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A WiesnerMedia PublicationFebruary 2013

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cobizmag.com

Natural gas outlook: ProMIsE IN PoWEr PlaNts aND autos, P. 3

Car lots aND CoNvErsIoNs: What you NEED to kNoW about Natural-gas vEhIClEs, P. 8

ECoNoMIsts WEIgh Natural-gas’ IMPaCt, P. 9

WElD CouNty’s altErNatIvE-fuEl CorrIDor froM DENvEr to WyoMINg, P. 10

thrEE stEPs to fIllINg uP aN Ngv, P. 11

Boasting the nation’s fourth-largest natural gas reserves, Colorado has emerged as a leading force for natural-gas vehicles.

DRIVING CHANGE

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Natural gas at your convenience.

In early summer 2013, Encana Natural Gas Inc. is building a brand new compressed natural gas fueling station in Parachute – 200 County Road 215. The station will be open to the public, servicing privately-owned cars and trucks as well as fleet vehicles.

Consider running your car or truck on natural gas. You can be part of one of the most significant advancements in motor fuels in decades. It’s better for the environment than gasoline or diesel, costs less to fill up, helps create jobs in our state and contributes to domestic energy security.

If you are interested in converting to or buying a natural gas vehicle we will help you through the process. Please contact us by email ngv.info@encana.com or call 866.251.0032.

Twitter / Facebook / YouTubeencana.com

In order to describe the burgeoning natural gas market people understandably are forced to reach for grand metaphors.

And so it was that in the last couple of years a series of studies and news stories appeared proclaiming that, with its burgeoning U.S. production, 100-year reserves, and low and stable prices the Golden Age of Gas had arrived and Natural Gas is King. These stories were followed by a round of articles explaining that no, natural gas is not the king, crude oil was still king. Or wind farms and solar.

Last year the Paris-based International Energy Agency amid fanfare released a study, “Are We Entering a Golden Age of Gas?”

The IEA certainly seemed to believe that. In 1980, it noted, global oil consumption outranked natural gas consumption by a factor near three. The agency went on to predict that before 2030 natural gas use will surpass coal, and by the year 2035 worldwide natural gas consumption will quadruple from its 1980 base and almost have caught oil. Globally, among hydrocarbons natural gas might be

said to be No. 3 with a bullet.In lots of ways right now natural gas

is less the king of hydrocarbons than the potential kingmaker, the kingpin, the fulcrum, the pivot. Call the Natural Gas Revolution whatever you like; we’ll settle for calling it a revolution-in-the-making.

The good news is that last year Colorado’s natural gas production “increased for the 25th year in a row to break another record output high,” according to the U.S. Energy Information Administration. “The Niobrara shale play in the northeast corner of the state helped raise Colorado’s natural gas production,” but overall state production increased just 1.4 percent.

The Golden Age seems to be found on the buy-side of the equation. It’s a buyer’s market in natural gas now, to say the least. Fueling a potential revolution are low, stable natural gas prices all over the United States, and especially in Colorado.

All kinds of powers and influences unleashed by producing so much natural gas are shaping all sorts of changes. Forces both governmental and in the marketplace

Colorado

has emerged as

a natural-gas

leader WITH

ALTERNATIVE FUEL

VEHICLES A KEY

GROWTH CATALYST

by David lewis

Fueling arevolution

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are bubbling, with the government ever-pressing for clean engines, producers fighting for new markets, and consumers pushing to keep costs down.

On the macroeconomic, geopolitical, panoramic level, a fight is shaping in Washington, D.C. over Liquid Natural Gas exports, which could raise domestic natural gas prices and stimulate production.

On the pro side are those, like just-retired Sen. Richard Lugar, R.-Ind., who claim that natural gas exports among other benefits could serve a national purpose by, for instance, challenging Russia’s dominance of Europe’s natural gas markets. On the con side are environmentalists, who don’t wish to encourage production, and also big natural gas consumers with big expansion plans, such as Dow Chemical Co. “Let’s not let the oil price bleed back into the domestic gas market,” pleaded Dow CEO Andrew Liveris.

