[Senate Hearing 112-587]
[From the U.S. Government Publishing Office]







                                                        S. Hrg. 112-587

                          USAGE OF NATURAL GAS

=======================================================================

                                HEARING

                               before the

                              COMMITTEE ON
                      ENERGY AND NATURAL RESOURCES
                          UNITED STATES SENATE

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION

                                   TO

   ASSESS THE OPPORTUNITIES FOR, CURRENT LEVEL OF INVESTMENT IN, AND 
      BARRIERS TO THE EXPANDED USAGE OF NATURAL GAS AS A FUEL FOR 
                             TRANSPORTATION

                               __________

                             JULY 24, 2012














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               COMMITTEE ON ENERGY AND NATURAL RESOURCES

                  JEFF BINGAMAN, New Mexico, Chairman

RON WYDEN, Oregon                    LISA MURKOWSKI, Alaska
TIM JOHNSON, South Dakota            JOHN BARRASSO, Wyoming
MARY L. LANDRIEU, Louisiana          JAMES E. RISCH, Idaho
MARIA CANTWELL, Washington           MIKE LEE, Utah
BERNARD SANDERS, Vermont             RAND PAUL, Kentucky
DEBBIE STABENOW, Michigan            DANIEL COATS, Indiana
MARK UDALL, Colorado                 ROB PORTMAN, Ohio
JEANNE SHAHEEN, New Hampshire        JOHN HOEVEN, North Dakota
AL FRANKEN, Minnesota                DEAN HELLER, Nevada
JOE MANCHIN, III, West Virginia      BOB CORKER, Tennessee
CHRISTOPHER A. COONS, Delaware

                    Robert M. Simon, Staff Director
                      Sam E. Fowler, Chief Counsel
               McKie Campbell, Republican Staff Director
               Karen K. Billups, Republican Chief Counsel





















                            C O N T E N T S

                              ----------                              

                               STATEMENTS

                                                                   Page

Bingaman, Hon. Jeff, U.S. Senator From New Mexico................     1
Cicio, Paul N., President, Industrial Energy Consumers of America 
  (IECA).........................................................    20
Gallagher, Michael, Senior Adviser, Former President & Chief 
  Operating Officer, Westport Innovations Inc., Vancouver, BC 
  Canada.........................................................     8
Greene, David L., Corporate Fellow, Oak Ridge National 
  Laboratory, Senior Fellow, Howard H. Baker, Jr. Center for 
  Public Policy, University of Tennessee, Oak Ridge, TN..........    16
McCurdy, Dave, President and CEO, American Gas Association.......     3
Modlin, Reg, Director, Regulatory Affairs, Chrysler Group LLC, 
  Auburn Hills, MI...............................................    12
Murkowski, Hon. Lisa, U.S. Senator From Alaska...................     2

                               APPENDIXES
                               Appendix I

Responses to additional questions................................    39

                              Appendix II

Additional material submitted for the record.....................    51

 
                          USAGE OF NATURAL GAS

                              ----------                              


                         TUESDAY, JULY 24, 2012

                                       U.S. Senate,
                 Committee on Energy and Natural Resources,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10 a.m. in room 
SD-366, Dirksen Senate Office Building, Hon. Jeff Bingaman, 
chairman, presiding.

OPENING STATEMENT OF HON. JEFF BINGAMAN, U.S. SENATOR FROM NEW 
                             MEXICO

    The Chairman. Alright, why don't we get started? Thank you 
all for being here. Today we have a hearing to assess the 
opportunities for expanded use of natural gas as a fuel for 
transportation.
    I want to welcome the witnesses. I will introduce them 
after I make a few comments and Senator Murkowski makes a few 
comments.
    The abundant natural gas resource that has become available 
and here in the United States with the advent of horizontal 
drilling and hydraulic fracturing has reshaped the energy 
landscape and led many to consider new ways to use this 
important resource. As I said before the hearing is to examine 
the role that expanded natural gas resource might play in 
meeting our transportation needs to assess its potential in 
that regard. This is not a hearing to support any specific 
piece of legislation, but as always we're interested in hearing 
from experts about possible policy actions the Federal 
Government could take or should take to further our domestic 
energy goals.
    The transportation sector is vast and complex with a range 
of different vehicle types and transportation categories 
including heavy duty trucks for long haul transport, fleet 
vehicles, consumer cars and trucks, non road vehicles for 
marine and rail transport. Each of these vehicle types has 
different technological and infrastructure requirements to be 
able to use natural gas for fuel. Those differences strongly 
affect the relative viability of natural gas in each category.
    The need for both natural gas vehicle development and 
infrastructure build out presents a chicken and egg problem. 
Vehicle manufacturers have historically been reluctant to 
develop and sell natural gas vehicles if the fueling 
infrastructure is not in place. Infrastructure developers have 
been wary of building fueling stations without demonstrated 
demand from consumers with natural gas vehicles.
    In some sectors of transportation like long haul trucking 
and fleet vehicles there's already been--there are already some 
excellent examples of co-development of vehicles and 
infrastructure. In the light duty and consumer vehicle sector, 
the technology infrastructure chicken and egg problem seems to 
be more difficult to overcome. Natural gas consumer vehicles 
have not yet penetrated the domestic market to any significant 
degree. I know we're going to have some testimony from Chrysler 
today about their efforts in this regard.
    There are also Federal and State government programs 
designed to address both sides of the technology infrastructure 
problem. The Department of Energy is funding projects through 
ARPA-E to facilitate more use of compressed natural gas. We may 
hear something of those as well.
    Finally, I'd like to mention that there are State driven 
initiatives. Oklahoma Governor, Mary Fallin and Colorado 
Governor, John Hickenlooper, specifically, have promoted the 
use of natural gas in the transportation sector in their 
States.
    Some of the obvious questions we're going to try to get 
answers to today are:
    The role that natural gas is already playing in the 
transportation sector.
    What opportunities exist for further use of natural gas in 
transportation?
    What market forces are driving change in this sector?
    How natural gas compares to other alternative fuels in 
terms of its potential to promote energy security and its 
environmental benefits.
    Finally, if there are policies that the Federal Government 
should be pursuing to promote expanded use of natural gas we 
need to understand those better.
    Let me defer to Senator Murkowski for any opening comments 
she'd like to make.

         STATEMENT OF HON. LISA MURKOWSKI, U.S. SENATOR
                          FROM ALASKA

    Senator Murkowski. Thank you, Mr. Chairman.
    Welcome to the witnesses this morning.
    I think it's good to see that we've got some consensus 
developing around the very impressive expansion of America's 
natural gas resource. I don't think that we'd be able to even 
have this conversation here this morning about the potential 
for gas in our vehicles if the resource wasn't so abundant and 
affordable. You note that in your comments, Mr. Chairman.
    The growth in our natural gas resource offers, I think, 
incredible potential for new and increased uses as an economic 
energy source for our country. For that reason, I think that 
the government needs to exercise caution, a great deal of 
caution regarding how and if it intervenes going forward. In 
particular I'm concerned that certain forms of government 
intervention might actually cause more harm than good.
    As we speak there are Federal Government studies and rules 
that are developing on topics ranging from air emissions, the 
definition of diesel to so called environmental justice, the 
practice of hydraulic fracturing. All of which, if improperly 
implemented could undermine the ability to access the natural 
gas that we've identified in such amazing quantities. So I want 
to be clear that whatever opportunities currently exist and 
whatever potential applications that we might identify. It 
depends fundamentally on the continued investment in the 
upstream side of our natural gas resource.
    That could be jeopardized by Federal intrusion into what 
has been, at least by the testimony that we've received here in 
this committee, a sound and improving State based, regulatory 
system. That's how I'd like to see this energy revolution 
translate into better options for consumers. Continue the 
expansion of our domestic natural gas production, giving 
Americans a level of certainty that we won't deal with the same 
supply disruptions or threats of embargoes from foreign cartels 
that we see with foreign oil. That security results in both 
cheaper and more stable prices for natural gas. Those are very 
real, very compelling incentives for natural gas vehicles to 
develop.
    Our interest today is in hearing about both the existing 
Federal barriers, but also in what Federal policies threaten 
the ability of entrepreneurs and innovators to compete in the 
marketplace for vehicles. Importantly, I'm interested in 
learning more about the potential tradeoffs that are associated 
with more cars and trucks running on natural gas instead of 
gasoline or diesel. I think we need to at least understand 
these dynamics, if not seek to address them in a responsible 
way.
    So look forward to the comments and the opportunity for 
questions with our witnesses.
    Thank you, Mr. Chairman.
    The Chairman. Thank you very much.
    We have 5 distinguished witnesses today. Let me introduce 
them briefly. Then we'll just hear from each.
    The Honorable Dave McCurdy, who is our former colleague 
here in the Congress and now President and CEO of the American 
Gas Association. We welcome Dave here.
    Dr. Michael Gallagher is Senior Adviser of Westport 
Innovations, Inc. in Vancouver, British Columbia. Thank you for 
being here.
    Mr. Reg Modlin, who is Director of Regulatory Affairs with 
Chrysler Group out of Auburn Hills, Michigan.
    Dr. David Greene, who has testified to us before on various 
issues. He's a Corporate Fellow at Oak Ridge National 
Laboratory in Tennessee.
    Mr. Paul Cicio is President of the Industrial Energy 
Consumers of America here in Washington.
    Thank you all for being here. If you'd each take 5 or 6 
minutes and tell us the main things you think we need to know. 
We will include your full statement in the record.
    Mr. McCurdy, go right ahead.

