WHERE CAN I FILL UP? AN

Transcription

1 WHERE CAN I FILL UP? An Assessment of U.S. Natural Gas Transportation Fueling Infrastructure and Strategies to Accelerate Development January 2013

2 where can i fill up? An Assessment of U.S. Natural Gas Transportation Fueling Infrastructure and Strategies to Accelerate Development january st Street, NE, Suite 1100 Washington, DC Main: Fax: American Clean Skies Foundation 2013

3 The Author Matthew I. Slavin, Ph.D., is a senior consultant to the American Clean Skies Foundation (ACSF) and president of Sustainability Consulting Group of Washington D.C., with a focus upon clean energy and environmental policy, markets and technology, sustainable development and transportation. About the American Clean Skies Foundation Established in 2007, ACSF seeks to advance America s energy independence and a cleaner, low- carbon environment through expanded use of natural gas, renewables, and efficiency. The Foundation is a 501 (c) (3) not- for- profit organization. Acknowledgements On behalf of ACSF, the author gratefully acknowledges the assistance of many individuals from the wide range of stakeholder organizations listed below. Without the insights and time provided by these individuals, this assessment could not have been completed. Adrianus Resources American Gas Association America s Natural Gas Alliance AMP Trillium Atlanta Gas Light Company BAUER Compressors California Air Resources Board California Energy Commission California NGV Coalition California Public Utilities Commission Chesapeake Energy Corp. Chesapeake Utilities Clean Energy Fuels Corp. Clean Fuels Ohio Colorado Department of Revenue Encana Corporation Gladstein Neandross & Associates Idaho National Laboratory Keystone Consulting Group New Mexico Energy, Minerals and Natural Resources Department NGVAmerica NYSERDA Ohio Office of Energy Ohio Gas Association Oklahoma State Energy Office Oklahoma Natural Gas OnCue Express Pennsylvania Department of Environmental Protection Piedmont Natural Gas Pike Research PIRA Energy Group Pittsburgh Clean Cities Royal Dutch Shell SoCalGas South Coast Air Quality Management District Questar Gas Royal Dutch Shell TECO Energy i

4 Louisiana Department of Environmental Resources Mansfield Gas Equipment Systems Missouri Department of Natural Resources National Fuel Gas Company National Renewable Energy Laboratory Natural Gas Vehicle Institute Nebraska Energy Office New Jersey Clean Cities New Jersey Natural Gas Texas Commission on Environmental Quality TIAX LLC Trillium CNG U.S. Clean Cities Program U.S. Energy Information Administration Utah Clean Cities Utah Department of Environmental Quality Waste Management Inc. Westport Innovations West Virginia Division of Energy Wise Gas Inc. of Florida ii

5 Table of Contents Introduction and Summary The Case for Natural Gas Vehicles Transportation Fuel Savings Environmental Benefits National Private and Public Benefits Jobs Impacts NGV Technology and the Fueling Chain Fuel Storage, Cycle and Costs Economics for High- Mileage Vehicles CNG Fueling Technology Cascade Fast- Fill CNG Fueling Buffered- Fill CNG Fueling Time- Fill CNG Fueling LNG Fueling Technology Home Refueling Appliances Fueling Infrastructure Development Models Onsite Private Access Fueling Outside the Fence Onsite Private Fueling with Public Dispensing Limited Access Private Fueling Public Access Fueling Turnkey Contracting Overcoming the Fueling Barrier NGV Market Entering a New Durable Expansion Phase Economic Drivers of the NGV Market Fueling Infrastructure Challenges Building a Backbone National NGV Fueling Network Fueling Station Costs Ten- Year Cost Projection for NGV Fueling Infrastructure Commercial Investors in NGV Fueling Infrastructure Clean Energy Fuels Natural Gas Producers DeBartolo Development Trillium CNG AMP Trillium CNG Partnership Waste Management Nopetro Frito- Lay Kwik Trip Convenience Stores OnCue Express Stores Love s Travel Shops Mansfield SkyBlu Smart Fuels Peninsula Energy Services IGS Energy iii

6 5.15 Key Commercial Investment Strategies for NGV Fueling Infrastructure Regulated Utility Investors in NGV Fueling Infrastructure Questar Gas Oklahoma Natural Gas AOGC Piedmont Natural Gas Metropolitan Utilities District of Omaha National Fuel Gas Company Atlanta Gas Light New Jersey Natural Gas SoCalGas Wisconsin Public Service Key LDC Investment Strategies for NGV Fueling Infrastructure The Role of Government in Building NGV Fueling Infrastructure Federal Policies and Programs Sales and User Excise Tax Credits for CNG and LNG Clean Cities Grants CMAQ Funds EPA DERA Grants Federal Tax Credits for NGV Fueling Infrastructure National Community Deployment Initiative The State Natural Gas Act of Federal NGV Legislation Proposed for Consideration in State Government Policies and Programs Arkansas California Colorado Florida Indiana Kansas Louisiana Missouri Nebraska New Jersey New Mexico New York Ohio Oklahoma Oregon Pennsylvania Texas Utah West Virginia Wyoming Key Government Strategies Conclusions for Policy Makers iv

7 Select References Appendix A: Number of CNG and LNG Fueled Vehicles by State, Appendix B: Sources For Additional Information List of Tables Table 1: Fuel Cost Savings Using CNG by Vehicle Type, 4 th Quarter Table 2: NGV Emission Reductions Compared to Similar Diesel Vehicles... 8 Table 3: Private and Public Benefits of NGVs... 9 Table 4: NGV Fueling Infrastructure Reference Case Job Creation Projection Table 5: Features of Cascade Fast- Fill, Buffered- Fill, and Time- Fill CNG Stations Table 6: Current & Announced Production Capacity for Vehicle- Grade LNG Table 7: Fueling Infrastructure Development Models Table 8: Number of NGVs in Use in 2010 by Vehicle Class and Fuel Type, Table 9: Public and Private CNG and LNG Stations by State as of January 21, Table 10: Ten- Year NGV Fueling Infrastructure Cost Projection Table 11: Commercial Investments in CNG and LNG Fueling Infrastructure Table 12: Key Commercial Investment Strategies for NGV Fueling Infrastructure Table 13: States with NGV/CNG Tariffs Table 14: Selected Utility NGV Fueling Infrastructure Investment Programs Table 15: Questar s Utah NGV Tariff Rate Table 16: Opportunities to Promote LDC Investment in NGV Fueling Infrastructure Table 17: State Incentives for NGV Fueling Infrastructure Table 18: Key Government Strategies List of Figures Figure 1: Projected Price of CNG & LNG Through Figure 2: Schematic of a Cascade Fast- Fill Station Figure 3: Schematic of a Buffered- Fill Station Figure 4: Schematic of a Time- Fill Station Figure 5: CNG in a Box Figure 6: Schematic of an LNG Fueling Station Figure 7: GE Micro- LNG Liquefaction Plant Figure 8: Drivers of NGV Adoption Figure 9: Barriers to the Adoption of NG Trucks v

8 Introduction and Summary Within 10 to 15 years, more than 1.5 million natural gas vehicles (NGVs) could be traveling on America s roadways. This would represent more than a 10- fold expansion of the nation s current fleet of approximately 123,000 NGVs. The market potential for these vehicles is much greater, but to reach even the 1.5 million- vehicle mark, the number of fueling stations that dispense compressed natural gas (CNG) and liquefied natural gas (LNG) in the U.S. must be vastly increased. Recognizing this, in August 2012 the American Clean Skies Foundation (ACSF) published the results of a comprehensive review of recent developments and public- and private- sector initiatives to expand access to natural gas fueling in the United States. This report updates the August release, issued under the title: Where Can I Fill Up? A Survey Of Private And Public Sector Actions To Provide New Fueling Facilities For Natural Gas Vehicles. The August 2012 report addressed five key questions: What barriers does the lack of access to NGV fueling facilities pose to widespread adoption of natural gas vehicles? What is the cost of building a national fueling network for NGVs? Who is building NGV fueling infrastructure? Where? And how much is being invested? What business models are being used to fund NGV fueling facilities? What steps are governments at the federal and state level taking to ensure capital and other resources are available to build NGV fueling stations? This updated edition of Where Can I Fill Up? expands on the information in the August 2012 report. It provides more than 20 pages of new information on who is building NGV fueling infrastructure, along with more detail on where and how this infrastructure is being added and government policies pertaining to the development of NGV fueling infrastructure. The information presented in this report is based on interviews with experts drawn from natural gas producers, fuel service vendors and fueling station developers and operators, vehicle and component manufacturers and vehicle systems converters, fleet operators, the investment community, natural gas utilities, government, and U.S. Department of Energy Clean Cities coalitions. This report also draws on a comprehensive review of data resources and technical studies prepared by governmental and industry sources, financial documents, news reports, and legislative and regulatory documents from government sources. 1