A December study by the Energy Information Administration seemed designed to smooth the way for Energy Department approval of easing exports. The report said by 2027 the U.S. could export the equivalent of about 6.6 percent of the country’s current natural gas consumption, about four billion cubic feet of gas per day. The EIA also indicated that natural gas exports in five years could

hike the domestic price of gas by between 22 cents per thousand cubic feet, or Mcf, and $1.11 per Mcf.

On the more micro-level, Colorado is a natural gas powerhouse, the fifth-or-so-ranked U.S. natural gas-producing state. (Texas, drat it, is at the top; Alaska should ace out Texas, but it doesn’t have the pipelines.)

Colorado among the states has the third-largest gas reserves, says the Colorado Geological Association, and has the nation’s largest of coalbed methane reserves. The state has parts or all of five of the top 25 natural gas fields in the United States. “Fifty-nine percent of our production is exported to other states,” the association reports.

Colorado also is a logical place to introduce natural gas, a friendly hydrocarbon, to the alternative technologies as a “bridge” fuel. In other words, when the sun doesn’t shine and the wind doesn’t blow, natural gas turbines can kick in quickly to tide over electricity generation.

Last autumn, General Electric introduced a new generation of natural gas turbines for big power plants, the first since the 1980s. These 60 Hz FlexEfficiency, natural gas turbines swiftly ramp power output up or down in about six minutes, in order to combine natural gas with renewables like wind and/or solar.

“Existing natural gas-fired generation can do that now,” says Tom Dougherty, attorney with Rothgerber Johnson & Lyons LLP and leader of the firm’s Energy and Infrastructure Practice Area. “But this really addresses the challenge of having the whole system communicate together. Where the technology is evolving is from those turbine manufacturers like General Electric who are trying to make those turbines more capable, more responsive. The ability to do that exists now, but it’s getting better all the time.”

Plus, with a little help from friends in the State of Colorado the state is becoming a regional center for the where-it’s-at of the Transportation Revolution subdivision of the Natural Gas Revolution.

Natural gas vehicles today number about 120,000 nationwide. The government in 2009 counted 273 million registered passenger vehicles, including light trucks; big trucks; and motorcycles. Colorado hosts 16 public and 17 private compressed natural gas stations.

So we’re talking about the beginning of the beginning of something here.

But here’s the deal: We could be talking about the beginning of something big, the start of the first wave of practical and cost-efficient alternative fuel vehicles.

Fleet managers already are turning to NGVs in a big way.

UPS has an alternative fuel fleet of 1,420 vehicles, including 937 compressed natural gas vehicles nationwide. In Commerce City, UPS stations 188 CNG-fueled delivery vehicles and three CNG yard-shifters . Andy Grzelak, UPS area automotive manager, manages the Four Corners states. CNG-fueled trucks’ fuel costs save 50 percent over diesel vehicles, he says.

Recent estimates peg fuel savings of natural-gas vehicles as 30 percent to 40 percent over gasoline and diesel, with more significant savings when oil prices spike.

The more fuel the fleet consumes the faster the payback on investment, amid other benefits. “Some of the challenges of natural gas have been predominantly due to limited mileage and utilization, and the fueling infrastructure,” Grzelak told the CNG Truck Fueling and Technologies Workshop, an event sponsored by Ward Alternative Energy in December.

“This group of vehicles we have in Commerce City actually has a mileage range of just about 200 miles, so for our operation we could run some of our

which are driving the roads at present. The ISL G “has been out for considerable period of time; it’s a very proven product, does great in medium-duty trucks, school buses, specialty vehicles, transit bus and refuse,” adds Bentz.

Other advantages for NGV include far lighter engine wear than gasoline engines and that are 5.5 decibels quieter than their diesel equivalents. “One diesel engine idling is louder than 10 natural gas engines,” Bentz said, although “these engines actually make some funny noises” until you get used to them.

Now, Cummins is focusing on regional and long-haul trucks through its upcoming ISX12 G natural gas engine, with 400 horsepower/1,450 foot-pounds of torque, performance that matches that of Cummins’ comparable diesel engine but with superior durability and fuel cost advantage.

The ISX12 G was supposed to be rolled out in the first quarter, but now Cummins has pushed back its release until early third quarter. The company plans to complete its natural gas engine line in

package cars two days to 2 ½ days without fueling them. That’s actually helped us.”

Still, return on investment calculations start with the fact that, “the cost incremental for a gasoline delivery truck and a CNG truck is about $20,000 just for the upgrade.”

