Stepping on the (compressed natural) gas

The resurgence of traditional fossil fuels as part of an all-of-the-above energy strategy is perhaps the most surprising story of the past five years, but the same hydraulic fracturing and horizontal drilling techniques that allow the United States to tap into those sources also enable the development of alternative fuels.

When it comes to transportation fuels, cleaner-burning compressed natural gas is considered an alternative fuel, as it is increasingly replacing diesel fuel to power fleet vehicles. Someday, if the price remains low and the refueling infrastructure is more fully developed, it will power a greater variety of passenger vehicles.

Compressed natural gas-powered vehicles are nothing new, but the price competitiveness of CNG is. That price differential between CNG and diesel is profound enough — about $2 per gasoline gallon equivalent (GGE), versus $4 per gallon for petroleum — to get the attention of a manufacturing state like Wisconsin, especially with once-competitive electricity rates higher than in neighboring states due to recent investments in capacity.

The state has completed a series of meetings with various stakeholders to coordinate the build-out and is using $8.4 million in federal funds to help build the refueling stations and help municipalities buy natural gas-powered vehicles, many for waste collection. To further build out the network of stations, petroleum providers like Kwik Trip have started to invest in CNG refueling at their facilities, and Midwestern governors have discussed building out the regional network. This will be critical for the expanded use of CNG-only vehicles, in addition to “dual-fuel” vehicles that also run on diesel, and will help accommodate the use of CNG in passenger vehicles. 

“Were looking at keeping that balanced portfolio approach but maximizing that opportunity to reduce transportation costs, particularly for our transporters of manufactured goods here in the state of Wisconsin, which will help us be more competitive,” said Chris Schoenherr, deputy secretary of the Wisconsin Department of Administration.

Fleeting advantage

Municipalities, counties, cities, utilities (including Madison Gas & Electric), and private companies are all moving to increase the number of CNG vehicles in their respective fleets. 

In Dane County and other counties in its service area, MG&E is the distributor of natural gas to homes and to the Speedways and Kwik Trips of the world, which sell the gas directly to the customer. “We get the natural gas, and it’s the same gas used to heat people’s homes,” explained Debbie Branson, business ally manager for MG&E. “It comes in from a transmission company through the high-pressure interstate pipeline and goes to a gate station, which reduces the pressure and provides it to the distribution system.”

Branson believes the price of petroleum will remain stable because of the suddenly abundant supply and because of the differences in commodity cost and how that translates to what consumers pay at the pump. Fuel taxes still apply, but “if you look at the price at the pump, petroleum as a commodity is something like 60% of the per-gallon price,” she noted. “With natural gas, the commodity price is only 20% of the price at the pump, so even if the price increases, what you pay when you fuel up is not going to be as significant as it is with petroleum.”

According to Branson, compressed natural gas vehicles travel roughly 5% fewer miles per gallon than diesel vehicles, but the gas mileage of lighter-duty vehicles is comparable. CNG also meets the strictest emission standards in the nation, including those established by the state of California.

There are 27 Wisconsin stations with CNG fueling, with plans to add another 200 to 300 over the next five years. That’s music to the ears of Mike O’Connell, senior director of fleet operations for Frito-Lay North America, which is aiming for a 50% reduction in its use of gasoline fuels by 2020. The snack food company, which has a manufacturing facility in Beloit, has announced plans to add CNG vehicles to its fleet of large-tractor trucks that distribute snacks from its manufacturing facilities to its distribution centers.

As O’Connell explained, Frito-Lay’s fleet is more “out and back” rather than long haul, so it has pretty standard delivery routes. So even though the CNG infrastructure is in a formative stage, the company can make an investment in these types of vehicles because the trucks are only going a certain distance before returning.

“As the network builds out, we would obviously expand from there and go to more natural gas equipment on still more longer runs to other facilities,” he said.

According to O’Connell, the refueling process is safe and will not require extensive training for drivers. “As far as compressed natural gas goes, this is pretty similar to hooking up a gas grill at your house,” he said. In addition, there are methane detectors on the vehicles and the company’s garages are getting outfitted with all the necessary technology to safely pull out a vehicle engine.

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While the new methods of extracting natural gas and fossil fuels are controversial in environmental advocacy circles, at least one such group applauds the state’s interest in natural gas for transportation. Clean Wisconsin, a Madison-based environmental and clean energy advocacy organization, acknowledges that CNG has a smaller carbon footprint than petroleum, especially the tar sands petroleum that comes from Canada. What the organization really likes about natural gas-powered vehicles is that they will enable the state to leverage future biogas production for transportation and other energy needs.

