COLUMN-Government here to help with switch to gas vehicles: Kemp
(John Kemp is a Reuters market analyst. The views expressed are his own)
LONDON, July 4 (Reuters) - Legislation introduced in the U.S. Senate aims to accelerate the construction of a nationwide network of refuelling stations for natural gas-powered vehicles.
It is the first attempt to use the federal government's financial muscle to "nudge" the transport infrastructure towards gas and overcome the network inertia that favours gasoline and diesel.
"The Alternative Fueled Vehicles Competitiveness and Energy Security Act" (S 1230) would provide federal loan guarantees and authorise tens of millions of dollars of spending on technical assistance and training programmes.
Introduced by Senator Ron Wyden, chairman of the Energy and Natural Resources Committee, the bill is designed to overcome some of the barriers preventing widespread adoption of gas-powered cars and trucks, as well as other alternative fuelled vehicles.
The sustained differential between gas and oil prices presents an opportunity to replace some of the gasoline used in cars and trucks, and the diesel in medium and heavy trucks, with compressed natural gas (CNG) and liquefied natural gas (LNG), cutting costs and reducing dependence on imports.
The higher price of gas-fuelled vehicles is one barrier to more widespread adoption, as purchasers must weigh the higher upfront capital costs against lower operating costs.
The other is a lack of refuelling infrastructure. Purchasers will not buy gas-powered vehicles unless they can be reasonably certain of being able to refuel easily. Wyden's bill is designed to overcome the hurdle by ensuring the number of refuelling stations reaches a critical mass.
SLOW BUILD OUT
Progress developing refuelling infrastructure has been slow. There are just 1,226 refuelling stations dispensing CNG and 73 dispensing LNG, according to the Department of Energy's Alternative Fueling Data Center. Not all of them are open to the public. Alternative refuelling options are limited compared with around 160,000 ordinary retail gasoline stations.
Market penetration has been growing fastest for heavy-duty fleets like buses and refuse collection vehicles that rely on their own dedicated refuelling networks and can therefore support conversion most easily.
By 2009, there were 12,300 natural gas transit buses in operation, accounting for almost 20 percent of total fuel use in the transit sector, and the percentage is expected to increase to 65 percent by 2035, according to a report on "Advancing Technology for America's Transportation Future" published last year by the National Petroleum Council (NPC), an advisory committee to the Secretary of Energy.
"The Los Angeles Metropolitan Transit Authority (LATMA) retired its last diesel bus in January 2011 and now operates an entirely CNG fleet of 2,200 buses," according to the NPC.
Truck stop operators, haulage firms and major logistics operators have also been developing LNG refuelling stations along some major road corridors where the traffic volume is sufficient to sustain dedicated vehicles and LNG distribution and dispensing facilities, either restricted to a particular fleet or open to the public.
In other countries, millions of cars, taxis, delivery vans and trucks are powered by CNG. Pakistan, Iran, Argentina, Brazil and India each have more than 1 million gas-fuelled vehicles. But in the United States uptake has been inhibited by the limited number of filling stations where drivers can rely on CNG being available.
HEAVY DUTY VEHICLES
"Building sufficient infrastructure to support a wide-scale geographically disperse fleet of natural-gas vehicles (NGVs) will be a significant economic challenge," the NPC admitted.
Heavy and medium-duty vehicles remain the easiest market. There are fewer than 10,000 truck stops across the country providing diesel to the heavy-duty fleet, dispensing approximately 32 billion gallons of diesel (http://link.reuters.com/zek49t).
The minimum threshold for availability is probably 20-30 percent, so 2,000-3,000 stations. Natural gas fuelling stations would be a mixture of private stations located at fleet depots, serving return-to-base and point-to-point trucking operations, and public stations along major transit corridors.
More than 40 percent of vehicles in fleets of six or more trucks rely on private on-site fuelling. These are attractive "early adopters" for the roll out of gas-fuelling infrastructure. Public fuelling stations could be built alongside existing truck stops.
Even so, the total capital requirements to provide 2,000 to 3,000 fuel stations could be between $10 billion and $20 billion, the NPC estimated, and another $20 billion to $60 billion could be needed to provide all the extra liquefaction plants needed to serve the demand.
CARS AND LIGHT TRUCKS
The most likely early-adopters of natural gas in the car and light truck segment are fleet vehicles such as taxis, utilities' vans and private corporate fleet cars and trucks, where annual mileage and fuel use is higher than typical personal vehicle use. Fleets can be served from central fuelling stations dispensing CNG.
Serving a wider retail market is far more challenging. Fuelling requirements are variously calculated as 20-30 percent of all the 160,000 service stations, one station per 1,000 NGVs, or a minimum number of fuelling stations per metropolitan area.
If the minimum availability is 30 percent of existing gasoline stations, however, the NPC calculates the total capital costs could hit a staggering $100 billion to $200 billion.
GOVERNMENT HERE TO HELP
For both heavy and light duty vehicles, LNG and CNG, "the key to natural gas deployment lies in identifying high concentrations of potential customers to build scale," according to the NPC.
"These initial fleets allow the station to 'base load' to cover fixed costs, and additional vehicles provide incremental throughput. Timing is important as developers must install station to match the potential buying commitments of customers with new NGVs."
Gas distributors, public utilities and private developers have all been promoting the roll out of private and public refuelling stations, but Wyden's bill is intended to use the financial muscle of the federal government to help the natural gas and other alternative fuels reach the tipping point.
It would support the deployment of alternative fuelling stations by allowing fuelling infrastructure projects to qualify for federal loan guarantees from the U.S. Department of Energy.
Section 1703 of the 2005 Energy Policy Act permits the Secretary of Energy to offer loan guarantees to support innovative technologies that avoid, reduce or capture greenhouse emissions. The secretary is allowed to support "production facilities for the manufacture of fuel efficient vehicles or parts" but not at the moment the fuelling infrastructure.
Wyden's bill would authorise up to $50 million per year between fiscal 2014 and fiscal 2018 to be appropriated from the Treasury for the Department of Energy to spend on providing technical assistance and coordination to states, local governments, tribes and public-private partnerships to assist deployment of alternative fuelled vehicles and infrastructure.
Technical assistance would include "coordination in the selection, location and timing of alternative fuel recharging and refuelling equipment and distribution infrastructure, including the identification of transportation corridors."
The bill would also authorise up to $50 million per year to be appropriated for the Department of Energy to spend on grants for workforce training linked to manufacture and maintenance of alternative fuelled vehicles and the manufacture, installation, support and inspection of fuelling infrastructure.
Authorisation is not the same as appropriation. The department could not spend any money until appropriations have been approved by the relevant Appropriations Committees of both the House and the Senate and passed in the annual appropriations bills.
Wyden is not a member of the Senate Appropriations Committee (though the ranking Republican on the Energy and Natural Resources Committee, Senator Lisa Murkowski, is a Senate appropriator).
There is no guarantee authorisations will be turned into appropriations. Nonetheless, if the bill is eventually passed by the Senate and subsequently the House of Representatives, it would provide a strong signal about spending priorities.
(Edited by David Evans)