Friday, August 8, 2008

California Ballot Initiative for Natural Gas Buses?

SAN FRANCISCO -(Dow Jones)- The notion of spending taxpayers' money to help fill U.S. roads with natural gas-fueled vehicles faces a major test when voters in California, the nation's largest auto market, go to the polls in November.

Natural gas providers are spending millions of dollars on advertising to convince Californians to pass a ballot initiative allowing the state government to invest in the now-tiny market for natural gas-fueled cars and trucks. The push comes as gas producers, emboldened by a windfall of domestic production, press federal lawmakers to help expand the market for gas as a means for reducing dependence on foreign oil and cutting greenhouse-gas emissions.

If the California ballot initiative passes, up to a million vehicles fueled by compressed natural gas, or CNG, could ultimately end up on the state's roads. If the proposal - called Proposition 10 - fails, backers will face a tougher task selling authorities on the wisdom of investing in infrastructure for natural gas-fueled vehicles, compared with spending on biofuels or electric cars and trucks.

"Natural gas is on the menu of possible fuels for the future," said Jim Boyd, a member of the California Energy Commission. "Its carbon footprint isn't as good as totally non-carbon fuels. But as we transition to alternative fuels, there could be a pathway to a future that includes natural gas for while."

So far no opposition has been organized against the proposal, which would authorize the state to sell $5 billion in bonds to fund rebates of $2,000 to $ 50,000 each to people who purchase natural gas-powered cars and trucks. Some of the money would be earmarked for research, development and production of renewable energy technology, and education. The plan would cost the state $9.8 billion over 30 years.

But while scientists and policy makers say filling the tank with natural gas instead of gasoline or diesel could serve as a viable, stopgap means to cut greenhouse gases and dependence on foreign oil, it isn't ideal for the long term and shouldn't be heavily subsidized.

"Using natural gas has some small advantages," said Daniel Sperling, director of the Institute of Transportation Studies at the University of California, Davis, and a member of the California Air Resources Board. "If someone can make a business out of it, that's great. The public benefits are rather small, so I don't think...our government should put much effort into promoting it."

Familiar Faces

Among the most prominent backers of the Prop. 10 is Texas billionaire oilman T. Boone Pickens, who is founder and chairman of CNG provider Clean Energy Fuels Corp. (CLNE). Pickens, along with Chesapeake Energy Corp. (CHK) Chief Executive Aubrey McClendon, has contributed a total of $3.7 million to support Prop. 10.

Both Pickens and McClendon have testified before Congress in the past two weeks, pressing lawmakers for a bigger role for natural gas in the nation's fuel supply amid booming production from from places like the Barnett Shale in Texas and the Haynesville Shale in Louisiana and eastern Texas.

The executives had already gotten the attention of Rep. Rahm Emanuel, D-Ill., who introduced a bill that would provide tax credits for the purchase of natural-gas vehicles and home-refueling systems, and credits to encourage gas stations to install natural-gas pumps.

Although CNG has been around for more than 20 years, it's a small market. Only about 0.1% of the 23 trillion cubic feet of natural gas the U.S. consumed last year was used to fuel vehicles, according to the U.S. Energy Information Administration. Honda Motor Co. Ltd. (HMC) manufactures the only natural gas- fueled car available in the U.S., the Civic GX, while several companies sell conversion kits, costing about $3,700 to $5,500, to modify gasoline engines to run on CNG.

One thing natural gas has going for it politically is that it's a lot cheaper than gasoline. Retail CNG prices in California are about $2.50 to $3.00 a gallon. The average price of retail gasoline in California is $4.21 a gallon.

CNG proponents also point to the benefits that switching to a natural gas- heavy vehicle fleet can bring in shoring up the nation's energy security. Big U.S. natural gas discoveries and forecasts for larger reserves have emerged just as oil and gasoline prices have skyrocketed, forcing energy issues onto the front pages and into the speeches of both presumptive presidential candidates.

A report released last week by the Chesapeake-backed industry group American Clean Skies Foundation and Navigant Consulting Inc. estimated that U.S. natural gas reserves could be as large as 2,247 trillion cubic feet, or nearly 100 times current U.S. yearly demand.

"If we started moving to natural gas vehicles in large numbers, even if we didn't go to renewables, we'd have plenty of natural gas," said Rich Kolodziej, president of Natural Gas Vehicles for America, a Washington-based trade association for natural gas vehicles.

The industry's goal is to replace 20% of the diesel used in the U.S. with natural gas by 2025, about 10 billion gallons, or 1.3 billion cubic feet, Kolodziej said.

Jury's Out On Long-Term Benefits

Pickens, Chesapeake and other backers are keen to see Prop. 10 pass because they'd otherwise have to compete against other alternative-fuel providers for about $840 million California plans to hand out for development and deployment of alternative fuels, under a law called AB 118.

While natural gas is more environmentally friendly than gasoline and diesel, the advantages have diminished since the 1980s, when engines were less efficient and petroleum fuels were dirtier, said the University of California's Sperling.

Automobile-pollution controls have improved since then, and California requires car and truck engines to become more efficient in the near term, making natural gas less competitive as a cleaner-burning fuel.

A study by California Energy Commission found that using natural gas instead of gasoline reduced global warming pollution 20% to 30%. Swapping natural gas with diesel in heavy-duty trucks cut greenhouse-gas emissions 10% to 20%, according to the study, which examined the "life cycle" of the fuels, from wellhead to gas processor, to delivery point, to combustion.

Natural gas used to be viewed as a good alternative to diesel in heavy-duty trucks, but this has changed as new truck engines have become much more efficient, and as refiners have produced cleaner-burning diesels, said Patricia Monahan, deputy director for clean vehicles at the Union of Concerned Scientists in San Francisco.

"The jury is out as to which is cleaner," Monahan said, referring to natural gas versus diesel. She added that natural gas is best used to replace coal for power generation, and that other alternative vehicles running on solar-generated electricity, renewable diesel or fuel cells would be superior to those fueled by natural gas.

"You have to do a big calculation about what's the best use for the fuel," Monahan said. "Ultimately we'd like to see zero-emission vehicles on the road - fuel-cell vehicles or electric vehicles powered by renewable energy."

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