  STATEMENT OF DAVE MCCURDY, PRESIDENT AND CEO, AMERICAN GAS 
                          ASSOCIATION

    Mr. McCurdy. Thank you, Mr. Chairman. Thank you for the 
invitation and opportunity to appear. Thank you, Ranking Member 
Murkowski, for the invitation as well. It's a pleasure to be 
here with friends and former colleagues and Senator Manchin and 
Franken.
    I always have to say that the only distressing thing about 
coming back, which I do on a fairly regular basis, is that when 
I have to admit that I served with the father of the members in 
both the House and Senate. There are more of them than you can 
imagine. But it's good to be here.
    I was asked by the committee to cover a couple areas. Then 
finally outline some policies.
    The first was to explain why using natural gas to offset a 
measure of our petroleum dependence is a smart path forward for 
our Nation.
    Then second, to describe the momentum we're seeing today in 
building a national fueling infrastructure to support natural 
gas vehicles.
    Finally, outline some policies we need to keep that 
momentum going.
    As the chairman said and Senator Murkowski, the new 
abundance of natural gas reserves in our country has 
fundamentally shifted our energy landscape. A decade ago it 
seemed inevitable that the United States would become a major 
importer of natural gas. Instead today we're the world's 
leading producer of natural gas. In fact, the President of the 
United States in the State of the Union mentioned that and said 
that we'd have 100 years of supply. Many believe that may be a 
conservative estimate.
    We've made great strides in turning down the curve of 
petroleum imports through increased domestic petroleum 
production and the landmark fuel economy standards for light 
duty vehicles. But we can do more. We have virtually eliminated 
petroleum use in other sectors such as electrical generation in 
home heating. Yet our transportation sector depends on 
petroleum for 94 percent of its primary energy.
    Our singular dependence on oil for transportation fuel 
makes us vulnerable to economic and national security risks.
    Every American recession over the past 4 decades has been 
preceded by or occurred concurrently with an oil price spike 
including the most recent. Our armed forces, and as the 
Chairman knows and Senator Murkowski, as a former Chairman on 
the Intelligence Committee and a member of the Armed Services 
Committee, very much concerned about our national security 
aspects. We all know that we expend enormous financial and 
human resources ensuring that oil transit routes remained open 
and critical infrastructure is protected. Our relations with 
foreign governments are too often influenced by our need to 
minimize disruptions of the flow of oil.
    In 2011 the U.S. trade deficit in oil, the trade deficit 
just in oil, was $327 billion and accounted for 58 percent of 
our total trade deficit. The size of the U.S. trade deficit 
means we are, as a Nation, incurring an international debt 
burden that dampens the prospects for our long term economic 
health. The path that we are currently on is not sustainable 
and it's not smart.
    A smart path forward includes diversifying our 
transportation energy mix and seeking to displace high cost 
imports with lower cost, domestic alternatives. Greater use of 
natural gas, such as a transportation fuel, delivers on both of 
these objectives. While natural gas represents 24 percent of 
the primary energy used to drive our economy as a whole. It is 
only 1 percent of the transportation sector.
    The United States lags much of the world in natural gas 
vehicles. In fact, there are 13 million natural gas vehicles in 
use worldwide today, up from just 4 million just 7 years ago. 
Yet only, there's about 120,000 vehicles in the United States, 
again, less than 1 percent of the global total.
    But there is good news. Here is the good news. The market 
is recognizing that switching from gasoline or diesel can mean 
significant cost savings. There are major fleet operators 
today, such as Waste Management, Verizon, Ryder and others who 
are switching to natural gas vehicles because of the business 
case that it offers.
    Thirteen Governors, as the Chairman mentioned, are working 
together to coordinate a multistate purchase program for 
natural gas vehicles for their fleets. The gas utilities, in 
our membership, the American Gas Association, maintain over 2 
million miles of natural gas distribution lines worldwide, 
pipelines. This distribution network means that we can place 
CNG, compressed natural gas, fueling stations around the 
country without the need to truck in fuel.
    There are about 1,000 compressed natural gas stations in 
the United States. Now that's, admittedly, out of about 130,000 
gas stations. Many of these are owned and operated by gas 
utilities.
    Working with their regulators, a number of our companies 
are exploring innovative approaches to utility participation in 
this market. Natural gas utilities are pioneering new business 
models, forming creative partnerships and investing in cutting 
edge technologies. There was an announcement even just today of 
one that uses renewable gas in the dairy industry where they're 
converting their big milk trucks to CNG from renewable gas or 
biogas.
    We expect home refueling for natural gas vehicles will 
become increasingly available and attractive to residential 
customers in the near, not too distant future. Again, there's a 
mention later of that.
    The attractive price of natural gas, about half the cost of 
gasoline or diesel is creating some momentum in the market that 
is translating into growth in our fueling infrastructure for 
these vehicles. Since 2008, the number of CNG stations has 
grown by over 10 percent each year. This sustained growth has 
occurred even as we've weathered the worst economic recession 
our Nation has seen in decades. But again, it's a question of 
pace and scale. I think we can do more.
    Finally let me mention some policies, as requested by the 
committee.
    The most important component in our view of maintaining 
this momentum is also ensuring that we have a level playing 
field that allows natural gas vehicles to compete fairly in the 
marketplace.
    Unfortunately some current policies and some recent policy 
decisions have failed to give adequate wait to the new 
opportunities presented by the new abundance of domestic 
natural gas. For example, the heavy duty fuel economy and 
greenhouse gas standards, finalized just a year ago, are an 
unfortunate example of the significant missed opportunity. The 
resulting program fails to create manufacturing incentives to 
accelerate adoption of natural gas vehicles in the heavy duty 
segment. Dr. Gallagher, I'm sure, will talk about that more.
    Currently the second round of the Obama Administration's 
Fuel Economy and Greenhouse Gas Standards for Light Duty 
Vehicles, which will apply from 2017 to 2025, is ongoing. I 
must say, working with Reg Modlin and others that the historic 
first round from 2012 to 2016 saw savings of 1.8, expected 
savings of 1.8 billion barrels. So there are significant 
savings to be achieved here.
    But with regard to the second standard, the Natural Gas 
Industry has asked the Administration to include the same 
manufacturing incentives for natural gas vehicles that their 
proposed rule included for electric drive vehicles. Equal 
incentives makes some sense because both alternative 
technologies provide the same energy security and environmental 
benefits. It is vital for the success of the natural gas and 
alternative fuel sector that this rule expands consumer choice 
in the marketplace for alternative fuel vehicles rather than 
being weighted to favor only one technology.
    Mr. Chairman, there's a couple issues in the tax code. I'm 
not going to spend much time on that, I know, are outside the 
jurisdiction. But it's important to note that the current 
excise tax rate or about 41 cents per diesel gallon equivalent 
verses the 24 cent for diesel fuel is a disadvantage.
    This is because LNG has a lower energy density per gallon 
than diesel, but the tax is applied on a volume or gallon basis 
rather than the energy equivalent basis. That's something that 
could be changed. It was changed in the light duty sector. This 
could be affected here and would spur a lot of the movement in 
heavy duty.
    Excise tax rate of 12 percent is also a disincentive that 
could be addressed.
    The last thing, Mr. Chairman, the recent announcement by 
ARPA-E from DOE of a $30 million program aimed at engineering 
light weight affordable natural gas tanks for vehicles and to 
develop natural gas compressors that can efficiently fuel a 
natural gas vehicle at home is a welcome step. We certainly 
support that. We would just ask that the same effort, enhanced 
effort, be applied within the vehicle technologies program 
across the board on natural gas vehicles.
    In conclusion, Mr. Chairman, developing the market for 
natural gas vehicles enhances our national security and energy 
security, our economic competitiveness and encourages the 
expansion of transportation fueling infrastructure and 
technologic advances. We urge the Congress and the 
Administration to ensure that our policies set us on the path 
to capture these benefits for our entire Nation.
    Thank you.
    [The prepared statement of Mr. McCurdy follows:]

