Laying the Groundwork for Natural Gas Vehicles

by Morrison & Foerster LLP

Infrastructure and Regulations may Dictate Speed of Adoption

America’s shale gas revolution is making waves in transportation technology. Currently, only 1 percent of all natural-gas-fueled vehicles worldwide are running on U.S. roads, according to trade association NGVAmerica. But, in the coming years, U.S. NGV use is expected to accelerate, particularly among truck fleets. Why? Natural gas costs $1.50 to $2 less than gasoline per equivalent gallon. It’s also cleaner burning, with up to 30 percent less greenhouse gas emissions.

The potential for NGVs highlights the need for additional gas pipeline and distribution  infrastructure and for supportive energy regulatory policies at the federal and state levels, says Bob Fleishman, senior of counsel at Morrison & Foerster.   “It’s a question of making sure that, as CNG and LNG fueling stations and other new users come on line, there’s an adequate supply of natural gas available.”

At the national level, the Federal Energy Regulatory Commission oversees the construction of interstate pipelines and related infrastructure in a safe and environmentally sensitive manner, Fleishman says. At the state level, public utility commissions play a key role in making sure adequate mainlines and local service lines are in place to meet growing demand and, if gas utilities want to participate in NGV markets, that the competitive playing field is level for other providers.

In the U.S., transit bus systems have been early adopters of natural gas: About 20 percent of all transit buses nationwide now run on compressed natural gas or liquefied natural gas. Demand for NGVs is also growing steadily in the medium-duty and heavy- duty truck segments. UPS operates one of the largest alternative-fuel fleets in the country, with more than 2,700 hybrid, electric, and natural gas vehicles. The Atlanta-based company is investing nearly $70 million to build 13 LNG fueling stations to support its growing fleet. The increasing availability of inexpensive natural gas has created compelling new opportunities for companies such as UPS to save money and cut emissions, says Susan Mac Cormac, a partner in Morrison & Foerster’s San Francisco office who works with UPS. “Natural gas is a huge step forward,” she says. “But longer-term, we’ll need to come up with other creative approaches to meet our country’s fueling needs.” Emerging technologies such as hydro- gen fuel cells hold great promise for both cars and trucks, she adds.

As commercial fleets add NGVs, the market for fueling locations grows.  Leading the way is Clean Energy Fuels, which owns, operates, maintains, or sup- plies 445 CNG and LNG fueling stations nationwide. The company is building this network on interstate highways and in major metropolitan areas. Clean Energy is also building a new LNG production facility in Florida to supply LNG to the marine and rail industries.

“We have helped Clean Energy Fuels raise more than half a billion dollars to support their investments in new clean energy fueling infra- structure,” says Steve Rowles, chair of Morrison & Foerster’s San Diego Corporate Group. “Having a robust fueling network in place from coast to coast will make it easier for more fleets to make the move to LNG and CNG.”

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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