Around this time last year, President Obama laid out an incentive plan to put 1 million plug-in electric and hybrid vehicles on U.S. roadways by 2015.

Until recently, U.S. efforts toward developing alternative-fueled vehicles have focused primarily on electric and hybrid technologies. But with natural gas prices hitting 10-year lows driven by shale gas drilling, more politicians and business leaders are touting the potential of natural gas-powered vehicles.

Several natural gas producers have announced partnerships in recent months to make the technology more widely available. In addition, Obama proposed during a March 7 visit to a truck manufacturing plant in North Carolina a $1 billion plan to bring more alternative-energy vehicles to market. This includes the development of up to five regional liquefied natural gas fueling areas for trucks.

Realistically, it would cost between $16 billion and $18 billion to install enough compressed natural gas, or CNG, stations on all major U.S. highways to reach approximately 15% of the U.S. population, says Steve Mueller, CEO of Southwestern Energy Co. (IW 500/269)

Southwestern Energy, a natural gas producer based in Houston, plans to continue investing in CNG stations, Mueller tells IndustryWeek. Last year, the company opened its first CNG fueling station in Damascus, Ark. The gas comes directly from the Fayetteville Shale play, the company's primary operating area.

Southwestern also has provided financial support for a public CNG fueling station in North Little Rock, Ark., that is owned and operated by the city.

The same day Obama announced his advanced vehicle plan, General Electric Co. (IW 500/4) and Chesapeake Energy Corp. (IW 500/104) said they were partnering to develop more than 250 CNG fueling systems throughout the United States by 2015.

The units, which GE calls CNG in a Box, are modular and designed to make natural gas fueling options more available to consumers.

Making CNG Vehicles a Reality

Natural gas vehicles could provide a revenue boost to natural gas producers reeling from low gas prices and save consumers the equivalent of $1.60 per gallon in gasoline, Mueller says.

Southwestern believes so strongly in the possibilities of CNG vehicles, the company implemented a program earlier this year to help 10% of its workforce convert to CNG vehicles.

Earlier this month, the company gave away CNG vehicles to 21 employees along with home fueling units. Southwestern is in the second phase of the program, during which the company plans to provide CNG conversion kits and fueling units to select employees. The company plans to continue the program until it converts about 200 workers to CNG vehicles, Mueller says.

Making natural-gas powered vehicles a reality may be several years in the making and will likely require the industry to collaborate more with the auto industry and policymakers, says Mueller.

Most of the natural gas-vehicle activities so far have been focused on truck fleets. As noted in a recent Agence France-Presse article, General Motors Co. (IW 500/5) will begin production by the end of the year on two pickup trucks operating on CNG. The company also produces two vans that use CNG and has sold 1,200 of the vehicles to AT&T.

There has been some small car CNG production, including Honda Motor Co.'s (IW 1000/23) Civic Natural Gas vehicle.

The company is doubling production of the Civic Natural Gas to around 2,000 units this year, says John O'Dell, senior green car editor at Edmunds.com.

But the cars cost about $5,000 more than a similarly equipped gasoline model, O'Dell says.

"Although the fuel savings can be tremendous, there are not enough retail natural gas pumps around to make the cars salable in even a majority of the states," he says. "Infrastructure is the key -- as it is or will be with any alternatively fueled vehicle. Somebody's got to see the value in and be able to pony up the cash for a nationwide fueling system that makes using the alternative fuel as easy as using gasoline."

A more likely scenario is increased production of commercial vehicles, including full-size cargo vans and heavy-duty pickup trucks, O'Dell says.

"This could change if there is a concerted - and successful - effort to install a nationwide natural gas fueling infrastructure, but that's several years down the road, at best," O'Dell says.

In Ohio, for instance, the state has entered into an agreement with several states to explore the development of CNG infrastructure for transportation.

Ohio is trying to convert its fleet of state cars along with some private-sector operations and local government vehicles to have a large enough CNG fleet to pay for the natural gas stations, Gov. John Kasich said at the CERA Week conference.

Incentives Concern Chemical Producers

Automakers have said if the gas producers can demonstrate that demand exists for 10,000 CNG vehicles sales, they'll produce a factory version, Mueller says.

Incentives could also help drive demand, Mueller says. The Senate rejected a plan March 13 that would provide tax incentives worth about $3.4 billion to convert heavy-duty trucks to natural gas.

Though a majority of senators voted 51-47 to approve the legislation, known as the Nat Gas Act, the bill needed 60 votes to pass because it was part of the Senate Transportation Bill.

Several House Republicans, including majority leader Eric Cantor, opposed the plan because they say it would pick energy "winners and losers."

Republican Rep. Mike Pompeo of Kansas referred to the bill's rejection as a win over "the crony capitalism that has defined so much of Washington, D.C., for decades.

The American Chemistry Council, a U.S. chemical industry trade group, also has been a vocal opponent of the bill.

Chemical companies have benefited from cheaper natural gas, which is used as a feedstock for various chemical products. The industry worries that incentives would create artificial demand for natural gas, resulting in higher prices.

"The Nat Gas Act will put American manufacturing growth and job creation at risk by jeopardizing new investment, diverting resources and driving up costs," American Chemistry Council President and CEO Cal Dooley wrote in a March 12 letter to Sen. Mark Begich (D-Ak.). "It threatens to undermine the resurgence of America's chemistry industry just as shale gas is proving to be a 'game changer' with the potential to generate hundreds of thousands of new manufacturing jobs, billions of dollars in economic output, and significant local, state and federal tax revenue."

Southwestern's Mueller says incentives may not be imperative for the expansion of natural gas vehicles, but it could help hasten growth.

The key, says Mueller, will be getting the infrastructure in place to support CNG vehicles.

See also:

Thanks to Fracking, Cheap Natural Gas Makes Inroads as U.S. Vehicle Fuel

Obama: Oil Drilling Not the Only Solution

Industrial Group Says No to Natural Gas Subsidies