9 In sum, this report presents a snapshot of NGV fueling infrastructure in America and of related programs, initiatives, and policies that is generally current as of December It also includes some information that emerged in early January The aim is to provide an information resource that is useful to a wide range of stakeholders active in the NGV community and in related policy debates. Several key themes emerge from the information presented in this edition of Where Can I Fill Up? There continues to be a very compelling economic, environmental and national energy security rationale for pursuing a greater role for natural gas in the nation s transportation fuel mix. When purchased at the pump, CNG and LNG currently cost at least $1.50 less than gasoline and diesel when measured on a gallon equivalency basis, and CNG and LNG are projected to cost significantly less than petroleum fuels for at least 25 years. Using CNG and LNG as a transportation fuel produces fewer regulated pollutant and global warming emissions than petroleum fuels. U.S. natural gas reserves are projected to be abundant enough to meet domestic demand for at least 90 years at current rates of consumption. Expanding the use of natural gas as a transportation fuel will help reduce America s reliance on oil imports from volatile regions of the world. Despite a favorable long- term supply and price outlook for natural gas relative to petroleum fuels, and the environmental and national energy security benefits of NGVs, NGVs still represent only a very small portion of the nation s motor vehicle fleet. The 123,000 NGVs currently on the road in the U.S. comprise less than one- tenth of one percent of the nation s overall fleet of 239 million cars, trucks, vans and buses. The U.S. is home to almost one- quarter of the world s motor vehicles, but accounts for only 1.5 percent of the NGVs in operation worldwide. The challenge is to overcome barriers that currently impede more widespread adoption of NGVs. Chief among these barriers is a lack of widespread access to fueling stations that dispense CNG and LNG. Investment in new NGV fueling infrastructure continued to grow during the second half of Between late July 2012 and early January 2013, the number of fueling stations that dispense CNG grew to 1,156 from 1,066, reflecting the addition of 90 new stations or about 15 new stations per month. The number of stations that dispense LNG grew to 66 from 54 during this same period. But the pace of the build- out remains relatively slow given the market potential for NGVs and fueling stations remain heavily concentrated in a few states and regions. There continues to be a particular need to increase the number of CNG and LNG fueling stations that are accessible to the public, because many of the fueling outlets currently in operation were built to serve a specific fleet. 2

10 The high cost of building CNG and LNG fueling stations continues to pose a challenge to expanding the nation s NGV fueling infrastructure. Building a single, fast- fuel public access fueling station costs on average $1 million or more; building a public access LNG fueling station costs a minimum of $1.5 million and generally more. New fueling technologies promise to reduce these costs in the future, but cost is likely to remain an issue as long as the NGV population is too small in many areas to support consistent consumer demand and a profitable level of fuel throughput. 1 The cost of building out an adequate national fueling network for NGVs is in the billions of dollars. Approximately $32 billion in investment would be needed over the next 10 years to develop a backbone public and private access CNG and LNG fueling network of 8,650 stations. 2 Also, to produce adequate LNG supplies, additional natural gas liquefaction capacity will be needed. An estimate of recent and announced NGV infrastructure investments suggests a total on the order of about $1.5 billion still far short of the investment that will ultimately be needed. Promising NGV initiatives that are now underway are being led by private companies, including prominent natural gas and fuel services companies, NGV feet operators, convenience stores, and property developers. Clean Energy Fuels Corporation and Shell aim to develop a coast- to- coast LNG fueling network located at trucks stops along major highway corridors. Companies that have recently made or announced significant investments in building CNG fueling stations include Clean Energy Fuels Corporation, Chesapeake Energy, Waste Management Inc., Frito- Lay, AMP Trillium, Trillium CNG, Apache Corp., Nopetro, DeBartolo Development, IGS Energy, and convenience stores Kwik Trip, OnCue Express, and Love s Travel Shops and Country Stores. Federal support for the NGV market has become less predictable. The federal government provides an excise tax credit for sales of CNG and LNG, along with tax credits for investments in CNG and LNG fueling infrastructure. These credits were allowed to lapse at the end of 2011 before being restored retroactively to January 2012; both are now scheduled to expire at the end of Future funding for other federal programs that have been important for NGV deployment including U.S. Department of Energy Clean Cities grants for fueling station development is uncertain in light of the nation s current fiscal pressures. 1 This is the well- known chicken and egg problem that makes it difficult to deploy new vehicle technologies whatever their merits when they require a new fueling infrastructure. 2 This report assumes that such a backbone network would comprise approximately 5,000 public access and 1,650 private access CNG stations, and approximately 1,500 public access and 500 private access LNG stations. 3

11 Interest among the states in supporting NGVs continues to grow but policy inconsistencies remain. Several states, most notably California and Texas, continue to provide grants for the construction of CNG and LNG stations. A bill that would provide subsidized loans for building NGV fueling infrastructure has been introduced in the 2013 session of the Wyoming Legislature. Following the creation of a 22- state NGV purchasing consortium in 2012, other initiatives to support the NGV market are being introduced in 2013 state legislative sessions, including in Wyoming, Indiana and West Virginia. Some states have enacted or are exploring policy changes that would allow regulated gas distribution utilities to play a more active role in supporting NGV fueling infrastructure and market development. In December 2012, Sempra Energy s SoCalGas unit received regulatory approval to file a compression services tariff under which the utility will install, own, and operate CNG compressing equipment at third- party- owned sites. In late 2012 the Wisconsin Public Service Commission denied an application from the Wisconsin Public Service Corporation to supply natural gas for transportation fueling but indicated that it might study the issue further. Still, as with the federal government, state policy is marked by inconsistency, as some states have withdrawn support for expanding NGV infrastructure that they earlier provided. Government at all levels has an interest and an important role to play in enacting policies and programs to accelerate the rate of NGV deployment. Given the significant public interest benefits of expanding the number of NGVs on America s roadways, the question from a public policy perspective is not whether the market for CNG and LNG vehicles will grow, but what the pace of growth will be. Expanded and more sustained support for overcoming the fueling barrier will hasten attainment of the private and larger public benefits of greater NGV deployment. The American Clean Skies Foundation will continue to monitor the status of the nation s NGV fueling infrastructure and release periodic updates of Where Can I Fill Up? Readers interested in posing questions or sharing thoughts on this topic are encouraged to visit where they can also sign up to receive future updates. 4

12 Structure of the Report The first sections of this report (Sections 1 through 4) explain the rationale for expanding the use of natural gas as a transportation fuel in the U.S., provide basic information about NGV technology and the NGV fueling chain, describe the fueling infrastructure challenge and its importance to the future growth of the NGV market, and outline the scope of the capital investment required to build a backbone national NGV fueling network. The second half of the report specifically, Sections 5, 6, and 7 provide detailed information on the efforts being undertaken by private- and public- sector entities to address NGV infrastructure needs and on the status of related policies and programs at the federal and state levels. The report ends with a brief section (Section 8) summarizing conclusions that policy makers can consider when exploring how government can support the accelerated deployment of NGV fueling infrastructure in the United States. 5

