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Natural Gas Vehicle Industry Surviving Without Government Subsidies

by Keith Phucas

The country’s plentiful supply of natural gas at prices far below gasoline appear to be the perfect free market incentive for the fledgling natural gas-powered vehicle industry to expand. So why is it necessary for the Wyoming government to loan money to this industry to build fueling stations?

During the upcoming Wyoming Legislative session, lawmakers will consider bills calling on state departments and school districts to eventually replace half of their fleets with compressed natural gas (CNG) or “bi-fuel” vehicles.

At the same time, however, it is considering lending any single company up to $1 million to build a CNG fueling station. The legislation authorizes a maximum of five such loans. The loans, which would be interest free for the first two years, would offer terms below the prime rate.

Gov. Matt Mead’s office has identified 283 vehicles that could eventually be replaced by CNG or bi-fuel models. Incidentally, the cost of buying new CNG cars or trucks is higher than gasoline- or diesel-powered vehicles.

According to a March 2012 Consumer Reports, the suggested retail price for the Honda Civic Natural Gas is $26,155 plus $770 for destination charges. A comparably equipped, gasoline-powered Civic LX lists for $18,242.

Currently, the state government’s fleet has six factory-equipped CNG-powered vehicles; 12 other vehicles were converted to run on CNG.

As part of a pilot program, Sublette County School District #1 purchased two CNG-powered school buses.

According to a 2012 report, “A Feasibility Study of Natural Gas Vehicle Conversion in Wyoming Public School Districts,” a CNG-powered school bus costs about $30,000 more than a diesel-powered bus. With the current $2-plus price differential between diesel fuel and CNG, it would take five to eight years for the buses to pay for themselves.

The idea of converting gas-burning cars, trucks and buses to run on natural gas sounds seductive, but the effort could backfire if natural gas prices rise to the level of gasoline or diesel fuel. If there were little or no price difference between liquid fuel and natural gas, any cost saving from fleet conversions would vanish.

Time will tell if purchasing CNG vehicles for the government’s fleet was the best use of tax dollars.

Fueling vehicles with natural gas has been subsidized before, with the usual results. Wyoming could learn a valuable lesson from Canada’s experience with natural gas-powered vehicles (NGV). That nation’s NGV industry, which government spent millions to prop up for about a decade, has been in decline since the mid-1990s.

Growth of NGVs in Canada was made possible by financial assistance from federal and provincial research programs during the 1980s and 1990s, according to Wikipedia. By the early ‘90s, the number of light-duty NGVs grew to about 35,000. Government subsidies also funded purchases of natural gas-powered transit buses.

However, the market began declining after 1995, eventually reducing the number of CNG vehicles to just 12,000. The total includes 150 transit buses, 45 school buses, 9,450 light-duty cars and trucks and small industrial vehicles.

Public CNG refueling stations in Canada fell from 134 in 1997 to 72 currently – 22 in British Columbia, 12 in Alberta, 10 in Saskatchewan, 27 in Ontario and one in Québec.

But Wyoming can look to its own history for a cautionary tale about subsidizing another alternative fuel – ethanol – that appears to have fallen out of fashion.

In 1995, just about the time Canada’s NGV craze peaked, Wyoming lawmakers established an ethanol tax credit to encourage ethanol production in the state.

That year, Renova Energy, an Idaho company, transferred an unused ethanol plant from Louisiana, rebuilt the facility in Torrington, Wyoming, and christened it Wyoming Ethanol, according to “The Symptom is Lobbying; the Disease is Corporate Welfare” by Wyoming Liberty Group’s Maureen Bader.

The state’s only ethanol producer, with the promise of creating “green jobs,” qualified for the tax credit, and during the next 17 years, Wyoming Ethanol received $33.7 million in credits.

Renova Energy has been in Chapter 11 bankruptcy since 2008, however, and construction on the company’s ethanol plant in Heyburn, Idaho was suspended in 2007, Bader wrote. The firm filed for Chapter 11 in 2009. The following year, Renova auctioned off parts of its plant after failing to get financing.

During the state’s last budget session, the legislature tried to derail the ethanol tax credit, eventually agreeing to end the subsidy in 2015. But with lobbyists hard at work trying to save the $4 million-a-year taxpayer giveaway, there’s no guarantee of its demise.

As for natural gas as a vehicle fuel, there is no guarantee the retail price will always be lower than gasoline or diesel.

Currently, there is an oversupply of natural gas in the U.S., and the price of a gasoline gallon equivalent of CNG on Jan. 7, 2012, was $1.35 at Cheyenne’s sole CNG station, located at Cheyenne Light, Fuel and Power, 1301 W. 24th St. That same day, the average price of diesel fuel in Wyoming’s capitol city was $3.49 per gallon.

Besides Cheyenne’s public station, which was built in 1993, there are four other CNG stations in the state: Two in Rock Springs; one in Riverton; and one in Evanston. Nationally, 545 CNG stations are open to the public.

Despite the current natural gas production bounty in Wyoming and other states, with the inherent volatility in energy markets, future spikes in natural gas prices could leave the state government with CNG vehicles that end up costing as much or more to operate as the fleet’s gasoline-powered models.

As for maintenance cost comparisons of diesel-powered school buses versus their CNG equivalent, “A Feasibility Study of Natural Gas Vehicle Conversion in Wyoming Public School Districts” provided no information to indicate CNG buses would be cheaper to maintain.

For now, long-haul trucking companies, which are purchasing natural gas-powered vehicles, are demonstrating a free market approach that isn’t waiting for corporate welfare from the federal government to move ahead.

UPS, Ryder Systems and other trucking companies are buying vehicles that run on liquefied natural gas (LNG), according to Bloomberg. Many of those new trucks are filling up at Clean Energy Fuels Corp. LNG stations recently built along the nation’s highways, including Pilot Travel Center’s Flying J station just off I-25 in Cheyenne.

At the end of 2012, there were 70 Clean Energy Fuels stations, many at Pilot-Flying J truck stops across the country. This year, the company plans to build 70 to 80 additional LNG stations. Currently, there are no federal incentives being offered to trucking companies or natural-gas vehicles.

Energy mogul T. Boone Pickens, whose company owns a 23-percent share in Clean Energy Fuels Corp., had hoped government subsidies would flow freely for the industry with passage of the NAT GAS Act, however, the bill was defeated in the U.S. Senate in March 2012.

In a recent Bankrate.com article, “The pros and cons of natural-gas vehicles,” David Friedman, deputy director of the Clean Vehicles Program of the Union of Concerned Scientists, cautioned that building a robust nationwide infrastructure for natural gas vehicles in the U.S. would be enormously expense and could get displaced by other alternative vehicles.

“This (refueling) infrastructure could become obsolete as soon as cleaner technologies emerge,” Friedman told Bankrate.com.

He pointed out that in foreign countries where natural-gas vehicles are prevalent, fueling infrastructure was built using “huge government subsidies.” And owning a personal CNG car is currently an expensive proposition.

“You’d be better off with a hybrid,” Friedman said.

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