        Statement of Dave McCurdy, President and CEO, American 
                            Gas Association
    Good morning, Chairman Bingaman, Ranking Member Murkowski, and 
members of the Committee. I am Dave McCurdy, President and CEO of the 
American Gas Association (AGA), and I am pleased to appear before you 
today.
    The American Gas Association, founded in 1918, represents more than 
200 local energy companies that deliver clean natural gas throughout 
the United States. More than 65 million residential, commercial and 
industrial natural gas customers or more than 175 million Americans 
receive their gas from AGA members. Today, natural gas meets almost 
one-fourth of the United States' energy needs.
    I've been asked by the Committee to use my remarks to do 2 things: 
First, to explain why using natural gas to offset a measure of our 
petroleum dependence is a smart path forward for our nation. Second, to 
describe the momentum we are seeing today in building a national 
fueling infrastructure to support natural gas vehicles, and to outline 
the policies we need to keep that momentum going.
    We are pleased that the Committee has decided to hold today's 
hearing, because it is critical that the Congress remains current on 
the dynamic discussion regarding natural gas brought about by the shale 
gas revolution. The new abundance of natural gas reserves in our 
country has fundamentally shifted our energy landscape. A decade ago, 
it seemed inevitable that the United States would become a major 
importer of natural gas. Instead, today, we are the world's leading 
producer of natural gas. As the President noted in his state of the 
union address earlier this year, we have at least a hundred years 
supply of domestic natural gas right here at home.
    We have made great strides in ``turning down the curve'' of 
petroleum imports, through increased domestic petroleum production and 
landmark fuel economy standards for light duty vehicles. But energy 
security means more than reducing our petroleum imports below the fifty 
percent mark. In past decades, we have successfully reduced--or 
virtually eliminated--petroleum use in other sectors, such as 
electrical generation, and home heating. Yet our transportation sector 
depends on petroleum for 94 percent of its primary energy.
    Our singular dependence on oil for transportation fuel makes us 
vulnerable to economic and national security risks. Every American 
recession over the past four decades has been preceded by-or occurred 
concurrently with-an oil price spike, including the most recent. Our 
armed forces expend enormous financial and human resources ensuring 
that oil transit routes remain open and critical infrastructure is 
protected. Our relations with foreign governments are too often 
influenced by our need to minimize disruptions to the flow of oil.
    In 2011, the U.S. trade deficit in oil was $327 billion--and 
accounted for 58 percent of our total trade deficit. The size of the 
U.S. trade deficit means we are incurring an international debt burden 
that dampens the prospects for our long-term economic health.
    The path that we are on is not sustainable, and it is not smart. A 
smart path forward includes diversifying our transportation energy mix, 
and seeking to displace high cost imports with lower cost domestic 
alternatives. Greater use of natural gas as a transportation fuel 
delivers on both of these objectives.
    And while natural gas provides 24 percent of the primary energy 
used to drive our economy, only 0.1 percent of transportation energy is 
supplied by natural gas. Natural gas has tremendous potential as for 
the transportation sector, and many nations are ahead of the United 
States in grasping this opportunity. There are over thirteen million 
natural gas vehicles (NGVs) in use worldwide today, up from just four 
million seven years ago. Yet only about 120,000 vehicles--less than one 
percent of the global total--are on U.S. roadways.
    Here is the good news--the market is recognizing that switching 
from gasoline or diesel to natural gas can mean significant cost 
savings. Major fleet operators like Waste Management, Verizon, Ryder, 
and others are switching to natural gas vehicles because the business 
case is there. Thirteen governors are working together to coordinate a 
multi-state purchase program for natural gas vehicles for their state 
fleets.
    Natural gas utilities are also in the lead in providing early 
markets for NGVs. Many of our companies have ambitious vehicle purchase 
programs aimed at transitioning their own fleets to run on clean 
burning natural gas.
    As this market continues to grow, AGA member companies will play a 
key role in supplying the fueling infrastructure needed to support 
these vehicles. The gas utilities in our membership maintain over 2 
million miles of natural gas distribution pipelines nationwide. This 
distribution network means that we can place compressed natural gas 
fueling stations around the country without the need to truck in fuel. 
Currently, there are over 1,000 compressed natural gas (CNG) stations 
in the United States, and many of these are owned and operated by gas 
utilities.
    AGA member companies can play a vital role in the next phase of 
building our national fueling infrastructure for natural gas vehicles. 
Working with their regulators, a number of our companies are exploring 
innovative approaches to utility participation in this market. Natural 
gas utilities are pioneering new business models, forming creative 
partnerships and investing in cutting edge technologies.
    We believe that in the next few years, home refueling for natural 
gas vehicles will become increasingly available and attractive to 
residential consumers, and our companies will be involved in ensuring 
the safe and reliable operation of these refueling appliances.
    The attractive price of natural gas--about half the cost of 
gasoline or diesel--is creating momentum in the market that is 
translating into growth in our fueling infrastructure for natural gas 
vehicles. Since 2008, the number of CNG stations has grown by over 10 
percent each year. This sustained growth has occurred even as we have 
weathered the worst economic recession our nation has seen in decades.
    In addition to utilities, natural gas producers have committed to 
building refueling stations along our nation's highways. Two companies 
recently announced hundreds of millions of dollars in investments in 
250 LNG fueling stations by the end of 2013.
    To stay on the smart path forward, we need policies that help us 
sustain the momentum we are seeing in the adoption of natural gas 
vehicles and fueling infrastructure. The most important component of 
this is maintaining a level playing field that allows natural gas 
vehicles to compete fairly in the market. Unfortunately, some current 
policies--and some recent policy decisions--have failed to give 
adequate weight to the new opportunities presented by the new abundance 
of domestic natural gas. The heavy duty fuel economy and greenhouse gas 
standards finalized a year ago are an unfortunate example of a 
significant missed opportunity. The resulting program fails to create 
manufacturing incentives to accelerate adoption of natural gas vehicles 
in the heavy duty segment.
    The Administration is working now to finalize the second round of 
the Obama Administration's fuel economy and greenhouse gas standards 
for light duty vehicles, which will apply from 2017 to 2025. This is a 
critical, once-in-a-decade opportunity to get the policy right. The 
natural gas industry has asked the Administration to include the same 
manufacturing incentives for natural gas vehicles that their proposed 
rule included for electric drive vehicles. Equal incentives make sense, 
because both alternative technologies provide the same energy security 
and environmental benefits. It is vital for the success of the natural 
gas and alternative fuel sector that this rule expands consumer choice 
in the marketplace for alternative fuel vehicles, rather than being 
weighted to favor one technology.
    There are 2 areas where changes in the tax code could remove 
barriers to growth in the natural gas vehicle market. Currently, each 
gallon of LNG sold incurs an effective excise tax rate or $0.41 per 
diesel gallon equivalent versus $0.243 for diesel fuel. This is because 
LNG has a lower energy density per gallon than diesel, but the tax is 
applied on a volume (gallon) basis rather than an energy equivalent 
basis. This discrepancy has been corrected for the sale of CNG, but not 
for LNG, and provides an unfair disincentive to the sale of LNG.
    Also, heavy duty natural gas trucks cost $30,000 to $60,000 more 
than diesel trucks. The federal excise tax rate of 12 percent is 
imposed on the full cost of a truck. The effect is an additional cost 
premium of $3600 to $7200 towards a new natural gas truck.
    On a positive note, AGA strongly supports a new $30 million ARPA-E 
program aimed at engineering light-weight, affordable natural gas tanks 
for vehicles and develop natural gas compressors that can efficiently 
fuel a natural gas vehicle at home. We applaud the MOVE program and 
encourage the Department to develop a similarly focused, enhanced 
effort within the Vehicle Technologies Program on NGVs.
    Developing the market for natural gas vehicles enhances our energy 
security, our competitiveness, and encourages the expansion of 
transportation fueling infrastructure and technologic advances. We urge 
the Congress, and the Administration, to ensure that we set policies 
that set us on the path to capture these benefits to our nation.

    The Chairman. Thank you very much.
    Dr. Gallagher, go right ahead.

    STATEMENT OF MICHAEL GALLAGHER, SENIOR ADVISER, FORMER 
PRESIDENT & CHIEF OPERATING OFFICER WESTPORT INNOVATIONS INC., 
                      VANCOUVER, BC CANADA