13 1. The Case for Natural Gas Vehicles The case for expanding the use of natural gas as a motor vehicle transportation fuel in the United States reflects key economic, environmental and national energy security rationales. This section briefly reviews the case for accelerating the deployment of natural gas vehicles and related fueling infrastructure. 1.1 Transportation Fuel Savings For commercial, government, and household consumers of transportation fuel, compressed natural gas (CNG) and liquid natural gas (LNG) offer significant cost savings relative to gasoline and diesel. The average price of CNG and LNG at the fuel pump is currently at least $1.50 below that of petroleum fuels measured on a gasoline gallon equivalent (GGE) and diesel gallon equivalent (DGE) basis. 3 CNG and LNG prices are projected to remain well below petroleum fuel prices for the next 25 years (Figure 1). 4 Figure 1: Projected Price of CNG & LNG Through 2035 (DGE Constant 2010 $) Retail CNG Fleet CNG Retail LNG Fleet LNG Diesel Fuel 3 GGE and DGE measures are used to adjust for the different energy content of CNG and LNG compared to gasoline and diesel so that all the fuels can be compared on a common, energy- equivalent basis. One gallon of gasoline has the same energy content (measured in British thermal units or BTU) as standard cubic feet (scf) of CNG and 1.52 gallons of LNG. Hence, the GGE for CNG is scf and the GGE for LNG is 1.52 gallons. Similarly, one DGE equals scf of CNG and 1.73 gallons of LNG (diesel has higher energy content than gasoline). 4 Source of Figure 1: U.S. Energy Information Administration, Annual Energy Outlook, As of October 1, 2012 the average retail price of CNG in the U.S. was $2.12 on a GGE basis. The average price of LNG was $3.45 on a DGE basis. By comparison, the average retail price for a gallon of regular gasoline was $3.80, while the average retail price for a gallon of diesel was $4.08. Source: Clean Cities Alternative Fuel Price Report (2012, Oct. 1), accessible at and Consumer Reports, Average Gas Prices (2012, Oct. 1), accessible at gas- prices- oct html. 6

14 Table 1 provides estimated fuel cost savings for different vehicle types based on annual average fuel consumption. It shows that the lower cost of natural gas compared to petroleum fuels produces dramatic yearly cost savings for vehicles with average levels of fuel consumption. Across the different vehicle types included in the table, using natural gas produces annual average fuel cost savings of 39 percent compared to gasoline or diesel at prevailing retail prices. Table 1: Fuel Cost Savings Using CNG by Vehicle Type, 4 th Quarter 2012 Vehicle Type Average Yearly Gasoline Consumption in Yearly Fuel Cost for Gasoline Yearly Fuel Cost Using CNG Yearly Savings By Using CNG GGE Consumer Car 453 $1,586 $960 $626 Light Duty 898 $3,143 $1,904 $1,239 Truck Taxi Cab 5,946 $20,811 $12,606 $8,205 Refuse Truck 9,877 $34,570 $20,939 $13,631 Transit Bus 11,702 $40,957 $24,808 $16, Wheeler 12,950 $45,325 $27,454 $17,871 Average Annual Fuel Cost Savings 39 % Assumptions: Gasoline at $3.50 per gallon and CNG at $2.12 per GGE as of late November Data on average yearly fuel consumption per vehicle type are taken from the Alternative Fuels Data Center at Environmental Benefits Using natural gas as a transportation fuel also yields dramatic environmental benefits. On a full fuel- cycle, well- to- wheels basis, NGVs produce significantly fewer emissions of regulated criteria pollutants when compared to vehicles fueled by gasoline and diesel that meet current federal emissions requirements (Table 2). As a transportation fuel, natural gas likely provides percent less greenhouse gas emissions than petroleum on a wells- to- wheels basis and NGVs have almost no tailpipe emissions of particulate matter. 5 The environmental benefits of NGVs are particularly pronounced when the 5 Some research points to data shortfalls regarding emissions for NGVs due to fugitive methane leakage at gas wellhead production facilities. Venting of LNG from vehicle fuel tanks and fueling station storage tanks can also lead to fugitive methane emissions associated with natural gas drilling. See Alvarez, R., Pacala, S., Winebrake, J., Chameides, W. & Hamburg, S. (2012), Greater Focus Needed on Methane Leakage from Natural Gas Infrastructure, Proceedings of the National Academy of Science, PNAS Early Edition, accessible at For another perspective, see F. O Sullivan and S. Paltsev (2012), Shale gas production: potential versus actual greenhouse gas emissions. Environmental Research Letters 7: accessible at Research is underway to address this data gap; for example, a research team led by the University of Texas at Austin is expected to complete a major field study in early 2013 that will measure actual fugitive methane leakage at gas wellhead production sites. The study is being undertaken in conjunction with 7

15 comparison is to older diesel- fueled vehicles. 6 Table 2: NGV Emission Reductions Compared to Similar Diesel Vehicles Light- Duty Vehicles TIAX CEC GREET MODEL Volatile Organic Compounds (VOC) 55% 45% Carbon Monoxide (CO) 11% 1% Nitrogen Oxide (NOx) 54% 20% Particulate Matter (PM 10) 42% 9% Green House Gases (GHG) 30% 15% Heavy- Duty Buses Volatile Organic Compounds (VOC) 46% Carbon Monoxide (CO) 6% Nitrogen Oxide (NOx) 8% Particulate Matter (PM10) 27% Greenhouse Gases (GHG) 23% Sources: TIAX LLC (2007), Full Fuel- Cycle Assessment Well to Tank Energy Inputs, Emissions and Water Impacts, California Energy Commission (CEC D) and Argonne National Laboratory GREET Model (Greenhouse gases, Regulated Emissions, and Energy use in Transportation), National Private and Public Benefits Widespread use of horizontal drilling and hydraulic fracturing technologies has created a plentiful supply of domestic natural gas. Current estimates place the nation s technically recoverable natural gas resources at almost 2,200 trillion cubic feet (TcF), enough to meet domestic demand for at least 90 years or more at current rates of consumption. 7 engineering and environmental testing firms URS and Aerodyne Research, the Environmental Defense Fund, and nine of the nation's leading natural gas producers (Anadarko Petroleum Corporation, BP Group Plc, Chevron, Encana Oil & Gas USA, Pioneer Natural Resources, Shell, Southwestern Energy, Talisman Energy USA, and ExxonMobil subsidiary XTO Energy). 6 Diesel engines produced in 2012 and thereafter must meet the U.S. Environmental Protection Agency s more stringent "Tier 3" emissions standards. Meanwhile, the roughly 11 million older diesel engines operating in the United States remain a large source of smog-forming nitrogen oxides, soot, and cancer-causing chemicals. 7 See Potential Gas Committee (2011, April), Potential Supply of Natural Gas in the United States. In The Future of Gas (2011, gas shtml), the Massachusetts Institute of Technology projected domestic U.S. natural gas reserves at 2,100 TcF, approximately 92 times annual U.S. natural gas consumption of 22.8 TcF in MIT projected a low- case scenario (90 percent probability of being met or exceeded) for recoverable reserves at 1,500 TcF and a high- case scenario (10 percent probability of being met or exceeded) at 2,850 TcF with 1,000 TcF estimated to be recoverable at a breakeven price of about $5.00 per MMBtu. The U.S. Energy Information 8