Grzelak said that NGVs are “viable for local and regional transportation,” thus today’s “need for public fueling infrastructure and a long-haul fueling application.”

Scott Bentz, vice president of On-Highway Business for Cummins Rocky Mountain, covering eight states, followed Grzelak with what is hoped to be the answer to that need for long-haul trucking.

“Everyone acts like CNG is kind of a new thing in the marketplace, but Cummins has been around for a long time with CNG engines, natural gas even longer than this in stationary power,” says Bentz. “But as far as on-highway, we’ve had ‘em out since 1986, about 38,000 engines out there.”

Cummins’ longtime natural gas engine flag bearer is its ISL G engine, 13,000 of

The Clean Energy public access CNG fueling station at Las Vegas International Airport serves Bell Transportation taxi and airport shuttle buses, plus other CNG vehicles in the area.

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2015 with the rollout of its monster ISX15 G engine.

Truckers are excited about NGVs, but what about us ordinary folks? When do we get to drive around in spiffy clean-running and cheaper NGVs?

Well, betwixt the dream and the reality is a little thing called “infrastructure.” Where can you go to (natural) gas up? What natural gas-capable car or truck can you buy and drive to this gas station? And what the heck do you do once you get there?

This prickly, perplexing territory is precisely where Colorado’s coalition of forces and powers pushing Natural Gas Vehicles hopes to make great gains.

The problem they face is that NGV infrastructure has to be made of millions of working parts coming together from hundreds of sources, costing billions.

The Department of Energy’s Clean Cities initiative recently granted $500,000 to the Colorado Energy Office that will go to the Refuel Colorado project, which is working to add alternative fuel vehicles to state purchasing agreements and to create a plan to support alternative fuels in

Colorado. Other, bigger federal aid is said to be in the pipeline.

But outfitting an NGV infrastructure will take more than that. It will take all the moving parts, including the return of major manufacturers to the scene. The 2012 Honda Civic Natural Gas appears to be the sole big carmaker’s passenger car available. On the way to market or just arriving, however, are CNG engines for the Chevrolet Silverado 2500, Dodge Ram 2500 CNG and Ford F-250 pickups, as well as Chevy Savana vans and Ford Transit and Transit Connect vans.

Of course, “up-fitting” is an option, and if you drive a LOT it could pay for itself.

NGV infrastructure seems to be a case of, if you build it, they will come. Give drivers places to fuel up, and they will come. Today the trash trucks, delivery vans and semis. Tomorrow, perhaps, the BMWs, Fords and Toyotas.

Even though that typical NGV fuel station costs at least $500,000 on up to $1 million for compressor, storage and a single fuel dispenser, says Wes Biggers, president of Commerce City-based up-fitter

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FuelTek Conversion Corp. “I can build an entire gasoline station gasoline system, not including the convenience store, for $250,000, and I can have multiple pumps out there and so multiple kinds of fuel.”

How to surmount that barrier?Dan Genovese, manager of NGV

market development for Chesapeake Energy in Denver, has some suggestions for policy-makers: Push the Memorandum of Understanding that links 22 states including Colorado in an effort to buy up to 10,000 NGVs annually, as well as “aggregate demand and create a scale incentive for OEMs to produce bi-fuel passenger and compact vehicle models.” Stringent EPA CAFE standards upcoming also incentivize OEMs, he says.

Otherwise, Genovese advises government to provide incentives and buy in by buying more NGVs for their own fleets, and then cheer from the sidelines.

“The free market forces of fuel price advantage, supplier competition innovation and scale are growing the CNG and NGV market,” he says.

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you are a pioneer by nature, and you wish to be the first in your neighborhood to drive a NVG. A clean, fuel-efficient, powerful, quiet, durable natural-gas vehicle: that’s what you need.

Manufacturers are responding to the natural gas revolution by bringing out a variety of choices: The 2012 Honda Civic Natural Gas appears to be the sole big carmaker’s passenger product available. On the way to market or just arriving, however, are CNG engines for the Chevrolet Silverado 2500, Dodge Ram 2500 CNG and Ford F-250 pickups, as well as Chevy Savana vans and Ford Transit and Transit Connect vans.

Then, too, you can consider “up-fitting,” or converting a gasoline-driven vehicle to the NGV of your pioneering dreams.

