight natural gas trucks to replace diesel-burning trucks that have reached 500,000 miles. That milestone generally comes within 10 years. The company this year also installed a fueling station, with 26 pumps.Several major gas extraction companies operating in Colorado - Encana, Anadarko, Noble, and Williams - have also converted fleet vehicles to natural gas.

The key piece is a high-pressure tank that can withstand pressures of 3,000 pounds per square inch. The companies are using a common fueling station near Fort Lupton for 50 fleet vehicles working in the Denver-Julesberg Basin. Delivery trucks such as employed by UPS, Fed Ex and Comcast/Infinity, are also candidates for conversion. School buses are also possibilities, although there the payback is longer, maybe four to eight years.

The state, at the suggestion of Hickenlooper, seeks to coordinate aggregation of demand in both purchase of vehicles, helping cut front-end costs, and in demand at fueling stations, sending clear market signals to retailers. State officials wanted expansion of natural gas more broadly into fleets and to a lesser degree general use.

"If you're a station owner, you're not going to spend $500,000 to $1 million to install fueling equipment for natural gas unless you're confident you will have customers," Dejora says. "A person isn't going to buy a vehicle unless they know they can get the natural gas."

State officials are coaxing stronger demand by nurturing an improved delivery infrastructure, such as drivers might want if they routinely travel on I-25 and I-70. Earlier this year the state seeded natural gas stations in Rifle and Grand Junction.

Another station is in Colorado Springs, and the rest are in metropolitan Denver-Boulder. Most are operated by Clean Energy Fuels, the company co-founded in 1996 by Texas energy entrepreneur T. Boone Pickens.

In stimulating the in-state demand for natural gas, the Hickenlooper administration seeks to counter the perception that state environmental regulations governing drilling caused the loss of jobs. The regulations were adopted in 2008, just as the Great Recession yanked the price of natural gas from $13 per million Btu to $2 million. It's now back to $4.40 - still too low to justify drilling in many deeper and unconventional fields, such as the Piceance Creek between Rifle and Rangely.
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