16 So abundant are the nation s domestic natural gas resources that, even with wider use of natural gas as a transportation fuel, more than ample supplies will remain available to support the increased use of natural gas for electric generation and industrial manufacturing. 8 Based on current estimates of the domestic gas resource base, even adding 10 million NGVs to the nation s vehicle fleet would require less than 5 percent of total U.S. natural gas production in the foreseeable future. 9 Increased use of domestic natural gas in the transportation sector will reduce oil imports to the United States. Imports account for 45 percent of U.S oil consumption; dramatically reducing the need for such imports would make the U.S. less dependent on oil from volatile regions of the world and more energy secure, while also improving the nation s balance of trade and providing local and regional economic development benefits in gas- producing areas. Christopher Knittel, Professor of Energy Economics at the Sloan School of Management at MIT has modeled the lifetime economic value of private and public benefits resulting from the use of NGVs. The results, which are summarized in Table 3, show that lifetime fuel savings for a natural gas- fueled pickup truck are estimated to total $4,171; for Table 3: Private and Public Benefits of NGVs Pickup Truck Heavy Duty Truck (15 mpg) (5 mpg) Heavy Duty Truck (7 mpg) Private Benefits Fuel Savings $15,171 $186,828 $133,449 Vehicle Incremental Cost - $11,000 - $70,000 - $70,000 Total Private Benefits $4,171 $116,828 $63,449 External Social Benefits Lower Carbon Emissions $1,093 $8,768 $6,263 Fewer Pollutants $1,661 $32,586 $23,276 Lower Macro- Economic $1,694 $18,466 $13,190 Externalities (e.g., impact of oil price shocks) Total External Benefits $4,448 $59,820 $42,729 Total Social Benefit $8,620 $176,648 $106,177 Source: Knittel, C. (2012, June), Leveling the Playing Field for Natural Gas in Transportation. Brookings Institution, The Hamilton Project (Discussion Paper, ). Administration projects that U.S. natural gas prices will range up to $7.25 per MMBtu through 2035 measured in 2010 dollars (US EIA, Annual Energy Outlook, 2012). 8 See U.S. Energy Information Administration, Annual Energy Outlook, 2012, p This calculation assumes that half the additional NGVs would be heavy- duty trucks. 9

17 heavy- duty trucks, the estimated lifetime fuel cost savings range from $63,000 to $116,000. These figures do not include benefits resulting from reduced pollution and GHG emissions, less spending on overseas military interventions, and reduced exposure to macroeconomic shocks resulting from high prices and volatility in world oil markets. For a light- duty pickup truck, Knittel estimates the lifetime national public benefits of switching from gasoline to CNG at $8,620; for heavy- duty trucks, the estimated public benefits range from $106,000 to $176,000. These figures suggest that if, for example, just 10 percent of the 2.6 million combination trucks on U.S. roads were to convert to natural gas, the lifetime public benefits could total $45.9 billion, of which $30.4 billion would accrue directly to truck owners in the form of fuel cost savings. 10 Similarly, there are currently an estimated 49 million pickup trucks on U.S. roads. If 10 percent of these pickups were to convert to natural gas, vehicle owners could capture a combined lifetime private economic benefit valued at $20.4 billion, while the nation as a whole would benefit from environmental and energy security benefits valued at roughly $42.2 billion over the lifetime of the vehicles. Even greater penetration of NGVs in the nation s vehicle fleet would elevate these public and private benefits into the hundreds of billions of dollars, according to this analysis. 1.4 Jobs Impacts A 2009 study commissioned by the U.S. Department of Energy s Clean Cities program found that every additional alternative fueled truck added to the nation s motor vehicle fleet produced directly or indirectly 1.6 new clean fuel technology jobs. These jobs include work in fueling station construction, maintenance, and operation; in vehicle production, training, service, and operation; and in natural gas production and exploration. 11 Section 4.2 of this report discusses a reference case scenario in which 8,650 new NGV fueling stations are added across the country to create the backbone of a national CNG and LNG fueling network. Table 4 indicates that a fueling infrastructure build- out on this scale could generate as many as 1.56 million jobs. Table 4: NGV Fueling Infrastructure Reference Case Job Creation Projection Number of New NGV Fueling Stations Direct and Indirect Job Creation 2, ,400 5, ,000 8,650 1,563,920 10,000 1,808,000 Assumptions: 1.6 jobs created per new NGV added to nation s fleet, average of 113 NGV trucks fueled at each station Assumes heavy- duty, Class 8 trucks with average fuel economy of 5 mpg. 11 See Gladstein, Neandross & Associates, Inc. (2011, April), NGV Roadmap for Pennsylvania Jobs, Energy and Clean Air. 12 Fishkind & Associates, Inc. (2012, Aug. 1), Economic Impact of Incentives to Facilitate Compressed Natural Gas Vehicles in Florida. 10

18 2. NGV Technology and the Fueling Chain Natural gas vehicles are cars, trucks, vans and buses and other vocational vehicles that utilize CNG or LNG for fuel. 13 At the wellhead, raw natural gas consists of between 70 and 90 percent methane (CH 4 ) mixed with other hydrocarbons, water vapor, and other compounds. Processing to remove these impurities is required to produce consumer grade or dry natural gas, which consists of almost pure (greater than 97 percent) methane. Dry natural gas is the fuel used in residential applications (e.g., for home heating and cooking) and in the industrial sector. Dry gas can also be compressed or liquefied (to form CNG or LNG, respectively) and used as a transportation fuel for cars, trucks, buses, and vans Fuel Storage, Cycle and Costs Externally most NGVs appear similar to conventional gasoline- or diesel- fueled vehicles. Like those vehicles, NGVs also have internal combustion engines. The difference is that NGV engines have been Perspective modified to burn CNG or LNG as a feedstock fuel instead of petroleum. NGV engines may be installed by an original equipment manufacturer (OEM) when a new vehicle is produced. After- market conversion allows engines originally designed to run on gasoline or diesel to run on CNG or LNG. Some NGVs are dedicated NGVs, with engines and fueling systems that are outfitted to run exclusively on natural gas. Bi- fuel NGVs have engines that allow the Dedicated NGVs run on natural gas only. Bi- fuel NGVs can run on either natural gas or gasoline. Dual- fuel NGVs run on a mix of natural gas and diesel. driver to switch between CNG and gasoline the vehicle will typically run on natural gas until the supply is exhausted, then automatically switch to gasoline. Dual- fuel NGVs utilize engines modified to run on a mix of natural gas and diesel. A dual- fuel engine can also run on pure diesel when the LNG tank is empty. Most NGVs available today use 13 Vocational vehicles comprise a diverse group, including fire trucks, cement mixers, dump trucks, fork lifts, and school buses, among others. 14 Pipeline natural gas fuel quality can vary on a regional and seasonal basis. LNG fuel quality may change if it is held in storage for extended periods of time. For use as a transportation fuel, CNG and LNG must contain less than 2 percent ethane and less than 1 percent nitrogen and other inert gases. To determine if CNG or LNG meets quality standards for use as a transportation fuel, the fuel s methane number is calculated. The methane number reflects the engine anti- knock properties of fuel gases. CNG or LNG intended for use as transportation fuel must have a methane number of 65 or greater. Some engines require a methane number of 75 or greater. Gas with chlorine additives is not permitted and the CNG and LNG cannot contain water, dust, sand, dirt, oils, or any other substance that can harm engine operation. 11

19 spark- ignition engines, although some LNG engines use compression ignition (diesel) systems. In addition to modified engines, NGVs require special onboard gas storage tanks. In CNG vehicles, the CNG is stored on board at a pressure of either 3,000 or 3,600 pounds per square inch (psi) in tube shaped cylinders made of steel, aluminum, fiberglass, or carbon fiber. 15 In passenger cars such as the Honda Civic Natural Gas the only OEM NGV sedan offered for sale in the U.S. the storage tank is located in the vehicle s trunk. In bi- fuel pickup trucks, the CNG storage tank is typically located in the bed of the pickup. In larger vehicles, CNG or LNG storage tanks are typically attached to the vehicle chassis. In CNG vehicles, natural gas flows as a vapor from the on- board storage cylinders through a high- pressure fuel line to the vehicle engine when the vehicle is started. As gas approaches the engine, it passes through a regulator that reduces the gas pressure. The gas is then injected into the engine cylinders where it is combusted using spark ignition in a manner similar to the way gasoline is combusted. In LNG vehicles, LNG is stored on board cryogenically, in specially designed, insulated thermal storage tanks. Once the vehicle ignition process starts, cryogenic LNG flows from the storage tanks toward the engine and is warmed by a heat exchanger before being injected into the engine for spark combustion or compression ignition. Once LNG passes through the heat exchanger it becomes a vapor, similar to CNG; thus at the point where the fuel is injected into the engine it is no longer in a liquid state. 2.2 Economics for High- Mileage Vehicles The actual lifecycle cost to operate a NGV depends on the purchase price of a new NGV, or, alternatively, the cost of converting a conventional petroleum- fueled vehicle to run on CNG or LNG, as well as on local fuel prices, vehicle and engine type, and weight and mileage driven. Because they require modified engines as well as CNG or LNG storage tanks and associated equipment, NGVs cost more than comparable vehicles fueled by petroleum. For light- and medium- duty vehicles, the incremental cost of purchasing an OEM NGV or converting a conventional vehicle engine to run on natural gas ranges between $8,000 and $15,000. For heavy- duty vehicles, incremental costs can run as high as $50,000 and up to $85,000 for the heaviest duty tractors that use compression ignition LNG technology. 16 For lower CNG and LNG prices to offset the higher cost of a natural- gas- fueled vehicle and meet the payback expectations of vehicle owners, NGVs must as a general rule 15 Some older CNG vehicles have 3,000 psi storage tanks. Most modern CNG fueling stations can dispense CNG at either 3,600 psi or 3,000 psi. 16 CNG engines use spark ignition technology similar to gasoline engines. Vehicles fueled by LNG use either spark ignition or compression ignition technology similar to diesel engines. Compression ignition LNG engines are more expensive than spark ignition LNG engines. 12