    Mr. Gallagher. Thank you and good morning, Chairman 
Bingaman, Ranking Member Murkowski and members of the 
committee.
    You know the last time I testified in Washington was 32 
years ago when I was a young engineer at the Bechtel Group on 
loan to MIT, where I'd written a couple of books on energy, oil 
and coal.
    But today I'm a Senior Adviser to and the former President 
and Chief Operating Officer of Westport Innovations, a leading 
natural gas engine technology company.
    I'm also Chairman of the Board of Agility Fuel Systems, an 
onboard storage company.
    I'm just finishing a 2-year project as chairman as the 
Natural Gas Group of the National Petroleum Council's study on 
future transportation fuels. That study will be released, by 
the way, next week here in Washington.
    In this study, which I believe is the most comprehensive 
analysis ever performed of America's transportation technology 
and options. We have assessed every technology involved in 
natural gas transportation, identified every conceivable 
barrier to expansion and identified their resolution. We can 
put all this information in the committee record next week.
    Today more than 95 percent of all vehicles run on oil 
either conventional petroleum or biofuel blends. But I'm here 
to tell you that there's good news coming on energy and 
transportation. A lot of that good news is being driven by 
what's going on today in the world of natural gas vehicles.
    Technology innovation is literally exploding with hardly a 
week passing without another new announcement from a major 
industry participant. Companies like Shell, Cummins, 
Caterpillar, PACCAR, Ford, Chrysler. My company, Westport 
Innovations is best known for developing the technology and 
commercializing the engines and vehicles for heavy duty natural 
gas buses and trucks. I've been asked why we chose to do that.
    My colleagues and I were inspired to develop this 
technology because we were able to demonstrate that natural gas 
works in diesel engines and burns cleaner. We also believe that 
the world needed an alternative to oil for transportation. 
There weren't many.
    We believe that the infrastructure challenges could be 
managed more easily for heavy duty. So we focused on that. 
We've developed partnerships with some of the world's 
preeminent heavy duty engine manufacturers starting with 
Cummins in Indiana, where I grew up by the way, and Volvo in 
Europe, Weichai in China. I want to acknowledge today the 
tremendous leadership we are seeing from these and other OEMs, 
the engine, automotive and trucking manufacturers.
    Ten years ago Cummins took the bold step of partnering with 
Westport in a 50/50 joint venture which has since sold 
thousands of bus and truck natural gas engines. It may surprise 
you to hear that today we are actually exporting natural gas 
engines from a factory in North Carolina to China to bus 
manufacturers in China for installation in buses that are 
manufactured there.
    Kenworth and Peterbilt also jumped in 4 years ago with us 
to put the first big natural gas trucks on the road. Now there 
are nearly a thousand clean natural gas trucks at the ports of 
LA and Long Beach where we started.
    Just a couple of weeks ago we opened a new factory in 
Kentucky dedicated to making Ford F-250 light duty natural gas 
pickup trucks.
    We no longer have to choose which markets to serve with 
natural gas. Last fall the NPC issued an earlier parallel study 
on oil and gas resources. That study concluded that the supply 
of North American natural gas is enormous with the potential to 
meet even the highest levels of demand considered in various 
market sectors at reasonable cost. In fact today the price 
spread between natural gas and diesel is so large that you can 
drive a truck through it. That's exactly what we're doing.
    Will this transformation of America's transportation system 
be easy? Of course not. But what important achievement in our 
Nation's history has ever been easy?
    We do have a strong platform of building blocks to provide 
confidence that natural gas can play an increasing role in 
vehicles. We have the low cost domestic natural gas. There's 
relatively few technology barriers.
    All the great work that is going on in the labs and 
automotive R and D centers to improve the efficiency and fuel 
economy of internal combustion engines. Natural gas engines use 
the same spark in diesel combustion engine technologies as 
diesel and gasoline. Build out of infrastructure, retail CNG 
and LNG stations is critical to support this expansion.
    You mentioned the chicken and egg problem. This build out 
is already occurring for heavy duty vehicles with Shell, 
Chesapeake and clean energy fuels making large infrastructure 
investments. Just this spring, the first ever coast to coast, 
cross country trips were achieved on natural gas vehicles both 
for a Ford pickup truck, natural gas pickup truck and a freight 
liner, natural gas 18 wheeler crossed coast to coast using 
existing public infrastructure. So there is some infrastructure 
in place.
    In summary, I believe that we are looking at a vision of 
our energy and transportation future which is good news for 
America. Technology and innovation are happening everyday 
throughout the entire natural gas transportation value chain. 
Each of us can and should encourage this game changing 
transformation.
    Let's all capitalize on our technology leadership and low 
cost natural gas resources of today to build America's natural 
gas transportation systems for tomorrow.
    Thank you very much for this opportunity to speak with you 
today.
    [The prepared statement of Mr. Gallagher follows:]

  Statement of Michael Gallagher, Senior Adviser, Former President & 
    Chief Operating Officer, Westport Innovations Inc., Vancouver BC
    Good Morning, Chairman Bingaman, Ranking Member Murkowski, and 
Members of the Committee. I am Mike Gallagher, Senior Adviser to and 
Former President and Chief Operating Officer of Westport Innovations, a 
leading natural gas engine company. I am also Chairman of the Board of 
Agility Fuel Systems, and am just finishing a 2 year project as 
Chairman of the Natural Gas Group of the National Petroleum Council's 
Study on Future Transportation Fuels, which will be released next week 
here in Washington.
    In this study, which I believe is the most comprehensive analysis 
ever performed of America's transportation technology and options, we 
have assessed every technology involved in natural gas transportation--
from engine combustion science to on board storage to cryogenics to 
infrastructure to the vehicles themselves. We identified every 
conceivable barrier to the commercialization and expansion of natural 
gas transportation, assessed the significance of those barriers, and 
identified their resolution. We looked at the expansion potential, in 
heavy and light duty markets, the costs and economic attractiveness, 
the investment requirements, and the environmental emissions. We can 
put all this information in the Committee Record on August 2.
    Today, more than 95% of all vehicles--cars, pickup trucks, buses, 
big rigs, trains, planes and ships--run on oil, either conventional 
petroleum or biofuel blends.
    But I am here to tell you that there is GOOD NEWS COMING on ENERGY 
and TRANSPORTATION. And a lot of that good news is being driven by 
what's going on today in the world of Natural Gas Vehicles. Technology 
and innovation is exploding in natural gas transportation, with hardly 
a week passing without another new announcement from a major industry 
participant.
    My company Westport Innovations is best known as being successful 
at developing the technology and commercializing the engines and 
vehicles for heavy duty buses and trucks. We made these large strategic 
investments in heavy duty engine technology and market development 
because we felt the trucking industry was motivated almost entirely by 
economics and the cost of moving freight, where the lower cost of 
natural gas would drive market decisions. And we believed that the 
infrastructure challenges could be managed more easily, by evolving 
from central fueling stations, return to base fleets, and 
transportation corridor refueling. So we developed partnerships with 
some of the world's preeminent heavy duty engine manufacturers, 
including Cummins in Indiana, and Volvo in Europe and Weichai in China.
    I want to acknowledge the tremendous leadership we are seeing from 
the OEMs-the engine, automotive and truck manufacturers. Ten years ago 
Cummins took the bold step of partnering with Westport in a 50:50 Joint 
Venture, which has since sold thousands of bus and truck natural gas 
engines. It may surprise you to hear that we are now exporting natural 
gas engines from a factory in North Carolina to bus manufacturers in 
China.
    Kenworth and Peterbilt also jumped in four years ago to put the 
first big natural gas trucks on the road, at the Ports of LA and Long 
Beach. And just a couple of weeks ago we opened a new factory in 
Kentucky dedicated to making Ford F-250 natural gas pickup trucks. All 
these industrial enterprises-and many others-are working to create an 
exciting new clean energy industry, a natural gas transportation 
industry.
    All this entrepreneurial activity is also setting the stage for use 
of new low carbon sources of natural gas, so-called renewable natural 
gas from landfills, agricultural waste, and forestry resources.
    We no longer have to choose which markets to serve with natural 
gas. Last Fall's earlier NPC study on oil and gas resources concluded 
that the economically recoverable supply of North American natural gas 
is enormous, with the potential to meet even the highest levels of 
demand considered.
    Will this transformation of America's transportation system and the 
creation of a robust natural gas transportation industry be easy? Of 
course not--but what important achievement in our Nation's history has 
ever been easy. We do have a strong platform of building blocks to 
provide confidence that natural gas can play an increasing role in 
vehicles:

          1. We know that we have a long-term and low-cost domestic 
        supply of natural gas, driven by economically recoverable shale 
        gas resources.
          2. We also now know there is a big opportunity both for light 
        duty and heavy duty natural gas vehicles, based on this lower 
        cost of natural gas relative to diesel and gasoline fuels.
          3. We have also concluded that there are relatively few 
        technological barriers to market entry and expansion for either 
        LD or HD natural gas vehicles.
          4. All the great work that is going on in the labs and 
        automotive R&D centers to improve the efficiency and fuel 
        economy of oil-based internal combustion engines is directly 
        applicable to natural gas engines-which use the same spark and 
        diesel combustion engine technologies.
          5.Build-out of infrastructure-retail CNG and LNG stations-is 
        critical to support this increased use of natural gas in 
        transportation. This build-out is already occurring for heavy 
        duty fleets, with central stations, return to base and corridor 
        fueling systems leading the way. Just this Spring, the first 
        ever Coast-to-Coast cross country drives were achieved for both 
        a pickup truck and a freight truck using available natural gas 
        public infrastructure.

    In summary, I believe we are looking at a vision of our energy and 
transportation future which is good news for America. Technology and 
innovation are happening every day throughout the entire natural gas 
transportation value chain-much of it led by American technology 
leadership. Each of us can and should encourage this game-changing 
transformation of our transportation future. Let's all capitalize on 
today's technology leadership and low cost natural gas resources to 
build America's natural gas transportation systems for tomorrow.
    Thank you very much for this opportunity to speak with you today.

    The Chairman. Thank you very much.
    Mr. Modlin.

