With decade-low natural gas prices threatening to dampen America’s shale-gas boom, gas-producing states are looking for ways to stimulate demand from cars and light trucks.
Ten states have signed a memorandum of understanding that aims to persuade automakers in the US to mass-produce competitively priced cars that will run on natural gas, providing a new outlet for abundant domestic supplies of the cleaner-burning fuel. The signatories are seeking more support.
The states, led by Colorado and Oklahoma, want to convert their fleets by buying new vehicles that run on compressed natural gas (CNG) and so convince automakers that there’s sufficient demand to justify mass-production of natural gas vehicles (NGVs) for the public.
“The States will endeavor to provide a demand base sufficient to support the design, manufacture and sale of functional and affordable NGVs by automotive manufacturers in the US,” the memorandum says.
Automakers like Ford and Honda currently make some natural gas cars, vans and light trucks but they are mostly for use in fleets that have their own refueling facilities, according to John Maples, a transportation analyst at the Energy Information Administration.
“Most consumers would have no idea where to get those vehicles refueled,” he said.
After aggregating annual vehicle procurements by participating states, officials will submit a joint request for proposal to the automakers sometime this summer, according to Patrick Henderson, Energy Executive to Pennsylvania Governor Tom Corbett, who has joined the initiative, and whose state runs about 8,800 passenger vehicles.
Stimulating Demand
“Transportation is the biggest opportunity to increase demand for natural gas,” said Henderson, whose state holds the largest share of the massive Marcellus Shale, one of the biggest U.S. gas fields.
Stimulating demand for domestically produced natural gas has become a more urgent task, Henderson said in an interview with Breaking Energy, since the market price dropped to around $2.50/mmBtu, the lowest since 2002.
The plunging price, reflecting plentiful domestic supply during an unusually mild winter, has prompted major producers such as Chesapeake Energy to cut dry-gas production, reducing the number of rigs operating in areas like northern Pennsylvania.
The pullback undercuts the economic benefits of Pennsylvania’s shale-gas industry which has created thousands of jobs – and been rewarded with the lowest tax rate of any gas-producing state – after drilling thousands of wells in the state since 2008.
But Henderson argued that the price decline lays the foundation for recovery because it will encourage increased use of a low-cost fuel. “The solution to low prices is low prices,” he said.
States Take The Lead
Participating states will be following the lead of others including California and Utah which already run some of their fleets on natural gas or other clean-burning fuels. “Nobody is starting from scratch,” he said.
While urging the auto industry to make natural gas-powered vehicles, the states are also seeking private investment in natural-gas filling stations that will sustain the new vehicle fleet.
Read more about investment in natural gas filling stations on Breaking Energy here.
The public sector is best-equipped to support fleet conversions, Henderson said, rather than refueling infrastructure which is more likely to be financed by private firms like Clean Energy Fuels, the largest US provider of natural gas for transportation, which already has 238 filling stations serving fleets including refuse, transit, trucking and municipal vehicles.
In their planned RFP to the auto industry, the states said they will commit to buy NGVs resulting from an agreement. “States intend, where practical, to transition new fleet vehicle acquisitions, in committed volumes, to a resulting OEM [original equipment manufacturer] NGV,” the statement said.