20 be driven a lot of miles. 17 Various online tools are available to help vehicle owners calculate expected savings by switching their vehicles to natural gas instead of gasoline or diesel. 18 As a general rule, the use of CNG as a fuel is well suited to light- and medium- duty vehicles, as well as some heavy- duty vehicles that have limited range requirements and operate mainly in metropolitan areas. LNG is better suited for heavy- duty vehicles that require longer driving ranges, for several reasons. The volume of natural gas when it is condensed as a liquid is about 2.5 times less than when an equivalent amount, in energy terms, is compressed as a gas to a pressure of 3,600 psi; put another way, 2.5 times as much energy can be stored in the form of LNG as can be stored in the form of CNG in an equivalent space. Because the energy density of LNG is greater than that of CNG, LNG provides more horsepower on a volumetric equivalent basis than CNG. On average, pressurized CNG storage tanks add pounds to CNG vehicles. On- board LNG fuel storage tanks weigh less than CNG storage tanks at the heavier end of this range. Thus, LNG vehicles generally have longer driving range than CNG vehicles carrying a comparable volume of CNG. Also, the LNG stored in a vehicle tank will tend to warm and vaporize over time. As a result, LNG is best suited for use in vehicles that run on a continual basis over long distances such as long- distance freight haulers, for example as this helps avoid the need to vent the storage tanks to release accumulating gas vapors. 19 Production economies of scale and investments being made to reduce NGV vehicle component costs will help narrow the incremental cost differential between NGVs and 17 A rule of thumb is that commercial fleet owners expect a payback period of three years or less when making a new vehicle purchase; perhaps two years or less for heavy- duty trucks. (See PIRA Energy Group (Sept. 2012), The Road to U.S. Energy Independence: The Shale Revolution and Its Implications for North America s Energy Markets). Factoring in the incremental cost of a natural gas vehicle, the payback period for a Class 3 light- duty vehicle exceeds five years unless the vehicle is driven at least 20,000 to 40,000 miles annually. A Class 8 compression ignition combination tractor with an average fuel economy of 6 mpg (equivalent to a similar diesel truck) needs to be driven at least 100,000 miles annually to deliver a three- year payback. The payback period lengthens to eight years for a Class 8 vehicle driven only 40,000 miles annually (U.S. Energy Information Administration, Annual Energy Outlook, 2012). 18 For example, the American Gas Association s Drive Natural Gas Initiative has developed a cost savings calculator for NGVs. See releases/2012/pages/powerful- Step- To- Help- Reduce- Barriers- For- Natural- Gas- Vehicles.aspx. 19 Both CNG and LNG have a lower energy density than diesel and gasoline. CNG energy density is only 17 percent that of diesel; LNG energy density is 44 percent that of diesel. Also, spark ignited CNG and LNG engines are 7 to 12 percent less efficient than diesel engines and LNG compression- ignition engines. However, vehicles fueled by CNG and LNG achieve comparable fuel economy to diesel- and gasoline- fueled vehicles on a DGE and GGE basis. See Deal, A. (2012, May 1), What Set of Conditions Would Make the Business Case to Convert Heavy Duty Trucks to Natural Gas? A Case Study, National Energy Policy Institute; Argonne National Laboratory, 2012, Fuel Displacement & Cost Potential of CNG, LNG, and LPG Vehicles, #VSS

21 conventional vehicles in coming years. 20 As more vehicles are produced and technological improvements reduce incremental NGV costs, the economic benefits of using natural gas as a vehicle fuel will increase for lower mileage vehicles as well. 2.3 CNG Fueling Technology Whether they run on CNG or LNG, NGVs require specialized fueling infrastructure that differs from the technology used in conventional gasoline and diesel fueling stations. There are three prevailing CNG fueling station technologies: cascade fast- fill, buffered- fill, and time- fill. Whichever type of fueling configuration is used, a CNG fueling station must be connected to natural gas pipeline distribution infrastructure that allows the station to access natural gas transported by a local natural gas distribution utility. Depending upon the type of fueling system used, the equipment, and equipment costs, vary. The features that differentiate these three types of fueling stations are highlighted in Table Cascade Fast- Fill CNG Fueling Cascade fast- fill technology is designed to dispense fuel to vehicles at the high rate needed to meet customer demands for rapid turnaround during the fueling process (Figure 2). This technology is most commonly used for public access fueling stations where there is a need to dispense fuel quickly to meet customer expectations of fast turnaround and where the demand for fuel is random and can vary unpredictably during the day, as with a conventional gas station. Major components of a cascade fast- fill CNG fueling station include a gas dryer, sequenced low/medium/high pressure CNG storage tanks, fuel dispensers, and equipment to meter fuel dispensing and process transactions. The multiple sequenced low/medium/high pressure CNG storage tanks ensure that there is always an adequate amount of CNG ready to be immediately dispensed when a customer demands it. Cascade fast- fill systems can fill a CNG vehicle s tanks in about the same amount of time that it takes to fuel a comparable gasoline or diesel vehicle Buffered- Fill CNG Fueling Buffered- fill technology is used mainly to fuel fleet vehicles that return to a centralized location for fueling. This type of system is typically used at private access stations that is, facilities that serve only vehicles owned by the facility operator, although some 20 On July 12, 2012 the U.S. DOE Advanced Research Projects Agency Energy (ARPA E) announced $30 million in grants to improve NGV technology. For a list of projects funded, see 14

22 Table 5: Features of Cascade Fast- Fill, Buffered- Fill, and Time- Fill CNG Stations Station Type Cascade Fast- Fill Buffered Fill Time Fill Typical User Public Access Stations: open to the public where demand for fueling is random and varies unpredictably throughout the day (e.g. consumer car; light duty merchant delivery vehicle; over the road truck) Private Access Stations: serve vehicles that return to base, where fast fueling turnaround is important but fueling times are predictable; suited for high- fuel- use fleet vehicles that fuel one after the other (e.g. taxicab; school bus) Private Access Stations: serve vehicles that return to base to fuel overnight (e.g. transit bus, refuse truck); less pressure on fueling turnaround time Operations Major Components Benefits Vehicles fueled from CNG stored in tanks Compressors; multiple compressors for redundancy Sequenced low/medium/high pressurized CNG storage tanks Gas dryer Fuel dispensers Transactions processing equipment Ensures there is always enough CNG available to dispense during periods of unexpected peak demand Vehicles mainly fueled directly from compressor with limited backup storage Compressor Small CNG storage tank Gas dryer Fuel dispensers Less costly than cascade fast- fill for captive fleets with short fueling turnaround times Vehicles fueled direct from compressor Compressor Gas dryer Fuel dispensers Least costly for vehicles that can be fueled overnight 15