STATEMENT OF REG MODLIN, DIRECTOR, REGULATORY AFFAIRS, CHRYSLER 
                  GROUP LLC, AUBURN HILLS, MI

    Mr. Modlin. Good morning, Chairman Bingaman, Ranking Member 
Murkowski and members of the committee. I am Reg Modlin, 
Director of Regulatory Affairs at Chrysler Group LLC. Thank you 
for the opportunity to discuss natural gas in the 
transportation sector with you today.
    Chairman Bingaman, it was a pleasure talking with you about 
natural gas and natural gas vehicles during Chrysler's Ride and 
Drive held here in Washington in June where we featured our bi-
fuel, compressed natural gas RAM 2500 pickup truck. Chrysler 
appreciates your committee holding this hearing because 
transportation fuels play an important role in Chrysler's 
strategy for regulatory compliance and reduction in greenhouse 
gases.
    We create customer value by providing a diverse portfolio 
of vehicle technologies that enable customers to choose the 
best package to fit their needs. Vehicle range between 
refueling, fuel cost and convenient refueling infrastructure 
are fundamental to creating customer value. The abundant supply 
of natural gas in the United States could be a significant 
development for the transportation sector.
    Due to its supply natural gas is expected to maintain a 
strong price advantage compared to gasoline and diesel fuel. 
Further, natural gas can reduce dependence on oil, enhance 
energy security and reduce greenhouse gases and smog forming 
emissions. We are excited about the potential for natural gas 
powered vehicles in the marketplace.
    Our strategic partner, Fiat, brings valuable background to 
this discussion. Fiat has produced more than 500,000 passenger 
and commercial CNG powered vehicles spanning all vehicle 
segments. The United States can learn a lot from the Italian 
experience. Italy's CNG market proved to be a success for 
several reasons including product incentives, CNG costs that 
were half the cost of gasoline, refueling stations are widely 
available and vehicles that provide a robust driving range.
    The availability of fuel stations is fundamental to the 
success of the market experienced in Italy. Italy has nearly 
900 CNG stations. The situation in the United States is much 
different. Of the approximately 1,000 stations in the United 
States, 135 can be found in California.
    This is of interest because California is comparable to 
Italy in terms of population and land area. With bi-fuel 
vehicles the refueling infrastructure in Italy is adequate. 
Likewise the limited availability of CNG stations in California 
and throughout the United States will require that bi-fuel 
products be offered to make customers comfortable with 
purchasing a CNG vehicle.
    We are proud that the RAM is the only brand in North 
America to offer a complete factory built, tested and warranted 
CNG truck. We designed our CNG RAM 2500 to satisfy customer 
needs by providing a work site vehicle capable of carrying a 
work crew and in recognition of the limited availability of CNG 
stations, made the vehicle bi-fuel with a back up gasoline 
system. We chose the heavy duty truck segment because our large 
and small fleet owners provide willing customer base.
    The product offers them the operative range and total cost 
of ownership necessary to operate their businesses efficiently 
and profitably. Production has begun. Vehicles will be arriving 
at dealerships in August.
    The Federal Government can be a partner in expanding the 
role of natural gas as a transportation fuel. We support 
technology neutral policies and natural gas powered vehicles 
should be given access to the same incentives as other 
alternative fuel vehicles. Government incentives do not have to 
be financial.
    For example, if Congress modified the definition of 
dedicated CNG to include range extended CNG vehicle customers 
would be able to take advantage of non financial opportunities 
offered in some regions like access to HOV lanes.
    There is also a role for the States. In an effort initiated 
by Governor Fallin of Oklahoma and Governor Hickenlooper of 
Colorado, 13 States are supporting coordination of State fleet 
CNG vehicle purchases. We expect a request for proposal would 
be published this week with awards based on responses to the 
RFP announced in October.
    In summary, Chrysler believes that natural gas powered 
vehicles have strong potential to compete in the retail 
transportation market. The abundant and now more accessible 
supply of natural gas in the United States could be a game 
changer. Natural gas powered vehicles offer customers a good 
value proposition because natural gas is expected to hold a 
strong price advantage compared to gasoline and diesel fuels 
and will be increasingly available. Added advantages include 
enhancing energy security, reducing dependence on oil, creation 
of jobs and reduction of greenhouse gas and smog forming 
emissions.
    There are challenges ahead in terms of the expansion of 
infrastructure and increasing product offerings. As those 
challenges are overcome customer acceptance should grow.
    Thank you again. I'd be happy to address any questions.
    [The prepared statement of Mr. Modlin follows:]

 Statement of Reg Modlin, Director, Regulatory Affairs, Chrysler Group 
                         LLC, Auburn Hills, MI
    Good morning Chairman Bingaman, Ranking Member Murkowski, and 
Members of the Committee. Thank you for the opportunity to discuss 
natural gas and increasing its use as a fuel in the transportation 
sector. I am Reg Modlin, Director of Regulatory Affairs at Chrysler 
Group LLC. I am responsible for overseeing the product environmental 
and safety regulatory planning activities for the company.
    Chairman Bingaman, it was a pleasure talking with you about natural 
gas and natural gas vehicles during Chrysler's ride and drive held here 
in Washington in June. During the ride and drive, we featured our bi-
fuel compressed natural gas (CNG) Ram 2500 pick-up truck. Chrysler 
appreciates your Committee holding this hearing because transportation 
fuels, particularly alternative fuels such as natural gas, play an 
important role in Chrysler's strategy for regulatory compliance and 
reduction of greenhouse gas (GHG) emissions.
    Chrysler supports a goal to reduce transportation greenhouse gas 
emissions by 80 percent by 2050. The use of alternative fuels, such as 
natural gas, plays a significant role in achieving that goal. The 
plentiful supply of natural gas in the United States can reduce the 
country's dependence on petroleum-based transportation fuels, enhance 
the nation's energy security, and reduce greenhouse gas and smog-
forming emissions. These are all important reasons for looking to 
natural gas as an alternative fuel in the transportation sector.
    As an automobile manufacturer, Chrysler's goal is to fulfill our 
customers' needs with regard to vehicle performance, utility, safety, 
styling, comfort, and affordability. We create customer value by 
providing a diverse portfolio of vehicle technologies that enable 
customers to choose the best package to fit their needs. Fuel choice 
between gasoline, diesel, ethanol, electricity, and natural gas is one 
important option considered by a customer. Vehicle range between 
refueling, fuel cost, and convenient refueling infrastructure are 
related to a customer's fuel choice.
    In the more recent past, customers have not embraced natural gas 
powered vehicles for a variety of reasons including higher initial 
vehicle cost, inability to conveniently refuel, and fuel price 
volatility. Without seeing interested customers, automobile 
manufacturers have been reluctant to offer natural gas powered products 
in the show room. However, the abundant supply of natural gas in the 
United States, which is now more accessible due to advances in 
production technology, could be a significant development for the 
transportation sector. Natural gas powered vehicles offer consumers a 
good value proposition because natural gas prices are expected to 
remain stable for the foreseeable future, natural gas will likely 
continue to hold a strong price advantage compared to gasoline and 
diesel fuels, and natural gas is increasingly available via an 
expanding retail infrastructure. As a result, we are excited about the 
potential for natural gas powered vehicles becoming successful in the 
marketplace.
    We believe that the market for natural gas vehicles could reach 
approximately 10 percent of new vehicle sales over time. Currently, 
natural gas vehicles comprise less than 1 percent of new vehicle sales. 
Growing the on-road natural gas vehicle fleet from current levels to 10 
percent is projected to take about 20 years. Even with this anticipated 
growth, the amount of natural gas needed for transportation will remain 
relatively small, which is not expected to significantly impact the 
price of natural gas.
    Chrysler has a long history of producing natural gas powered 
vehicles. In the 1990s and early 2000s, Chrysler produced dedicated CNG 
powered full-size vans, minivans, and pick-up trucks. Although these 
products were discontinued because of market conditions and lack of 
consumer demand, Chrysler continued to be watchful for the potential 
re-emergence of a natural gas powered vehicle market.
    Our strategic partner, Fiat, is a world leader in producing CNG 
vehicles, having manufactured more than 500,000 passenger and 
commercial vehicle applications of CNG technology since 1997. Fiat 
commands more than 80 percent of the European market for CNG vehicles 
and its CNG powered products span all vehicle segments, from small 
passenger cars to buses and large trucks.
    The United States can learn a lot from the Italian experience. The 
CNG vehicle market in Italy from 2001-2009 proved to be a success for 
several reasons including product incentives that fully offset bi-fuel 
CNG hardware costs, CNG costs that were half the cost of gasoline, 
refueling stations that were widely available, and vehicles that 
provided a robust driving range. The take-away is: Incentives + Range + 
Infrastructure + Fuel Cost = Customer Acceptance.
    The wide availability of refueling stations is fundamental to the 
success of the market experience in Italy. Italy has nearly 900 public 
CNG stations, which translates into approximately 28 stations per 3,861 
square miles for a country of about 116,000 square miles and a 
population of about 60 million people. With those numbers, the 
refueling infrastructure in Italy is adequate to support the 
application of bi-fueled vehicle designs; however, more stations are 
needed to support dedicated CNG products.
    The refueling infrastructure situation in the United Sates is much 
different. Of the approximately 1,000 public and private stations in 
the United States, 135 are located in California. This is of interest 
because California is comparable to Italy with a population of about 38 
million and a land area of approximately 164,000 square miles. 
California's CNG station density is about 3 stations for every 3,861 
square miles--still far less than Italy's 28 stations for similar 
geographical coverage. Similar to the situation in Italy, the station 
density in California will require that bi-fueled vehicles be offered 
to make customers comfortable with a CNG vehicle purchase. For the rest 
of the country, where the CNG station density is far less per square 
mile than in California, the need for a bi-fuel vehicle option is even 
greater.
    With that history and experience, Chrysler's decision to re-enter 
the CNG vehicle market was a conscious one. We designed our CNG Ram 
2500 to satisfy customer needs by providing a ``worksite'' vehicle 
capable of carrying a work crew, and, in recognition of the limited CNG 
station infrastructure, made the vehicle bi-fuel with a back-up 
gasoline system. We chose the heavy-duty pick-up truck segment because 
our large and small fleet owners provide a willing customer base. The 
bi-fuel CNG Ram 2500 offers these customers the operating range and 
total cost of ownership necessary to operate their businesses 
efficiently and profitably. Production has begun, and vehicles will 
begin arriving at dealerships for fleet customers in August.
    We are proud that Ram is the only brand in North America to offer a 
complete factory-built pick-up truck that comes off our production line 
fully assembled, factory tested, factory warranted, and shipped 
directly to our 2400 authorized dealers who are trained to provide a 
full range of services on the vehicles. The CNG Ram 2500 is built as a 
bi-fuel vehicle with CNG tanks holding up to an equivalent of 18.2 
gallons of gasoline and an 8-gallon reserve gasoline tank. The 
vehicle's range on CNG is 255 miles and the total range of the vehicle, 
including use of the 8-gallon gasoline reserve, is 367 miles. An 
optional 35-gallon reserve gasoline tank will extend the vehicle's 
range to about 745 miles. The vehicle is designed to deplete the CNG 
fuel before seamlessly switching to using gasoline.
    The federal government can be a key partner in expanding the role 
of natural gas as a transportation fuel. As I have discussed, creating 
a value proposition for the customer is critical for the successful 
penetration of natural gas powered vehicles in the marketplace. The 
ultimate goal is to have customers choose to buy a product without a 
government incentive. Currently, though, other alternative fuel 
vehicles, such as battery electric vehicles, are eligible for 
incentives that create an un-level playing field for potential retail 
CNG vehicles. We support technology neutral policies, and providing 
equivalent incentives for natural gas powered vehicles would create 
parity between natural gas powered vehicles and other alternative fuel 
vehicles. Incentives do not have to be financial. For example, if 
Congress modified the definition of ``dedicated CNG vehicle'' to 
include ``range-extended CNG vehicle'' (a ``range-extended CNG 
vehicle'' is a product with a small gasoline fuel tank to ease 
customers' ``range anxiety'' of running out of fuel), customers would 
be able to take advantage of non-financial opportunities offered in 
some regions, such as access to High Occupancy Vehicle (HOV) lanes.
    There is also a role for the states in responding to the challenges 
in promoting the widespread use of natural gas as a transportation fuel 
in the United States. In an effort led by Governor Mary Fallin of 
Oklahoma and Governor John Hickenlooper of Colorado, 13 States are 
supporting a multi-state Memorandum of Understanding (MOU) that 
outlines a coordinated effort among states to promote natural gas 
market development, CNG vehicle production, and state fleet purchases 
of CNG vehicles. The goal of pooling multiple state fleet needs is to 
create a market for natural gas powered fleet vehicles and enable 
manufacturers to plan for expanding their CNG product offerings. We 
understand that a Request for Proposal (RFP) will be published this 
week, and awards based on responses to the RFP are expected to be 
issued in October.
Summary
    Chrysler Group LLC believes that natural gas powered vehicles have 
strong potential to compete in the retail transportation market. The 
abundant--and now more accessible--supply of natural gas in the United 
States, could be a significant development for the transportation 
sector. Natural gas powered vehicles offer consumers a good value 
proposition because natural gas prices are expected to remain stable 
for the foreseeable future, the fuel holds a strong price advantage 
compared to gasoline and diesel fuels, and it is becoming more readily 
available via an expanding retail infrastructure. Other advantages 
include enhancing the nation's energy security, diversifying 
transportation energy choices by reducing our dependence on oil, 
creation of jobs, and reduction of greenhouse gas and smog-forming 
emissions.
    Challenges lay ahead in expanding the retail fueling infrastructure 
and increasing product offerings of natural gas vehicles. As those 
challenges are overcome, though, the value proposition for the customer 
will become increasingly clear and customer acceptance will occur. 
Thank you for allowing me the opportunity to testify on this important 
issue. I will be happy to address any questions.