The Colorado Natural Gas Vehicle Coalition recommends two metro-area up-fitters. In the north, FuelTek Conversion Corp; in the south, it’s Go Freedom Fuel, which also has facilities in Oklahoma.

Only EPA-approved vehicles can be up-fitted. These are: the Ford Transit, F150/250/350, Focus, Fusion, Crown Victoria, Expedition, the Ford E150/250/350/450 Cargo Van; the

Mercury Milan and Grand Marquis; the Lincoln Town Car and Navigator; the Chevrolet Silverado, Tahoe, Avalanche, Colorado, Suburban, Impala, Lucerne, Malibu, and G6, Chevrolet Express Cargo Van, Chevrolet W3500, GMC Savana Cargo Van, GMC Sierra 1500 and Yukon 1500; the Hummer H3 and the Isuzu NPR.

Not such a bad selection, you’ll admit.Should you decide to up-fit your Crown

Victoria or Mercury Milan, you would indeed be a pioneer.

“The conversions that we do predominantly are fleet vehicles because of the economics. A lot of the natural gas production companies are very much behind this saying, “This is a very real technology; it saves money; it’s cleaner; it’s locally produced fuel. We’ve done work for Encana; Encana one of the producers that is very present trying to get natural gas vehicles out,” says Wes Biggers, president of FuelTek Conversion. “So the natural gas producers said are converting vehicles to run on that fuel to incentivize companies to build fueling stations. And that’s one of the things Ward Alternative Energy is doing. And that’s what we do is the vehicle side of that.”

So how about converting my Ford Focus?“Most of what we do is fleet vehicles that

consume a lot of fuel. The reason for that is that conversion runs in the ballpark about $12,000 per vehicle. About the cheapest conversions we’ve got are roughly $10,500, and let me say you get what you pay for. For $10,500 I end up working on those vehicles a lot,” Biggers adds. “And then on the upper end the more customized you get the more expensive it gets.

“ROI studies are very simple: It really truly is how much did I pay for the conversion, and how much do I save on the fuel per gallon, and how much do I have to burn in order to pay it off.

“So most of the vehicles that we convert are pickups or vans,” Biggers says. “I do a few passenger cars – a few – CNG fuel tanks take up a lot of space.”

by David lewis

by David lewis

Selections are

few but growing;

natural-gas

conversions

popular among

fleets

ngvsand the everyday driver

Convoy of CNG trucks being fueled at a Colorado station en route to customer.

Inset: 2010 Chevrolet Impala being converted to operate on CNG with an EPA certified system.

Most folks’ awareness of the role natural gas is playing in the Colorado economy and ecology is rather like natural gas, odorless and invisible.

But some people would really like to learn a lot about the part natural gas plays in the state. For instance, the National Science Foundation last autumn awarded a $12 million grant to a research team led by CU-Boulder “to explore ways to maximize the benefits of natural gas development while minimizing negative impacts on ecosystems and communities.”

The far-reaching project should wind up its conclusions in 2017.

Meantime, others also have explored the role of natural gas here. A recent national economic impact is responsible for 2.8 million American jobs. Most of the sharp

economists weigh impact oF natural gasIndustry-related jobs pegged at 137,000 in Colorado

upswing in jobs, however, has occurred in states such as Louisiana and Pennsylvania; in particular, the latter’s Marcellus Shale boom has lifted an entire region out of stagnation.

In Colorado, the natural gas industry directly or indirectly employs more than 137,000, or roughly 6 percent of total employment, according to a 2009 IHS Global Insight study cited by the Colorado Oil and Gas Association. Natural gas has an annual “value-added economic output” worth $24 billion-natural gas, or 7.3 percent of the state total.

Also, “State budget forecasters believe a recovering oil and gas industry is generally a main reason there is $45 million more in overall tax revenue than previously forecast for this fiscal year,” COGA says.

A research report released last June by

the Bozeman, Mont.-based Headwaters Economics took a measured approach. “Relatively high oil prices compared to natural gas prices are driving a major shift in drilling activity from natural gas to oil in the state and across the region,” the report summarized.

It’s also important to note that federal restrictions on public lands can play a large role in where companies choose to drill in Colorado. Federal regulations, some deemed redundant to existing state law by industry, can dramatically drive up the cost of operations.

