Louisiana looks at developing natural gas vehicle industry

11 06, 2011 by The Times-Picayune

Hoping to take advantage of an abundant supply of shale gas, Louisiana officials and representatives of the natural gas industry have begun evaluating the potential for developing a compressed natural gas vehicle industry in the state. The group, led by Jimmy Field, the chairman of the Louisiana Public Service Commission, met for the first time last month at Louisiana State University.

Field described the half-day meeting, which came a day after LSU's Center for Energy Studies hosted its annual Energy Summit, as a chance to "pull together the policymakers so that they can ask their own questions and not be intimidated by anybody, and just give us the facts, so that we could see what could we do in Louisiana to move this industry forward."
Among those who attended the meeting were officials from America's Natural Gas Alliance, which represents natural gas exploration and production companies, as well as Rep. Bill Cassidy, R-Baton Rouge, Natural Resources Secretary Scott Angelle and Economic Development Secretary Stephen Moret.

While the petroleum industry prepared in recent years to build dozens of new North American terminals for importing liquefied natural gas, the development of shale gas plays across the country, including the Haynesville formation in northwest Louisiana, changed all that by making natural gas more readily available from domestic sources.
Industry supporters say it would make sense for Louisiana to become a leader in the emerging technology because it tops the country in natural gas production, and the state's interstate corridors cut through proven and potential shale areas, allowing for fueling stations to be built and spread out.

On average, compressed natural gas costs about 47 percent less than gasoline; a 10-gallon fill-up of compressed natural gas that costs about $21 would translate into $35 for 10 gallons of gasoline, said David Hill, vice president of the Calgary-based Encana's natural gas economy operations.

"Six years ago, we were struggling and having to import natural gas, and it was expensive and people were building facilities off our coast," Field said. "Now, they're asking for permission to export it. It's kind of amazing in that even the people within the industry fail to envision the impact that the shale gas would have on the natural gas market."
Still, there are hurdles to a wider acceptance of alternative fuel vehicles: To get consumers behind the wheel of a natural gas vehicle, they'll need a place to fill up. But in order to build the fueling stations, officials say, there need to be drivers ready to work the pump.

"Our transportation industry revolves around the use of a liquid called gasoline, and to change the delivery system to compressed natural gas, it's just a huge volume of investment," Angelle said in an interview, "and you've got a chicken and an egg, which one's going to come first, who's going to make that investment and be able to grow."
Encouraging companies to convert light-duty vehicles to use multi-fuel engines capable of running on gasoline and natural gas, a process called bi-fuel, could be a good starting point, state officials and the industry's proponents say.

There are eight natural gas fueling stations in Louisiana, including three open to the public, and plans under way for 15 more. The closest is slated for Kenner.
More than 12 million natural gas vehicles are on the road worldwide, including 120,000 in North America, according to Barrie McKay, general manager of regulatory affairs for Questar Gas. There were 893 refueling stations in the United States at the end of last year.

The only light-duty natural gas vehicle manufactured in the U.S., the Honda Civic GX, has an 8-gallon tank that gets about 38 miles per gallon on the highway, with a price tag starting at about $26,000.

Louisiana already offers incentives for residents interested in converting a vehicle or buying an alternative fuel ride. There is an income tax credit of 50 percent of the incremental cost of converting a vehicle to run on alternative fuel, including compressed natural gas and liquefied natural gas, or a 10 percent credit toward the cost of the vehicle, up to $3,000. The state also offers a 50 percent credit off the cost of constructing an alternative fueling station.

For his part, Cassidy, the lawmaker, filed legislation earlier this year that would change Internal Revenue Service rules to allow independent producers of oil and gas to build the retail outlets and promote the use of the fuel.

The legislation, which had 66 co-sponsors by the end of last week after being referred to the House Committee on Ways and Means earlier in the year, would help producers of natural gas by developing another outlet for their product, Cassidy said.

"There's concern that without increased demand, there won't be adequate price point to pay back investment," he said.
In Red River Parish, Encana Natural Gas, a subsidiary of Encana Corp., opened its first natural gas fueling station last year. The station, which is open to the public, looks no different from its gasoline counterparts.

"If you drove by it, you wouldn't know it was different," said Hill, adding that Encana uses it to dispense compressed natural gas to its fleet of about 20 vehicles in the area.
Angelle said he believes that compressed natural gas could provide a means for lowering the price of energy for consumers, but that kick-starting the idea may require more than a carrot on a stick.

"It's a supply and demand issue that I'm not so sure that without some incentives, I don't know if it works," he said.

Entergy Gulf States Louisiana, a subsidiary of the New Orleans power provider, operates three natural gas distribution centers, including two that are open to the public, near Baton Rouge. Locally, the utility has a fleet of 41 light-duty vehicles that run either solely on compressed natural gas or on bi-fuel, and 39 vehicles, mostly pickup trucks.

"One of the things that we look at periodically is the cost difference between conventional gas or diesel vehicles," said Andrew Owens, director of regulatory affairs for Entergy Louisiana. Since the cost of converting a vehicle can reach tens of thousands of dollars, Owens said it wasn't always a practical decision.

"Thus far, that kind of differential doesn't justify the investment with fuel savings," he said.

Both Entergy and Encana officials say they've seen higher sales from public fueling stations this year.

"We've been seeing an increase in volumes because of it, which is good," Hill said, adding that 30 percent of the sales were third-party. "It was really just our fleet using the station, and now we're seeing other oil and gas companies, other private individuals and we're seeing some other commercial fleets using the station."

That's led to some optimism that there could be more to come.

"There's been a lot of momentum," Hill said, "and I think this is hopefully the first of many stations that get built out for Louisiana."