    The Chairman. Thank you very much.
    Dr. Greene, go ahead.

   STATEMENT OF DAVID L. GREENE, CORPORATE FELLOW, OAK RIDGE 
NATIONAL LABORATORY, SENIOR FELLOW, HOWARD H. BAKER, JR. CENTER 
   FOR PUBLIC POLICY, UNIVERSITY OF TENNESSEE, OAK RIDGE, TN

    Mr. Greene. Good morning, Chairman Bingaman, Ranking Member 
Murkowski and Senator Franken, staff and guests. Thank you for 
the opportunity to comment on the potential for natural gas in 
transportation. Let me also say I'm as well as a Corporate 
Fellow at Oak Ridge National Lab, a Senior Fellow at the Howard 
H. Baker Jr. Center for Policy at the University of Tennessee.
    My first 2 observations may seem obvious but I think 
they're important.
    First, yes, advanced recovery methods have greatly 
increased our economical natural gas resources. There's now 
much more gas available, but not enough to satisfy all our 
energy needs.
    Second, today's low natural gas prices are not likely to 
last. Although today the prices are up. More likely prices will 
rise over time to levels consistent with the world price for 
LNG.
    Historically, our transportation sector has used very 
little natural gas. Of the 0.6 quads used in transport in 2010, 
all but 0.04 went to power the pumps that move natural gas 
around the country in pipelines. Given--that's out of a total 
of 27 quads used in transportation. So it's a very small 
fraction.
    Given present policies, the EIA projects that by 2035 
natural gas used by transportation vehicles will quadruple from 
0.04 to 0.16 quads. I think we can use more than that. But 
that's an indication of what the expectations are.
    But natural gas use by electric utilities is expected to 
increase by 2.1 quads, used in buildings by 0.4 quads, 
industrial use by 0.9 quads and we should switch according to 
their projection from importing 2.7 quads to become a net 
exporter of 1.4. All those changes are 60 times the size of the 
change they expect in transportation.
    There are good reasons why the transportation sector 
prefers liquid over gaseous fuels.
    The first is energy density. The energy density of 
compressed natural gas is 30 to 35 percent of that of gasoline 
depending on the storage pressure. Liquefied natural gas 
contains about 65 percent of the energy of a gallon of 
gasoline.
    The second is the cost of storage onboard the vehicle which 
the costs are about an order of magnitude greater than the cost 
of storing diesel fuel or gasoline.
    Now we can convert natural gas to liquid fuels including 
drop in fuels, diesel, gasoline or methanol. Depending on the 
process, 35 to 45 percent of the energy content is used in the 
conversion, much more than the energy used in refining 
petroleum.
    The use of methanol since it's not a drop in fuel would 
require that vehicles either be adapted to flexibly accept 
methanol which can be done at a cost of about $100 or so per 
vehicle or designed specifically for dedicated methanol use. 
Methanol compatible flexibly fueled vehicles would have only 
about half their range as when running on methanol as opposed 
to gasoline and would require deployment of a new refueling 
infrastructure as well as dealing with new safety issues due to 
the different toxicity of methanol.
    In my opinion it probably would not be worthwhile to deploy 
a full scale natural gas refueling infrastructure. Although 
natural gas produces fewer greenhouse gas emissions than 
petroleum those emissions are not low enough to meet the 
reductions that will be required in the future to protect the 
global climate. If a large scale natural gas infrastructure 
were deployed by say, 2030, it would need to be substantially 
dismantled by 2050 to achieve greenhouse gas reductions on the 
order of 60 to 80 percent.
    On a well to wheel basis future compressed natural gas 
vehicles are expected to generate about 80 percent of the 
emissions of an advanced gasoline powered vehicles. But these 
kinds of estimates are also highly dependent on assumptions 
about upstream emissions such as methane. According to one 
study recently published in the proceedings of the National 
Academy of Sciences, upstream emissions must be 1 percent or 
less for heavy duty vehicles and 1.6 percent or less for light 
duty vehicles if there are to be any greenhouse gas benefits 
from a switch to natural gas vehicles.
    In my opinion, we should act cautiously to encourage 
greater use of natural gas in those applications where its cost 
effective solution by facilitating the deployment of refueling 
infrastructure, codes and standards. For example for liquefied 
natural gas, and by pursuing fuel neutral polices which have 
already been mentioned that provide markets with clear signals 
to improve energy efficiency, choose environmentally 
sustainable fuels and enhance energy security. These policies 
could include Feebates which I've discussed before this 
committee before as well as energy based highway user fees 
indexed to the average efficiency of the vehicle's stock on the 
road so that the energy user fee would increase as fuel economy 
increased. This is consistent with David McCurdy's 
recommendation that the taxes be energy based rather than based 
on volume and also low carbon fuel standards.
    So in closing increased use of natural gas in 
transportation can make measured by important contributions to 
economic growth, environmental protection and energy security. 
However, attempting a large scale transition from petroleum to 
natural gas would likely be a mistake in my opinion. Expanding 
use of natural gas in specialized markets where the economics 
are favorable and adequate fuel availability can be deployed 
cost effectively can be an important part of a comprehensive 
energy policy.
    Thank you for the opportunity to comment. I look forward to 
questions.
    [The prepared statement of Mr. Greene follows:]