Biogas can be produced from waste at farms, food processing plants, and wastewater treatment plants. Keith Reopelle, senior policy director for Clean Wisconsin, cited one estimate that claims if the 23 million tons of manure produced each year on Wisconsin dairy farms was fed into digesters and converted to natural gas, the state could displace 4.5% of its overall natural gas needs.

“That’s just dairy farms, so we have a lot of biogas production potential in food processing plants, wastewater treatment plants, and other sources of waste,” Reopelle said.

Will stable prices last?

Natural gas has been subject to price volatility, ranging between $2 and $12 per thousand cubic feet in the past decade alone. However, the new drilling techniques have uncovered what could be a 100-year supply, perhaps longer, which bodes well for price stability.

Just a few years ago, there was talk of putting liquefied natural gas facilities in ports with the idea of importing LNG; now, thanks to the new drilling techniques, the U.S. is looking to export natural gas. The Obama administration recently approved a $10 billion natural gas-exporting facility in Quintana Island, Texas, and 19 similar applications await approval as the U.S. seeks to take advantage of its new status as the world’s largest producer of natural gas.

Natural gas is so abundant, clean, and cheap it poses the first real threat to gasoline as the nation’s dominant transportation fuel. At the moment, there are 120,000 natural gas vehicles on U.S. roads, and 15.2 million worldwide, and those numbers will increase as long as the CNG price remains right.

Count O’Connell among those who would drive a passenger car fueled by compressed natural gas. “Oh, absolutely,” he stated. “The challenge today is building that fueling infrastructure.”

 

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Tips for Amping Up Energy Savings

There was a day when Wisconsin could tout affordable electricity as a competitive advantage, but the state’s drive to increase capacity and therefore reliability has had an ironic twist. Thanks to a $10 billion investment in new generation, transmission, and the retrofitting of existing plants, Wisconsin’s electric rates are now higher than those of its Midwestern neighbors.

Given that neighboring states eventually will have to match Wisconsin’s recent modernization program, some believe the differences in price eventually will even out. In the meantime, there are several things the state and individual employers can do to mitigate this price disadvantage (in addition to considering internal energy-efficiency projects), according to Todd Stuart, executive director of the Wisconsin Industrial Energy Group.

1. Do no harm. In Stuart’s view, the state doesn’t need another costly renewable energy mandate or further renewable subsidies as the aforementioned construction cycle winds down. 

2. Align fixed costs and variable costs. Also, state regulators must increase monthly demand charges in order to properly recover the fixed costs and avoid cross-subsidies. “Too often over the years, some variable fixed costs have been put into the fixed variable bucket as a way of protecting certain customers and certain classes of customers,” Stuart explained, “so getting fixed costs and variable costs aligned, and putting the fixed costs in the fixed bucket and variable costs in the variable bucket is a big deal.”

3. Maximize real-time tariffs. With regional market prices now much lower than standard retail rates, customers should consider moving at least part of their loads to a real-time tariff, provided they can accept the potential for price volatility. “There are a couple of utilities now where if you’re expanding, or if you move load, or if you shift some of your manufacturing production back to Wisconsin facilities, the portion that you consider an expansion can be on more of a market rate,” Stuart said. “Those are called new load market pricing tariffs, and so it acts somewhat like an economic development rate where you put that increment on the market price, and it’s a big savings right now.”

4. Explore credits. Power is very cheap during off-peak hours, so it would be wise for industrial users to tap into that more. The state should look into incentives to encourage high-energy users to save power in this manner and should explore other rate design elements to ease some of the cost burden on higher-load-factor customers. “Some utilities have what is called a ‘high-load-factor correction,’” Stuart explained. “The concept behind it is somewhat of a tacit admission that costs get piled onto the high-load-factor customers in the regulatory process, and the high-load-factor correction/credit helps to offset those costs.”

5. Make your own. Internally, more companies could move to more self- or onsite generation, especially as natural gas prices remain low. There is an upfront capital cost, but companies might consider installing onsite natural gas turbines or some cogeneration equipment, or perhaps more solar panels to offset their overall usage at peak times. “Solar is still relatively expensive, but the price has been dropping here,” Stuart said, “and a lot of large industrial companies have big, flat rooftops, and so you might see a little bit more of that.” 

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