Why natural gas vehicles could be the future of natural gas

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Part 6
Why natural gas vehicles could be the future of natural gas PART 6 OF 10

Favorable regulations could increase natural gas vehicle sales

Favorable regulations could increase NGV sales

In 1992, the Energy Policy Act was passed, which aimed to reduce U.S. dependence on imported petroleum and to improve air quality. The Act encouraged the use of alternative fuel including natural gas fuels—compressed natural gas (or CNG) and liquefied natural gas (or LNG).

The anticipated sales in the natural gas vehicle (or NGV) sales didn’t happen during the period from 1990–2001, which made some of the investments in natural gas infrastructure unprofitable. This was primarily because many operators preferred “flex-fuel”—an alternative fuel that is a blend of gasoline and ethanol to run vehicles—ethanol vehicles because of their convenience and low incremental cost. This led to a fall in CNG fueling stations.Favorable regulations could increase natural gas vehicle sales

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Policy amendment in 2005

The EPA Act 1992 law was further amended in 2005 to include tax incentives that would promote alternative fuels and advanced vehicles production and use. As a result of this new policy, there was an increase in the quantity of natural gas for transportation sold each year. However, initially the number of natural gas stations declined.

By 2004, the number of stations dropped below 1,000 from 1,200 in 2001 and then started to increase modestly until 2006. It remained at around the same level until 2012, up to which figures are available.

New policies to encourage natural gas for transport

In 2011, the Environmental Protection Agency (or EPA) amended its rule towards facilitating conversion of gasoline run cars and trucks to natural gas. The new regulation applied to both the light-duty vehicle and heavy-duty highway vehicle. This was subject to maintenance of EPA’s emission standard. The rule was finally adopted by the EPA in August, 2012.

In April, 2014, the European Parliament approved the adoption of new rules regarding alternative fuel infrastructure development and technological specifications.

These include the installation of LNG re-fueling stations along the Trans-European Core Network by 2020. The new policies aim to channel significant investments to the NGV infrastructure and vehicles industry.

Tax credits

Effective December, 2013, the American Taxpayer Relief Act of 2012 was enacted. The law provides tax credits for using alternative fuel powered vehicles, an alternative fuel infrastructure tax credit, a biodiesel income tax credit, a biodiesel mixture excise tax credit, and alternative fuel mixture excise tax credits.

The policy changes are meant to encourage buyers to shift to alternative fuel vehicles as their preferred mode of transportation. In 2012, the sale of CNG powered cars in the U.S. more than doubled in a year. Higher sales also led to higher fuel consumption.

From 2012–2013, the use of natural gas in the transportation sector increased by 9.3% compared to an average increase of ~4% during 2007–2012.

Key stocks and exchange-traded funds (or ETFs)

Energy services companies that would benefit from increased use of CNG include Piedmont Natural Gas Co. (PNY), Clean Energy Fuels Corp. (CLNE), AGL Resources Inc. (GAS), and Atmos Energy Corporation (or ATO). Some of these are components of the Utilities Select Sector SPDR (XLU) and the SPDR S&P 500 (SPY).

To learn more about some of the gas services companies catering to the natural gas vehicle market, please continue reading the next section in this series.


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