23 Figure 2: Schematic of a Cascade Fast- Fill Station private access stations may offer limited access to other vehicles as well. Buffered- fill systems are less expensive than cascade fast- fill systems because the vehicles generally take their fuel directly from the compressor (as Figure 3 indicates, many buffered- fill stations also incorporate a small- capacity CNG storage tank as backup to make sure fuel is available during periods of high demand and rapid turnaround). By dispensing with the need for multiple, expensive, pressurized storage tanks, buffered systems reduce costs and are well suited to fuel return- to- base fleet vehicles that still need to minimize actual fueling time. An example would be a taxicab company, where drivers return to a central fueling station during the day but must minimize time spent fueling so as to be back out on the road collecting fares Time- Fill CNG Fueling The third commonly used CNG fueling technology is time- fill. 21 This type of system is typically used for vehicles that return to a central garaging/fueling site at the end of the day to be fueled overnight. With time- fill technology, vehicles are fueled directly from the compressor (Figure 4). Because these systems do not require storage tanks, they are less expensive than cascade fast- fill and buffered- fill systems. Time- fill fueling is generally employed at centralized private access stations. Types of vehicles that would usually use time- fill fueling include transit buses and refuse trucks, which operate throughout the day and can be fueled overnight before beginning their work runs the following morning. 21 Time- fill fueling is sometimes called slow- fill fueling. 16

24 Figure 3: Schematic of a Buffered- Fill Station Figure 4: Schematic of a Time- Fill Station One new technology that may lower the cost of installing new fast- fill CNG fueling infrastructure is CNG- in- a- Box (Figure 5). CNG- in- a- Box was developed by GE and is being marketed by Peake Fuel Solutions, a subsidiary of Chesapeake Energy, the nation s largest independent natural gas producer. It allows CNG compressors and other needed equipment to be delivered to a dispensing site in a single, all- in- one, 8 x 20- foot container. This standardized system saves space and can be installed more quickly than custom- designed systems, reducing installation costs. GE and Peake Fuel Solutions projects sales of more than 250 CNG- in- a- Box units through 2015 at a likely price of $500,000 to $700,000 for each unit. 17

25 Figure 5: CNG- in- a- Box 2.4 LNG Fueling Technology LNG fueling involves delivering cryogenic natural gas by truck to a fueling station from a natural gas liquefaction plant. At the liquefaction plant, natural gas is cooled to a temperature of F, at which point it condenses into a liquid. Dispensing LNG for use in vehicles requires special equipment. At the fueling station, LNG delivered by thermally insulated tanker trucks is stored under pressure in special, double- walled vacuum thermal insulated storage tanks as a super- cooled, liquefied gas at pressures between 75 and 120 psi (Figure 6). Because LNG is super- cooled, protective clothing and gloves are required when fueling a vehicle. Consequently, whereas CNG stations allow self- service fueling, LNG stations require that trained personnel be present to complete the fueling process. Figure 6: Schematic of an LNG Fueling Station LCNG (liquefied compressed natural gas) technology is also used at some fueling stations. At these stations, LNG is delivered by truck and then warmed to ambient air 18

26 temperature using a heat exchanger so that it can be dispensed as CNG. LCNG stations can dispense both CNG and LNG; the technology allows CNG to be dispensed at fueling stations that cannot be connected to a natural gas pipeline. The LNG dispensed at fueling stations is produced at natural gas liquefaction plants. To meet the quality requirements of vehicle engine manufacturers, LNG destined for use as transportation fuel must be vehicle grade. Three plants currently produce most of the vehicle- grade LNG consumed in the U.S. (Table 6). Clean Energy Fuels Corporation owns two of these plants, one located in Boron, California and another in Willis, Texas. The Clean Energy Fuels plants have a combined LNG production capacity of 280,000 gallons per day and their designs allow expansion to as much as 340,000 gallons in daily production. Applied Natural Gas Fuels Inc. owns and operates the third U.S. liquefaction plant in Topock, Arizona. Applied Natural Gas recently announced plans to roughly double the production capacity of the Topock plant from its current capacity of 100,000 gallons of LNG per day. Table 6: Current & Announced Production Capacity for Vehicle- Grade LNG Owner Location Current Capacity in Gallons Per Day Clean Energy Fuels Boron, California 180,000 Clean Energy Fuels Willis, Texas 100,000 Applied Natural Gas Fuels Topock, Arizona 100,000 Pivotal LNG Trussville, 60,000 Alabama Clean Energy Fuels 2 new GE micro 500,000 LNG plants by 2015, locations TBD Memphis Light Gas Water Memphis 68,000 Total Capacity 948,000 In November 2012, Clean Energy Fuels announced that it will construct two LNG liquefaction facilities, one in the upper Midwest and the other in the Northeast (at locations to be determined). The facilities will be built by GE Oil and Gas and will utilize modular micro- LNG plug- and- play technology (Figure 7). Each of the new plants, which are expected to be in operation by 2015, will have a daily LNG production capacity of 250,000 gallons and each can be expanded to produce up to 1 million gallons daily. The exact cost of building the plants has not been disclosed but GE Energy Financial Services will be providing up to $200 million in financing for construction Clean Energy Fuels (2012, Nov. 13), GE and Clean Energy Fuels Partner to Expand America s Natural Gas Highway, accessible at 12.html. 19

27 Figure 7: GE Micro- LNG Liquefaction Plant In 2012, Pivotal LNG, a wholly owned subsidiary of AGL Resources, acquired a liquefaction facility in Trussville, Alabama with a LNG production capacity of 60,000 gallons per day. The company has begun supplying LNG for transportation fueling and plans to expand the Trussville plant as market demand warrants. In August 2012, Memphis Light, Gas and Water (MLGW) began selling vehicle- grade LNG for transportation use. The MLGW plant has a production capacity of 68,000 gallons per day. In a December 3, 2012, filing with state regulatory authorities, Indianapolis- based Citizens Energy Group announced plans to establish LNG Indy, a subsidiary that will market LNG as a transportation fuel. LNG Indy plans to purchase the fuel from an LNG liquefaction unit owned by Citizens Gas. The plant has a LNG production capacity of 93,000 gallons per day and the utility is conducting engineering studies to determine how it could best be expanded Home Refueling Appliances Most CNG vehicles fuel at either public or private access fueling stations. However there are home refueling appliances (HRAs) that allow individual homeowners and small businesses to fuel CNG vehicles at their residences or places of business. HRAs fit into garages, where they are attached directly to the home or building s natural gas line, and allow the vehicle to be fueled overnight. The cost of purchasing and installing an HRA can run $5,000 or more, a cost that is generally considered too high for widespread market adoption. As a result, few homes are outfitted with HRAs at present. However, new technologies are being developed to lower HRA costs. Chesapeake Energy, General Electric, and Whirlpool are collaborating to develop a low- cost home refueling appliance that can be marketed for $500. Approximately 65 million American homes are 23 The Citizens Gas LNG plant is not included in Table 6 because engineering studies on the plant s capacity for producing vehicle- grade LNG are pending. 20

28 connected to natural gas lines and significantly lowering the cost of HRAs could lead to more widespread adoption of CNG- fueled passenger and other light- duty vehicles in the future. 2.6 Fueling Infrastructure Development Models NGV fueling options include onsite, private access fueling; onsite, private fueling with public dispensing; limited access private fueling, and public access fueling. While variations exist, these four basic models define how the great majority of NGV fueling stations are built, financed, operated and maintained. Whether a fleet owner uses private or public access fueling depends on a number of factors implicit in the value proposition for the fleet owner. These include the number of vehicles to be fueled, where fleets are garaged, whether fleet vehicles need to fuel during the day or can be fueled at the end of the workday, and the degree to which public access fueling outlets are convenient. Also important is a fleet owner s access to capital and financing. Turnkey partnerships, where a fuel services vendor or utility entity owns, finances and/or installs and maintains fueling infrastructure on property owned by a third party, are also frequently employed. The principal attributes of these fueling infrastructure models are summarized in Table Onsite Private Access Fueling Private access fueling refers to infrastructure dedicated for use by a fleet owner s own vehicles, with fueling equipment being located behind the fence at garaging locations to which fleet vehicles return to at the end of the day. This model is most commonly used to serve larger fleets where fuel throughput is high. Owners of smaller fleets in areas where public access stations are not conveniently located also operate private access fueling stations. Private access fueling allows the fleet owner to specifically design and size fueling infrastructure to meet the needs of the serviced fleet while providing a high level of security. But this option also places the burden for financing fueling infrastructure on the fleet owner and may not be an option for owners who lack access to sufficient capital. Onsite private access fueling can sub- optimize a fleet owner s return on investment (ROI) compared to a station that dispenses fuel to multiple users, as capital costs must be fully amortized by the fleet owner alone. Private access fueling stations also miss an opportunity to increase awareness of CNG and LNG as transportation fuels, since the stations are generally not visible to the public. In this way, private access fueling can contribute to the impression that natural gas is not an option for widespread use by the general public, but is rather a specialized fuel that is best reserved for industrial and commercial applications. 21