  Statement of David L. Greene, Corporate Fellow, Oak Ridge National 
   Laboratory, Senior Fellow, Howard H. Baker, Jr. Center for Public 
             Policy, University of Tennessee, Oak Ridge, TN
    Good morning Chairman Bingaman, distinguished senators, staff and 
guests. Thank you for the opportunity to comment on the potential for 
natural gas to contribute to solving America's energy problems through 
greater use in our transportation sector.
    My first 2 observations may seem obvious but I think they are 
important. First, advanced recovery methods have greatly increased our 
economical natural gas resources, yet not enough to transform our 
energy system to one based on natural gas. There is now much more gas 
available but not nearly enough to satisfy all our energy needs.
    Second, today's low natural gas prices are not likely to last. More 
likely, they will rise over time to levels consistent with the world 
price for LNG adjusted for the costs of liquefaction and transport. 
Energy markets respond slowly due to the time required for energy using 
capital stocks and capital-intensive resource development to adjust. 
But the domestic gas market is competitive and prices will adjust to 
reflect the long-run market value of natural gas (Figure 1*).
---------------------------------------------------------------------------
    * All figures have been retained in committee files.
---------------------------------------------------------------------------
    I believe that increased natural gas use in transportation can and 
should make a relatively moderate but important contribution to 
reducing our dependence on petroleum for the following reasons:

          1. The recent increase in natural gas resources is indeed 
        ``game changing'' but market forces are likely to allocate the 
        increased domestic production to the traditional natural gas 
        using sectors. The new gas resources are game changing in the 
        sense that, as the Energy Information Administration (EIA) 
        projects, they will transform the US from a net importer to a 
        net exporter of natural gas and keep natural gas reasonably 
        priced for decades.
          2. Electric utilities' natural gas consumption is likely to 
        increase even more than projected if responsible efforts are 
        undertaken to reduce greenhouse gas (GHG) emissions from 
        electricity production.
          3. Natural gas prices are almost certain to rise from their 
        currently depressed levels to levels similar to those seen in 
        the recent past when natural gas use in transportation was 
        limited to niche markets.
          4. Although increased use of natural gas in transportation 
        would reduce US oil dependence and probably GHG emissions in 
        the near term, methane is not a suitable fuel for achieving the 
        kinds of reductions in GHG emissions likely to be necessary by 
        2050.
          5. While substituting natural gas for gasoline or diesel fuel 
        in motor vehicles will help reduce our dependence on petroleum, 
        so will substituting natural gas for distillate fuel for 
        heating buildings. This is another important opportunity to 
        improve our energy security.
Outlook
    Expansion of America's natural gas and oil resources thanks to the 
technologies of hydro-fracturing and directional drilling is already 
producing benefits to our economy and energy security and will do even 
more in the future. The Energy Information Administration (EIA, 2012) 
estimates that production of natural gas will increase from 20.6 TCF in 
2010 to 27.9 TCF in 2035, with the contribution from shale gas 
increasing from 23% to 49% of U.S. production (Figure 2). Yet our shale 
gas resources are not unlimited. The EIA's 2012 Reference Case puts 
U.S. proved and unproved shale gas resources at 542 trillion cubic feet 
(TCF) out of total natural gas resources of 2,203 TCF.
    Production of shale oil and natural gas liquids (NGL) (typically 
considered to be petroleum) is now projected to increase domestic 
petroleum supply from 7.3 million barrels per day (mmbd) in 2010 to 
10.4 in 2020 and 9.5 by 2035, in contrast to previous expectations of 
continued decline and increasing imports.
Energy Security
    Increased natural gas use in transportation and buildings could 
make an important contribution to achieving oil independence over the 
next 10 to 20 years. By energy independence I do not mean using no oil 
nor do I mean importing no oil. We can achieve energy independence by 
shrinking our oil dependence problem down to a size at which it will 
not pose an important threat to our economy (Greene, 2009). In 2008 
dependence on petroleum cost our economy $500 billion in wealth 
transferred to oil exporting countries and reduced gross domestic 
product (Figure 3). From 2005 to 2010 oil dependence cost our economy 
approximately $2 trillion (Greene, Lee and Hopson, 2012). Increased 
domestic supply of crude oil and natural gas liquids due to 
exploitation of shale gas and oil resources, together with improvements 
in the energy efficiencies of light and heavy duty will benefit our 
economy thorough lower energy prices and improved energy security.
    The U.S. Energy Information Administration estimates that 
development of the 24 billion barrels of U.S. shale oil resources (EIA, 
2011) will add 1.3 million barrels per day to U.S. crude oil supply by 
2025-2030 while increased NGL production from shale gas development 
will add another 0.9 mmbd, making up the greatest part of a 2.5 mmbd 
increase in domestic petroleum supply (Figure 4; EIA, 2012).
Use of Natural Gas in Transportation
    Historically, our transportation sector has used very little 
natural gas. Most of the 0.61 quads consumed in transport in 2010 went 
to power the pumps that move natural gas around the country in 
pipelines; transportation uses other than natural gas pipelines 
amounted to only 0.04 quads out of a total of 27.04 quads. Given 
present policies, the EIA projects that by 2035 natural gas use by 
transportation vehicles will quadruple to 0.16 quads. Natural gas use 
by electric utilities is expected to increase by 2.12 quads, use in 
buildings by 0.35 quads, and industrial use by 0.86 quads. From 
importing 2.68 quads of natural gas in 2010 the US is projected to 
become a net exporter of 1.36 quads by 2035.
    There are good reasons for the transportation sector's preference 
for liquid over gaseous fuels. The first is energy density: a gallon of 
liquefied natural gas contains about 65% of the energy of a gallon of 
gasoline and the energy density of compressed natural gas (CNG) is only 
30% to 35% of that of gasoline, depending on the storage pressure 
(AFDC, 2012a). The second is the cost of storage on-board a vehicle. 
The EIA has estimated that storing the energy equivalent of a gallon of 
diesel fuel on board a heavy-duty vehicle costs $350 for CNG and $475 
for LNG. These costs are an order of magnitude greater than the costs 
of storing diesel fuel or gasoline.
    Natural gas can be converted to liquid fuels including diesel, 
gasoline and methanol. Depending on the process, 35% to 45% of the 
energy content is spent in the conversion process, much more than in 
traditional petroleum refining. Widespread use of methanol would 
require that vehicles either be adapted to flexibly accept methanol (at 
a cost on the order of $100 per vehicle) or designed specifically for 
dedicated methanol use. Methanol compatible flexibly fueled vehicles 
(FFV) would have only about half the range when running on methanol in 
comparison to gasoline, would require deployment of new refueling 
infrastructure, and would introduce new safety issues due to the 
different toxicity of methanol. Natural gas to drop-in fuels does not 
face these barriers. However, the EIA's 2012 Annual Energy Outlook 
Reference Case projection foresees no production of liquid fuels from 
natural gas through 2035 under current policies.
    There are reasons to proceed with caution, however, and to rely as 
much as possible on market-based decision-making. The technology of 
natural gas fueled internal combustion engines is relatively mature. 
Vehicles running on compressed or liquefied natural gas have been in 
the U.S. and other countries for decades and their pros and cons are 
relatively well understood. For both heavy and light duty vehicles, the 
benefits of switching to natural gas are lower energy costs in 
comparison to petroleum, approximately a 20% reduction in tailpipe 
greenhouse gas emissions and the substitution of a domestic, 
competitively priced energy resource for petroleum. The downsides are 
1) increased vehicle cost mainly due to the greater cost of compressed 
gas storage tanks, 2) reduced range and therefore increased frequency 
of refueling and 3) diminished cargo space due to the lower energy 
density of compressed natural gas. CNG, LNG and methanol additionally 
face the ``chicken or egg'' problem of developing an adequate refueling 
infrastructure and producing a range of vehicle makes and models that 
can satisfy the needs and preferences of most motorists.
    Since 2002, the number of natural gas vehicles in operation has 
remained stable at just under 120,000, according to the latest data 
available from the EIA (Figure 5; Davis et al., 2011, table 6.1). CNG 
vehicles far outnumber LNG vehicles, largely due to the lack of LNG 
refueling infrastructure and the greater cost of on-board storage.
    Existing studies indicate that a minimally acceptable refueling 
infrastructure for passenger cars and light trucks would require the 
equivalent of 10% to 20% of the over 150,000 gasoline stations in 
existence today. The EIA and DOE's alternative fuel data center report 
that there are about 1,000 natural gas refueling stations in the U.S. 
today of which only about half are open to the public (table 1*). 
Although much remains to be learned about the value of fuel 
availability to consumers, there is little doubt that it is important, 
particularly for vehicles with limited range, and that the existing low 
level of fuel availability is an enormous barrier to market acceptance 
of natural gas vehicles.
---------------------------------------------------------------------------
    * Table 1 retained in committee files.
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    It would probably not be worthwhile to deploy a full-scale natural 
gas refueling infrastructure. While shale gas provides an enormously 
important new resource for the U.S., it is not large enough to supply 
even a large fraction of transportation's energy use in addition to 
expanding traditional uses in other sectors. And although natural gas 
produces lower tailpipe GHG emissions than petroleum, those emissions 
are not low enough to meet the reductions that will be required in the 
future to protect the global climate. If a large-scale national natural 
gas infrastructure were deployed by, say, 2030 it would need to be 
substantially dismantled by 2050 to achieve overall reductions in GHG 
emissions on the order of 60% to 80%. On a well-to-wheel basis, future 
compressed natural gas vehicles are expected to generate 80% of the 
emissions of an advanced gasoline powered vehicle (Davis et al., 2012, 
figure 11.3). But such estimates are highly dependent on assumptions 
about upstream methane emissions. Alvarez et al. (2012) note the very 
large uncertainty about emissions from methane infrastructure, citing 
estimates ranging from 1% to 9% of gross production. According to their 
estimates, upstream emissions must be 1% or less for heavy-duty 
vehicles and 1.6% or less for light-duty vehicles if there are to be 
any GHG benefits from a switch to natural gas.
Summary Observations
    Natural gas can play a constructive role in reducing the petroleum 
use and greenhouse gas emissions of transportation vehicles but it is 
by no means a panacea. In my opinion, we should act cautiously to 
encourage greater use of natural gas in those applications where it is 
a cost-effective solution by facilitating the deployment of refueling 
infrastructure and by pursuing fuel neutral policies that provide 
markets with clear signals to improve energy efficiency, choose 
environmentally sustainable fuels, and enhance our energy security.
    Our current fuel economy and emissions standards are currently the 
most important such policies. Other policies worth considering include 
feebates for new vehicle purchases and restructuring of highway user 
fees on motor vehicles. Feebates can be structured analogously to the 
fuel economy and emissions standards (e.g., footprint based and 
reflecting similar values for reducing petroleum use and GHG emissions) 
to encourage market demand for more efficient vehicles and 
technologies. They can also be designed to be revenue neutral. As the 
University of California's analysis of feebates for the California Air 
Resources Board showed, feebates can reduce petroleum use and GHG 
emissions at negative cost (Bunch and Greene, 2011).
    As work is defined in the physical sciences, transportation is 
work: force applied over a distance to overcome inertia and friction. 
The laws of physics require that energy must be used to do work and, 
energy efficiency held constant, the amount of energy used is directly 
proportional to the amount of work done. Holding energy efficiency 
constant, the amount of energy used by a vehicle is an accurate measure 
of the amount of transportation work done. But current and proposed 
increases in light-and heavy-duty vehicle fuel economy will decouple 
energy use from vehicle travel, just as they did following the first 
round of fuel economy standards in 1975. By converting motor fuel taxes 
to energy user fees indexed to the average energy efficiency of all 
vehicles on the road we could maintain the financial integrity of 
surface transportation while creating a continuously increasing 
incentive for energy efficient vehicles and fuels.
    Increased use of natural gas in transportation can make measured 
but important contributions to economic growth, environmental 
protection and energy security. However, attempting a large-scale 
transition from petroleum to natural gas would be a mistake. Expanding 
use of natural gas in specialized markets where the economics are 
favorable and adequate fuel availability can be deployed cost-
effectively can be an important part of a comprehensive energy policy.

