Date: 29-Jul-10
Country: USA
Author: Edward McAllister
 

The Energy Bill released on Tuesday is a big boost for the natural gas vehicle (NGV) industry, but natural gas faces hurdles to eroding oil's dominance as a transport fuel in the United States.

For one, even as U.S. natural gas production expands to fuel a growing NGV fleet, a national distribution infrastructure is not yet in place.

In an attempt to reduce U.S. reliance on petroleum, the latest Energy Bill, introduced by Senate Majority Leader Harry Reid, offers $3.8 billion in rebates to buyers of NGVs, from passenger cars to 18-wheelers.

It is the biggest ever incentive for buyers of alternative vehicles, offering subsidies for cars at $10,000 per vehicle and up to $64,000 for heavy trucks. Grants and subsidies for refueling stations and manufacturing plants have also been proposed.

The rebates remove one of the major obstacles to increased use of NGVs in the United States -- the extra cost of an NGV compared to a gasoline or diesel vehicle.

"The proposed incentives will encourage even more individual consumers and fleets to switch to natural gas vehicles. And we expect this to spur manufacturers to produce even more natural gas models," said Richard Kolodzeij, president of trade group NGV America.

However, there is concern that the bill does not go far enough to really boost the use of NGVs.

Sales of natgas vehicles are waning. According to the EIA, the number of NGVs on U.S. roads fell from 118,532 in 2004 to 113,973 in 2008. And without more government support, the EIA sees only a shallow rise in the use of natural gas for transport to 2020.

(For graphic, click here: link.reuters.com/bez99m )

LOOKING TO TANK UP

Natgas fueling stations are few and far between in the United States, making anything but short, routine journeys possible. There are about 1,000 fueling stations across the United States, but only half of these are open to the public. Many others only allow public refueling after an account has been established.

Reid's Energy Bill offers a $50,000 grant for building a fueling station, but this is a relatively small donation for a potentially $2-million venture. And without fueling stations, car sales will not pick up.

"I'm not sure the station incentives will be robust enough to grow station numbers. I think we will see demand growth for vehicles where we have stations now, but I don't see a big spike in the development of new stations," said Dave Hurst, senior analyst at Pike Research in Detroit.

Even so, analysts say the potential for increased use of NGVs in the United States has great potential to displace large amounts of more expense gasoline and diesel, if sales of trucks and cars do pick up.

The 114,000 natural gas vehicles on U.S. roads in 2008 consumed about 34 billion cubic feet of natural gas, the equivalent of nearly 200 million gallons of gasoline.

That figure could rise to between one and two trillion cubic feet (tcf) by 2035 with government support, according to industry reports and Reuters estimates. Trade group NGV America estimates that NGVs in the United States could displace up to 10 billion gallons of the 50 billion gallons of petroleum expected to be consumed in the United States by 2017.

Even only converting heavy duty trucks could boost natural gas demand significantly, according to a report released in May by the U.S. Energy Information Administration.

Natural gas demand in the heavy truck sector alone could rise to 1.6 trillion cubic feet by 2035, from 0.01 tcf in 2008, the EIA report said. This is about 7 percent of current marketed U.S. gas production.

That could displace 670,000 barrels per day of petroleum in 2035, or about 23 percent of U.S. ultra-low sulfur highway diesel consumption in 2008, assuming 1 tcf of natural gas replaces 500,000 barrels per day of petroleum consumption.

The United States is sitting on huge reserves of natural gas thanks in part to the massive growth in shale gas development in recent years. But environmental and political concerns could slow the growth in supply.

Total U.S. natural gas production is currently around 20 tcf and is expected to rise to 23.3 tcf by 2035, according to EIA projections.

"In the longer term, increased demand for natural gas in the transportation sector would tend to stimulate increases in U.S. natural gas production and imports, as well as higher natural gas prices in all the end-use sectors," the EIA said.

(Editing by Alden Bentley)