29 Table 7: Fueling Infrastructure Development Models Private Access Public Access Types of Fleets and Vehicles Location Financing Branding Turnkey Partnership Return- to- base fleets Larger fleets with high throughput Smaller fleets that lack access to nearby public stations Government, utility, transit, airport, and port fleets Can use time- fill (slow- fill) fueling technology Fleet garaging site Offsite for limited access private fueling Fleet owner finances Can sub- optimize ROI Can be opened to outside the fence fleets to increase throughput and ROI with additional infrastructure investment in fast fueling. Fosters image that natural gas is not a fuel for widespread use Any fleet or individual customer Smaller fleets with insufficient throughput to justify the expense of private- access refueling. Long haul trucks Must use fast- fill fueling technology Fueling stations must be located in strategic, publically accessible locations Usually built on dedicated sites or hosted on islands at existing petroleum fueling outlets and convenience stores Independent fuel retailer, commercial entities, utilities Station developer can seek to secure fleet fuel sales contracts to ensure minimum throughput Fleet owners avoid infrastructure capital cost Builds brand identify for natural gas as a public transport fuel Widely used to develop new public access fueling stations In all- in- one turnkey partnerships the fuel services company or utility finances, owns, builds, operates and maintains fueling infrastructure at the fleet owner s property or at an existing petroleum retail station or convenience store Property owner is responsible for retail function and processing transactions, and receives royalty payments based on volume of CNG or LNG dispensed Eases market entry, reduces risk and land cost, allows access to established retailing sites that are convenient for customers Outside the Fence Onsite Private Fueling with Public Dispensing Under this model, fleet owners open their onsite private fueling stations to the public. Outside vehicles are fueled either with the same dispensing equipment used to fuel the fleet owner s vehicles or with separate dispensing equipment located in an outside the fence area designated for public use. There is a growing trend toward using this model 22

30 because, as a value proposition, it allows the owner of the fueling infrastructure to increase throughput; spread capital, operating, and maintenance costs; and increase return on investment. While allowing public access affords more widespread use of private fueling infrastructure, problems can arise from the fact that onsite private access stations are often located in inconvenient locations. This not only limits the number of vehicles that can be fueled, it also limits public awareness and branding opportunities for the use of CNG and LNG as a vehicle fuel Limited Access Private Fueling Limited private access fueling stations are typically owned and operated by a third- party commercial entity where vehicles from multiple fleets purchase fuel. These are typically card- lock stations with payment for fuel being made either with a branded key card, a fuel- purchasing card or a credit card. Under this model, the station owner is responsible for project development, operation and maintenance costs and obtaining financing. As a result, the owner must typically secure contracts with one or more anchor fleets to ensure the minimum throughput needed to make the station economically viable. As with onsite stations that allow public access, this model allows fleet owners to fuel their vehicles without having to incur fueling infrastructure capital, operating, and maintenance costs Public Access Fueling Public access stations allow fleet and consumer NGVs to refuel without restriction in high- visibility and heavily trafficked areas that offer convenient customer access. Anyone may fuel at a public access station. By serving a wide array of customers, public access CNG and LNG stations help build brand identity for natural gas as a transportation fuel. Fleet owners who can meet their fueling needs at public access stations avoid the capital, operating, and maintenance costs involved in building private access infrastructure. Before building a public access station, developers generally seek to execute fueling contracts with anchor fleets to ensure minimum throughput. A new $1- million CNG fueling installation with two kiosks capable of dispensing up to 1 million GGE per year requires a minimum CNG sales throughput of 300,000 GGE per year to ensure sufficient ROI. A station developer may seek to secure contracts with anchor fleets to purchase 50 to 60 percent of the station s fueling capacity before undertaking construction. As noted earlier, in the U.S. most commercial fleet vehicles fuel at public access petroleum stations. Yet, only 41 percent of the nation s NGV fueling stations are public access. Given that limited access to NGV fueling infrastructure is a top concern for commercial fleet owners, the number of public access CNG and LNG stations will need to grow appreciably if NGVs are to gain widespread adoption by fleet operators. 23

31 2.6.5 Turnkey Contracting A common model used to build NGV fueling infrastructure is the turnkey partnership. Several variations on this model have been used. Fleet owners often contract with a specialty, third- party NGV fueling services contractor to design, build, operate, and maintain a private access fueling station, or any mix of these functions. For public access fueling, the turnkey fuel services contractor will often install, own, finance, operate and maintain CNG or LNG fueling infrastructure at the fleet owner s site, or at an existing gasoline station or convenience store. Under this arrangement, the turnkey fuel services contractor assumes most or all responsibility for the capital investment. In return for hosting the infrastructure and providing retail and transaction processing services, the owner of the host property is typically paid a royalty based on the volume of CNG or LNG dispensed, a lease payment or both. Turnkey arrangements help ease entry into the NGV fueling market by lowering risk and by allowing infrastructure to be deployed at existing properties, thereby avoiding the need to purchase land, which is otherwise a significant expense in station development. This model also permits new NGV fueling infrastructure to be installed at already established locations that fleet customers are accustomed to using and find convenient. Turnkey partnerships account for a significant share of the new public access NGV fueling infrastructure being built today. 24

32 3. Overcoming the Fueling Barrier During the early 1990s, the American Gas Association estimated that there could be more than 12 million NGVs on American roadways in Significant investments were made in fueling infrastructure to meet projected demand. The number of U.S. natural gas fueling stations reached a peak in 1997, with annual U.S. sales of new heavy- duty NGVs peaking at about 8,000 in But the disappointing performance of early light- duty NGVs, petroleum prices that largely declined when measured in inflation- adjusted terms over the course of the 1990s and inconsistent government policies on alternative fueled vehicles derailed growth. 25 Out of 360,000 heavy- duty trucks sold in the U.S. in 2010, only Perspective about 860 were fueled by natural gas. 26 Today, there are approximately 123,000 NGVs on U.S. roads. The vast majority (97 percent) are fueled by CNG. Vehicles fueled by LNG account for the remainder. 27 Though the nationwide NGV fleet grew by about 4,000 vehicles between 2010 and 2012 (Table 8), NGVs still represent less than 0.1 percent of the 239 million cars, trucks, vans and buses registered in the United States. 28 Overall, the U.S. is home to almost one- quarter of the world s motor vehicles, but the U.S. market accounts for only 1.5 percent of the NGVs in operation worldwide NGV Market Entering a New Durable Expansion Phase There are an estimated 123,000 NGVs on U.S. roads today, less than 0.1% of all U.S. motor vehicles. Despite limited deployment to date, there is considerable evidence that the U.S. NGV market is poised for a period of significant growth and has the potential to enter a new, durable expansion phase. 24 TIAX LLC (2011), U.S. and Canadian Natural Gas Vehicle Market Analysis: Compressed Natural Gas Infrastructure. 25 For an in- depth description of the evolution of NGV fueling infrastructure in the U.S., see Yborra, S. (2007), Roadmap for Development of Natural Gas Vehicle Fueling Infrastructure and Analysis of Vehicular Natural Gas Consumption by Niche Sector, Clean Vehicle Education Foundation, pp U.S. Energy Information Administration, Annual Energy Outlook, See NGV Global: Natural Gas Vehicle Knowledge Base, at ngv- stats/. Appendix B of this report provides a breakdown of CNG- and LNG- fueled vehicles by U.S. state of registration as of Murphy, J. (2010), The Role of Natural Gas as a Vehicle Transportation Fuel. Massachusetts Institute of Technology. 29 With 2.86 million, Iran is home to more dedicated or bi- fuel NGVs than any other nation, followed by Pakistan (2.85 million), Argentina (1.9 million), India (1.1 million), and China (1 million). Source: NGV Global, Natural Gas Vehicle Knowledge Base, accessible at at ngv- stats/. 25

