Industry banking on major conversion from gasoline vehicles - WOWK 13 Charleston, Huntington WV News, Weather, Sports

Natural gas banking on major conversion from gasoline vehicles

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Phil Pfister, a spokesman for Chesapeake Energy and former strongman competitor, sits atop a natural gas powered motorcycle built for Chesapeake by the Orange County Choppers. Phil Pfister, a spokesman for Chesapeake Energy and former strongman competitor, sits atop a natural gas powered motorcycle built for Chesapeake by the Orange County Choppers.
Michael Bachinski, purchasing agent for Noble Energy, demonstrates a fill up of a compressed natural gas vehicle in Charleston. Filling  up is simply a matter of popping the pump into the tank and pressing a button. Michael Bachinski, purchasing agent for Noble Energy, demonstrates a fill up of a compressed natural gas vehicle in Charleston. Filling up is simply a matter of popping the pump into the tank and pressing a button.
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Driving, fueling and maintaining a natural gas-fired vehicle is essentially the same as a traditional vehicle. The difference is natural gas gets you there for less than half of the cost at current prices. 

When Michael Bachinski of Noble Energy turns the ignition in his natural gas truck, it sounds and feels like any other engine. At the start, his particular model is running on gasoline until the engine reaches a certain temperature.

When he flips a switch on the dashboard, no more complicated than turning on a defroster, the vehicle seamlessly switches to natural gas. If you didn't know better, it's hard to tell he did anything at all.

"You can't even tell," Bachinski said. "When you push the button, you're running on natural gas."

When he stops to fill up the tank, Bachinski walked a group of people interested in the process through what, again, looks a lot like the way a gasoline pump is filled. The learning curve of natural gas driving to gasoline vehicles is quite small.

Natural gas prices are very low and are expected to remain low for many years. A major factor in pricing has been the glut of natural gas that has flooded the market after geologists and engineers put to use a combination of modern drilling techniques capable of unlocking methane and valuable liquids from shale gas deposits, including controversial practices such as hydraulic fracturing and horizontal drilling.

"Where would we be without the Marcellus Shale?" Bachinski, a resident of Brooke County, asked during a driving demonstration in Charleston.

Gov. Earl Ray Tomblin has aggressively supported the expanding industry, particularly in the field of motor vehicle conversions. Early in his term, Tomblin formed a task force to convene on replacing the state's fleet with natural gas vehicles. 

"Transitioning to natural gas can save us money, create new jobs and has the potential to lessen our dependence on foreign oil," Tomblin wrote in a letter published in materials at the NGV Expo and Conference, a three-day event in Charleston this week. "I believe it will open many doors — for our state and our nation."

Attendants of the natural gas vehicle convention were notably excited about the technology and were convinced lower pollutant-emitting natural gas transportation will soon be replacing gasoline vehicles. 

"We're part of the converted. We think we're changing the world," said Sherri Merrow, natural gas development lead for Encana Oil and Gas Corp.'s U.S. subsidiary. " … There are a lot of different people telling the story, and that's why it's worked."

Fuel of the Future

While the technology still needs time to develop, officials within the industry say the natural gas vehicles are on the cusp of coming into widespread use.

Elizabeth Ames Jones, senior policy advisor with D.C. lobbying group Patton Boggs LLP,  said she believes that in the next five years, education and engagement with the public will push natural gas vehicles to be "more prominent in the psyche of the general American public." 

"We have front row seats to the greatest show on Earth," Boggs said. " … We're participating in mankind's quest to find the next great energy source to meet the needs of generations to come."

The most appealing part of the natural gas vehicle movement is the pump costs. At the moment, natural gas refueling prices are very low compared to gasoline. Because much of the fuel cost is actually transportation, compression and other non-commodity costs, the end price is also highly resistant to natural gas price fluctuations. 

"Based on the market fundamentals, natural gas wants to find its way into the market," Jones said. 