The report’s good news was that drilling rig activity was recovering here.

Colorado hosted 55 drill rigs in early 2013, meaning the state is more than half-way back to its high back in April 2008.

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hoW to fIll uP aN NgvRemember the first time you swiped a credit card, rode an elephant, or submitted

to a search by the TSA? Those were new experiences then and at first they felt a little funny. Then they became routine.

It could well be that the same kind of thing will turn out to be true of pumping your car or truck full of compressed natural gas someday soon. If so, this three-step guide from the Denver-based Western Energy Alliance could come in handy. If not, it still serves to point out that, while natural gas for transportation has important advantages over gasoline or diesel, it will be a new experience.

1. Remove the nozzle from the dispenser. Connect the nozzle to the fitting on your vehicle and lock it in place.

2. Swipe your credit or debit card.

3. Once your card is approved, switch the lever on the dispenser to “on.” You should hear the gas flow through the line. Read the electronic percentage gauge on the dispenser. Since the compressor is putting the natural gas into the vehicle under pressure, you will hear it cycle on and off as the system gathers information on temperature and pressure. Automated safety sensors will prevent the tank from overflowing and will automatically shut off when full. Once the vehicle is full, disconnect the nozzle and return it to the dispenser.

the 16 local natural gas fueling stations in nine Colorado cities already form a discernible pattern on the map from Colorado Springs to Greeley.

Weld County wants to fill in some more of the blanks up to the state line, becoming a natural-gas vehicle fuel corridor between Wyoming and the Denver metro area by opening compressed natural gas stations throughout the county.

In December CNG stations opened for business in Kersey and Fort Lupton, both owned by Dallas-based Zeit Energy. Earlier natural gas stations opened in Firestone and Greeley, both owned by Gainesville, Ga.-based Mansfield Energy Corp.

“We are excited to reach this milestone,” said Commissioner Barbara Kirkmeyer, who formed the Weld County Natural Gas Coalition in 2009. “One of the goals of the Coalition was to create an alternative fuel corridor between the Denver metro area and Wyoming. With the opening of these two stations, Weld County and the Natural Gas Coalition have reached that goal.”

The Weld County Natural Gas Coalition comprises county government, municipalities and public and private

by David lewis

Coalition builds

alternative-

fuel corridor

from Denver to

Wyoming

weld countygives ngvs a boost

sector entities including Clean Cities of Colorado, Conquest Water Services, Upstate Colorado Economic Development, Denver-based natural gas marketer, gatherer and processor and natural gas liquids producer DCP Midstream, and three natural gas exploration and production companies: Houston-based Noble Energy, The Woodlands, Texas-based Anadarko Petroleum Corp., and Calgary, Alberta-based Encana Corp.

The story really begins in 2007, when the Environmental Protection Agency designated the Denver and North Front Range region as a “nonattainment zone” for ozone standards. This made Weld County eligible through DRCOG, the Denver Regional Council of Governments, for funding from the EPA’s Congestion Mitigation and Air Quality program, or CMAQ.

“The purpose of the federal CMAQ program is to fund transportation projects or programs that will contribute to attainment or maintenance of the NAAQS (the EPA’s National Ambient Air Quality Standards) particularly for ozone in the Weld County region,” explains the Weld County 2035 Transportation Plan.

The CMAQ grant gave Weld County more than $3 million in CMAQ funds for the fiscal years 2010 to 2012 to promote natural gas. Thus was the Weld County Natural Gas Coalition formed and the Weld County Smart Energy Plan created.

“Weld County is in a nonattainment zone, and that’s very, very important. With the CMAQ funds they became a pass-through entity. So initially they passed through the money that they were awarded, and five stations were built out of that,” recalls Alexine Hazarian, natural gas economy operations business analyst for Encana Natural Gas in Denver.

“Well, they were so successful in obtaining these funds that now the excess money is being used to fund extra vehicles for the county,” which already had replaced 11 of its own fleet vehicles with CNG vehicles through the grant.

Adds Hazarian, “Unfortunately because we have such a serious ozone issue here in our state we do have the ability to go out and obtain these funds, and to direct them to infrastructure.”

Encana’s semi-private Fort Lupton CNG fueling station on County Road 22 in Fort Lupton, CO.

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