OUR THOUGHTS ON:

Will Compressed Natural Gas (CNG) Fueling Stations Become the Modern Day Gas Station?

Energy & Resources

By Eytan Rosenthal

Since Giant Eagle, Inc. unveiled what it maintains are the first two publicly accessible compressed natural gas (CNG) fueling stations in Crafton, PA and EQT Corporation opened one in Pittsburgh last July, development and expansion of retail natural gas fueling stations is on the rise. There are government grants and incentives to encourage the development. The federal incentive that expired at the end of 2011 provided an income tax credit equal to 30% of the cost of natural gas refueling equipment, up to $30,000. A tax credit was introduced in Pennsylvania in 2011 as part of the “Marcellus Works” bill package. Pennsylvania House Bill 1087 creates a natural gas corridor tax credit to encourage the construction of natural gas fueling stations along interstate travel corridors (I-76, I-78, I-79, I-80, I-81, and I-83). Currently, West Virginia offers a tax credit to encourage taxpayers to invest in CNG fueling stations. For the 2011-2013 tax years, the credit for public stations is 62.5% of the cost, up to a maximum of $312,500. The credit maximum is reduced for the 2014-2015 tax years to $250,000.

Currently, of the more than 100 stations in the region, there are around 10 retail CNG fueling stations in Pennsylvania, 3 in Ohio, 3 in New Jersey, and about 35 stations open to the public in New York. In West Virginia, the single current CNG fueling station is only for fleet use.

Clean Energy Fuels Corp. is establishing its position as a leader in the market by expanding development, construction and operation of liquefied natural gas (LNG) and compressed natural gas (CNG) fueling stations, and it appears that investment firms are interested too. Three investment firms, Springleaf Investments, a subsidiary of Temasek Holdings, Lionfish Investments, an investment vehicle managed by Seatown Holdings International, and Greenwich Asset Holding, a subsidiary of RRJ Capital Master Fund I, invested $150 million in Clean Energy Fuels Corp. in August of last year. On January 6, Clean Energy Fuels Corp. revealed that it completed a total of 68 fueling station projects. The projects included stations in 16 states serving transit, refuse and airport, taxi and shuttle, and local and regional trucking and small fleets.

Chesapeake Energy is investing $1 billion in infrastructure that includes building public CNG fueling stations in hopes that auto manufacturers will begin providing more CNG vehicle options.

CNG is sold in gasoline gallon equivalents (GGE), which have the same energy content as a gallon of gasoline. Both new Pittsburgh-area sites’ GGE prices are around $2 per gallon, which is about one-third lower than the cost of a gallon of gasoline or diesel fuel. Currently, only Honda has a consumer option to purchase a vehicle that runs on CNG, the 2012 Honda Civic GX, which costs around $26,100.

The amount of natural gas supply that exists as a result of the discovery of the Marcellus, Utica and Bakken shale plays has made CNG-fueled automobiles a much more economical option. This is especially the case with the current price of CNG at approximately $2 per gallon equivalent.

It seems that there is a long-term vision that CNG cars will be part of the general public’s choice of vehicles, but the infrastructure is not yet in place for that to be a natural choice. Much more must be done to improve the required public infrastructure to make CNG-fueled vehicles a commercially viable option.

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This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax-related matter.

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