Richard Kolodziej, president of Natural Gas Vehicles America and former president of the American Gas Association, said there are numerous benefits to natural gas development, including environmental and wide-ranging economic benefits. However, if natural gas is going to take off, that's not enough to sell it to the consumer, he said. Consumers want to see how much pain they can avoid on their fuel bill. 

"Individuals think about ‘what's it going to cost?' Now the economics are in place," Kolodziej said. "Obviously, the adoption of anything takes time. The telephone took 40 years to go from zero to 50 percent of the market. Some things grow faster, like the cell phone. In some areas, natural gas is moving like the cell phone."

Stephe Yborra, director of market development at NGV America, an organization that supports natural gas vehicle development, predicted that the next five years will be especially critical to natural gas vehicle development. 

"We will still have a long way to go before reaching our full potential, but this next five-year period will prove to be the ‘tipping point' for accelerated adoption and growth — very exciting times," Yborra said.  

Even if current natural gas prices, hovering around $4 per Mcf, were to double, Kolodziej said, it would still out-price gasoline. 

John Roselli, director of alternative fuel sales for Blue Bird Body Company, a manufacturer of school buses, said the abundance of the resource will keep it affordable. Blue Bird has experimented with CNG for more than 20 years. 

"Because of the abundance of natural gas, alternative fuel prices will stay low as compared to gasoline and diesel," Roselli said. "The other important factor is that this fuel is American and the U.S. is actually a net exporter of natural gas."

Payback Potential

Given current supply volumes, natural gas prices are projected to remain relatively flat.

"We've got such a huge amount of natural gas in the United States, and we're still finding and producing it," he said. "… This is happening, not just here, but around there world. There are more than 16 million natural gas vehicles around the world."

Kelly Bragg, energy development specialist for the West Virginia Division of Energy, said markets look positive for natural gas vehicle development. 

"As prices for petroleum-based fuels continue to trend upward, more and more people will make the switch to a vehicle that runs on an alternative fuel," Bragg was quoted in materials from the conference.

To see just how cheap natural can get, one may look to natural gas pioneers in Oklahoma. The state, home to a number of large natural gas companies, has been pushing natural gas vehicles for several years. 

Jay Albert, deputy secretary of energy for the state of Oklahoma, said his state has begun to target its own state fleet in order to promote natural gas vehicles. Public fueling stations encourage vehicle purchases, and more vehicles using natural gas encourage fueling station development. 

"Because of the number of stations we have in Oklahoma, we're able to get price competition at the pump," Albert said. "We're able to get compressed natural gas in Oklahoma for as low 78 cents. That's being retailed by 7-Eleven."

Albert said that due to a number of incentives and the low price afforded by competition, payback periods on the extra costs of natural gas vehicles in Oklahoma has in some cases dropped below a year. He estimated the state has saved millions over the life cycle of the state fleet.

Infrastructure

The West Virginia fuel map was once dotted with natural gas vehicle fueling stations. The market never caught on and now finding a place to fuel up can be difficult. 

IGS Energy-CNG Services is looking to solve that problem by building four stations along Interstate 79 in Charleston, Jane Lew, Bridgeport and another just over the Pennsylvania line. TJ Meadows, business manager for West Virginia at IGS, said the company is already looking to expand even beyond that corridor.

"We don't only see natural gas vehicles as the fuel of tomorrow; we're seeing it as the fuel of today," Meadows said. "It's not a question of whether or not it's going to happen. It's when it's going to happen." 

Dave Mrowzinski, CNG program manager for IGS, said when locating a public station, the company looks for places where multiple companies, organizations or other entities might be able to aggregate their demand. That way, the large and expensive stations can ensure sales before the investment is made.

"We try not to just build and hope that people come," Mrowzinski said. 

Incentives

Another major challenge for consumers interested in natural gas-powered vehicles is the upfront cost. Because of the storage requirements of natural gas, the vehicles are more expensive to produce. 

"Natural gas vehicles will never cost less (than traditional gasoline vehicles)," Kolodziej said. "Our tanks are much more sophisticated. But, the price will come down."