33 According to recent projections, U.S. sales of heavy- and medium- duty trucks fueled by natural gas can be expected to grow at a compounded annual rate of 10 percent between 2012 and 2019, reaching 6,315 truck sales in During this same period, sales of pickup trucks and other light- duty vehicles fueled by natural gas are projected to grow at a 10.8 percent compounded annual rate; the figure for natural gas- fueled buses is 10.3 percent. 30 Table 8: Number of NGVs in Use in 2010 by Vehicle Class and Fuel Type, 2010 CNG LNG Total Automobiles 29, ,307 Vans 20, ,370 SUV Pickup Trucks 29, ,996 Other Trucks 15,669 1,682 17,351 Buses 20,111 1,492 21,603 Other Vehicles Total 115,863 (97.2%) 3,354 (2.8%) 119,217 Source: U.S. EIA, Alternative Fuel Vehicle Data, Refuse trucks have emerged as a particularly strong segment of the NGV market. Almost 40 percent of all new refuse trucks sold are designed to run on natural gas. 31 Heavy- duty trucks that serve regional and long- haul transport markets will also see growth. There are 2.6 million heavy- duty combination trucks in the U.S. and the industry has moved toward a hub- and- spoke model that facilitates the strategic location of fueling infrastructure along heavily trafficked trucking corridors. 32 Interest in CNG- fueled taxicabs is growing: 125 CNG taxis were recently added to fleets in Chicago and New York City and Clean Energy Fuels Corp., the nation s leading provider of natural gas fueling for the transportation market, recently noted that taxicabs are one of its fastest growing market segments. The Honda Civic Natural Gas, the only standard production CNG passenger car available in the U.S., is now being sold by dealerships in 37 states, up from four states two years ago. New NGV models are coming to market. Cummins- Westport s 12- liter ISX12 G is a 30 Pike Research (2012), Light Duty Natural Gas Vehicles: Natural Gas Passenger Cars and Light Duty Pickup Trucks, SUVs, Vans and Light Commercial Vehicles Global Market Analysis and Forecast; Pike Research (2012), Natural Gas Trucks and Buses Heavy Duty and Medium Duty Trucks and Buses, Refueling Stations, Demand Drivers, Policy Factors, Technology Issues, Key Industry Players, and Global Market Forecasts. 31 ACT Research (2012), The Future of Natural Gas Engines in Heavy Duty Trucks: The Diesel of Tomorrow? 32 Federal Highway Administration, Highway Statistics 2011, See also Pettus, M. (2003), Successfully Competing in the U.S. Trucking Industry: A Resource Based Perspective, Advances in Competitive Research, at 26

34 dedicated, spark ignition natural gas engine that can run on CNG or LNG; it will be available for installation in early Delivering up to 400 horsepower and up to 1,450 lb- ft of torque, the new engine is ideally suited for use in heavy- duty long- haul transport, vocational, and refuse vehicles. 33 Freightliner will begin producing its new Cascadia 113 tractor using the ISX12 G engine in 2013 and Kenworth has announced that four of its truck configurations will be available with this 12- liter natural gas engine. Cummins is developing the ISX15 G, a larger 15- liter natural gas engine, with production planned for Volvo is partnering with Vancouver based Westport Innovations to develop a new 13- liter Blue Power heavy- duty natural gas engine for installation in Volvo trucks in North America in For the 2013 model year, Chrysler and GM have begun selling new Chrysler Ram 2500 and Chevrolet Silverado and GMC Sierra bi- fuel pickup trucks outfitted at the factory to run on either CNG or gasoline. The expanding selection of natural gas engines and trucks prompted the CEO of the American Trucking Association to conclude that, serious competition now exists between suppliers of diesel and natural gas trucking services Economic Drivers of the NGV Market The principal driver of recent growth in the NGV market is the price spread between diesel and gasoline and CNG and LNG (Figure 8). 35 Given low natural gas prices, the U.S. Energy Information Administration (EIA) projects that total annual sales of new heavy- duty natural gas- fueled vehicles could reach 150,000 by 2025 and 200,000 by 2030 if current barriers that impede expanded NGV market penetration can be overcome i.e., limited access to CNG and LNG fueling infrastructure and high incremental costs for purchasing new NGVs or converting existing diesel and gasoline vehicles to run on natural gas. 36 Commercial and government fleet vehicles currently account for the overwhelming majority of U.S. NGVs and fleet sales are expected to account for most of the near- term growth in the U.S. NGV market. The reasons have to do with economics and logistics. Put simply, the bigger and busier the vehicle, the greater the benefits of switching to natural gas. 37 On a per- vehicle basis, fleet vehicles travel more miles and have significantly lower fuel economy than passenger vehicles. As a result, they consume 33 Vocational vehicles comprise a diverse group, including fire trucks, cement mixers, dump trucks, and school buses, among others. 34 Lavey, W. & Staple, G. (2012), Oil Shift: The Case for Switching Federal Transportation Spending to Alternative- Fueled Vehicles, American Clean Skies Foundation. 35 Figure 8 Source: Sustainability Consulting Group (2012, Nov), NGV and Fueling Infrastructure Survey. Because respondents were asked to check as many choices as apply, the numbers do not add up to 100 percent. 36 U.S. Energy Information Administration, Annual Energy Outlook, One study has even projected that NGVs could reach 3 percent of the total U.S. vehicle fleet in the foreseeable future or more than 7 million NGVs if impediments to NGV market expansion can be overcome. See IHS CERA (2010), Natural Gas for Transportation: Market Niche or More? 37 America s Natural Gas Alliance, Natural Gas Vehicles: Driving Change, accessible at 27

35 seven to eight times more fuel than other vehicles. In 2010, heavy- duty combination trucks on U.S. roads travelled an average of almost 69,000 miles annually, compared to an average of 10,641 miles for passenger cars and other light- duty vehicles. Commercial trucks consume almost 45 billion gallons of diesel per year in the U.S. and heavy- duty trucks account for about 27 percent of all fuel consumed for on- highway transportation nationwide. 38 For owners of heavily used fleet vehicles, the lower fuel cost of natural gas compared to petroleum- based fuels more than offsets the higher incremental cost of purchasing NGVs. Figure 8: Drivers of NGV Adoption Environmental benefits Domestic natural gas supply NGV availability Access to CNG/LNG fueling Diesel CNG/LNG price spread 0% 20% 40% 60% 80% 100% 3.3 Fueling Infrastructure Challenges When it comes to NGVs, the U.S. faces a classic chicken- and- egg problem. According to Bloomberg View, There are fewer than 2,000 natural- gas stations across the country a fraction of the 120,000 that offer gasoline to the public. This makes companies reluctant to shift to the new vehicles. At the same time, the dearth of natural- gas vehicles on the road makes fuel companies reluctant to build the stations they need. 39 As seen in Table 9, there were only 1,222 stations where CNG and/or LNG 38 Federal Highway Administration (2012, February), Annual Vehicle Distance Traveled in Miles, 2010, by Highway Category and Vehicle Type, accessible at Oak Ridge National Laboratory (2012, July), Transportation Energy Data Book, Edition 31 (ORNL- 6987). 39 Orszag, P. (2012, June 26), Natural Gas Cars Can Drive Us Toward a Better Economy, Bloomberg.com, accessible at 26/natural- gas- cars- can- drive- us- toward- a- better- economy.html. The 120,000 figure is per the U.S. Economic Census (2007), NAICS , Gasoline Stations with Convenience Stores, accessible at Using different criteria, the U.S. Energy Information Administration estimates that there are a total of 157,000 stations of all kinds that retail motor fuel (U.S. Energy Information Administration, Annual Energy Outlook, 2012). 28