In the meantime, consumers are getting help to cover those excess costs in a lot of states. In West Virginia, 35 percent of the vehicle purchase price up to 50 percent of the conversion or $7,500 is provided as a tax incentive. Larger vehicles can qualify for up to a $25,000 tax break. 

So, as an example, if a user buys a sedan powered by natural gas that included an upcharge of $9,500, the state government would cover $7,500 of that cost. At 28 MPG, at about 15,000 miles, considering a natural gas fuel cost of about $2.10 and gasoline price of $3.53 per gallon, it would take 2.6 years to pay back the extra cost.

Using same prices, a pickup truck traveling 25,000 miles per year at 13 MPG can return its investment in less than a year.

The state also gives a 20 percent tax break for constructing an alternative fueling station for up to $400,000.

Joe Rende, regional director of business development at Trillium CNG, a CNG fueling service provider, said incentives are important, but federal programs that go from year to year are "problematic" for potential investment. 

"We need as much incentive as we can get," Rende said. " … The government has to be very consistent with what it's going to do, both at the federal and the state level."

Kolodziej said incentives are necessary for natural gas vehicle development, but can be used to make it accessible and spur market growth. 

In the meantime, the vehicle is mostly developing in the large fleet market, where many companies are already on board for the natural gas vehicle switch. 

"I think you'll see the fleets first. It just makes sense," said Corky DeMarco, executive director of the West Virginia Oil and Natural Gas Association. "If you've got a good number of vehicles on the road and they use 50 to 100 gallons and only go around the local area, you can cut costs 50 percent. That's where the focus is going to be."

Several companies at the conference told participants they are already in the process of converting fleets to natural gas power. Waste Management, Blue Bird, Collins Bus, Consol Energy and several others talked about their interests in utilizing natural gas as a fuel at the conference. 

"Natural gas-fueled trucks have quickly become the preferred vehicle in the solid waste recycling collection industry," said Brian Holtz Sr. of Waste Management. Holtz added that 80 percent of Waste Management's new vehicles were fueled by natural gas, and the company currently has the largest fleet of heavy duty natural gas trucks in America. 

He said Waste Management is considering converting several of its West Virginia vehicles. 

"Charleston would be a starting point just because of the size of the fleet," Holtz said. " … We've been looking at Charleston for a while."

Tax Calculations

The state has already dealt with a problem many states are facing — how do you make up for the lost revenue from taxing gasoline? West Virginia's solution was Senate Bill 454, which passed this year.

Natural gas is considered an alternative fuel and taxed at a rate of 20.5 cents per gasoline gallon equivalent, with a variable component of around 5 percent of the wholesale cost. Gasoline gallon equivalent is a measure used to standardize the energy content of a fuel compared to gasoline. 

Jeffrey L. Clarke of NGV America said variability across states on how the fuel is taxed for road improvements is troubling to the industry. Various systems have been put in place, such as special decals, that are incompatible across states. 

"It hadn't been a problem before because we were a local regional fuel," Clarke said. " … It's a growing industry. What hasn't been a problem in the past is going to be a problem in the future."

Questions of Safety

Consumers are beginning to learn about natural gas vehicles. Among the "misconceptions" encountered, Kolodziej said, is that natural gas vehicles are more dangerous than traditional vehicles. He said the opposite is actually true. 

"A gasoline container is a rigid plastic bag," Kolodziej said. " … Our tanks for CNG hold gas at 3,600 pounds. They are metal wrapped in carbon. … Every energy is unsafe if you handle it badly, and every energy is safe if you handle it right."

If natural gas and gasoline technology were both new, Kolodziej said, it wouldn't be a question which one would be hitting the road. 

"If you tried to introduce gasoline into the market today, with our rules today, you couldn't," he said. "Emissions problems, safety problems, everything — you're just used to seeing that car alongside the road, leaking or on fire or whatever. That's part of life. If you didn't have that and tried to introduce that technology now, you couldn't."