    The Chairman. Thank you very much.
    Mr. Cicio, go right ahead.

   STATEMENT OF PAUL N. CICIO, PRESIDENT, INDUSTRIAL ENERGY 
                  CONSUMERS OF AMERICA (IECA)

    Mr. Cicio. Thank you, Chairman Bingaman, Ranking Member 
Murkowski and committee members for this opportunity to testify 
before you today. Thank you.
    IECA is a--membership is exclusively manufacturing 
companies. We employ some 650,000 people. IECA member companies 
represent a diverse set of energy intensive industries that 
include chemicals, plastics, chemicals, paper, food processing, 
fertilizer, steel, glass, pharmaceutical and aluminum.
    The manufacturing sector uses one third of the U.S. natural 
gas and one third of the electricity. One third of the 
electricity is produced from natural gas. Natural gas is used 
as a fuel for the entire manufacturing sector supporting 12 
million jobs and as a feed stock for producing products such as 
nitrogen fertilizer, chemicals and plastics that are used in 
everyday life.
    For energy intensive industries relatively small changes in 
the price of natural gas and electricity can often determine 
our ability to compete with foreign competitors.
    From 2000 to 2011 the manufacturing sector lost 5.5 million 
jobs or 32 percent. High prices of natural gas significantly 
contributed to job losses. Over the last 2 years we have 
recovered only 418,000 jobs. This is a good start, but a long 
way from where we need to be to restore output and jobs to past 
levels.
    We have 4 points today.
    Point No. 1 is that IECA does not oppose the use of natural 
gas in the transportation sector. We do oppose legislation or 
regulation that picks winners and losers, that provides direct 
or indirect incentives that result in higher demand for natural 
gas. Higher demand places upward pricing pressure on natural 
gas and raises manufacturing costs, not just for natural gas, 
but also for electricity directly affecting competitiveness.
    Point No. 2. The favorable economics and environmental 
advantages between natural gas and transportation fuels such as 
diesel and gasoline is driving the market toward greater use of 
natural gas. Our written testimony provides a stunning list of 
examples that show that the market is working and government 
legislation is not needed.
    Point No. 3. IECA is becoming alarmed at the ever 
increasing potential demand and over reliance on natural gas. 
While we have an abundant supply, it appears that we also have 
explosive potential demand due to a suite of EPA regulations on 
electric generators, EPA regulations on industrial boilers, one 
approved and 14 applications to export natural gas and 
increased use of natural gas by the industrial sector. Total 
potential demand could increase 45 percent over the EIA base 
case for 2012 to 2020.
    Point No. 4. While it appears that we indeed do have an 
abundant supply of natural gas, manufacturing is concerned 
about the growing threats of continued robust and economic 
production of natural gas. There are at least 3 potential major 
barriers.
    Public opinion concerns regarding drilling and hydraulic 
fracturing.
    No. 2, government regulation.
    Three, actions by the environmental organizations.
    New regulations are a concern because we can recall the 
time period of 2002 to 2006 when natural gas prices were 
doubling and tripling. Producers wanted to drill. They filed 
applications to drill to the Bureau of Land Management.
    Unfortunately there were thousands of these APDs backlogged 
at the Bureau of Land Management. The natural gas was in the 
ground. Drillers wanted to drill. Consumers needed the gas. But 
the government stood in the way. Now new regulations may have 
the same effect but on both private and public lands.
    In closing we urge you to not artificially create demand 
for natural gas that may jeopardize the manufacturing sector. 
Natural gas prices are already rising quickly. Today's NYMEX 
natural gas prices rised 84 percent between now and 2020. That 
is a 9.5 percent annual increase.
    Let markets work. Let end users compete for the natural gas 
without government picking winners.
    Thank you.
    [The prepared statement of Mr. Cicio follows:]

 Statement of Paul N. Cicio, President, Industrial Energy Consumers of 
                                America
    Thank you Chairman Bingaman and Ranking Member Murkowski and 
committee members for this opportunity to testify before you. My name 
is Paul Cicio and I am the President of the Industrial Energy Consumers 
of America (IECA).
    The Industrial Energy Consumers of America is a nonpartisan 
association of leading manufacturing companies with $700 billion in 
annual sales and with more than 650,000 employees nationwide. It is an 
organization created to promote the interests of manufacturing 
companies through advocacy, and collaboration for which the 
availability, use and cost of energy, power or feedstock play a 
significant role in their ability to compete in domestic and world 
markets. IECA membership represents a diverse set of industries 
including: chemicals, plastics, cement, paper, food processing, 
fertilizer, steel, glass, industrial gases, pharmaceutical, aluminum 
and brewing.
KEY POINTS
          1. IECA does not oppose the use of natural gas in the 
        transportation market. We do oppose legislation or regulation 
        that picks winners and losers--that provides direct or indirect 
        incentives that result in higher demand for natural gas. Higher 
        demand places upward pricing pressure on natural gas and raises 
        manufacturing costs of natural gas and electricity directly 
        impacting competitiveness. In this case, the transportation 
        sector, including corporate fleets, is a winner and 
        manufacturing and other natural gas and electricity end-users 
        lose.
          2. The favorable economics and environmental advantages 
        between natural gas and transportation fuels such as diesel and 
        gasoline is driving the market toward greater use of natural 
        gas in the transportation sector (see Exhibit A*). The market 
        is working and government legislation and/or incentives are not 
        needed (see Exhibit K).
---------------------------------------------------------------------------
    * All Exhibits have been retained in committee files.
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          3. IECA is becoming very alarmed at the ever increasing 
        potential demand and overreliance on natural gas. While we have 
        an abundant supply, it appears that we also have explosive 
        potential demand due to the suite of EPA regulations on the 
        electric utility generators that could shut down up to 81,000 
        MW of coal-fired power generation according to one Federal 
        Energy Regulatory Commission report (see Exhibits B and C), EPA 
        regulations on industrial boilers; one approved and fourteen 
        applications to export natural gas (see Exhibit D), and 
        increased use of natural gas by the industrial sector. Total 
        potential demand could increase 45 percent over the Energy 
        Information Administration base case for the period of 2012 to 
        2020 (see Exhibit E).
          4. While it appears that we have an abundant supply of 
        natural gas, manufacturing is concerned about the growing 
        threats to continued robust and economic production of natural 
        gas. There are at least three potential major barriers: 1) 
        Public opinion concerns regarding drilling and hydraulic 
        fracturing; 2) government regulation and 3) actions by 
        environmental organizations. Regarding government regulation, 
        we note that the Bureau of Land Management (BLM) has proposed 
        to regulate hydraulic fracturing on federal lands and that the 
        EPA has regulated drilling emissions. The EPA gives every 
        indication that it intends to regulate drilling and hydraulic 
        fracturing on public lands where most of the natural gas supply 
        is being currently produced. This must be done carefully so 
        that environmental objectives are achieved while allowing 
        economical production without drilling delays.

    New regulations are concerning because we can recall that during 
the time frame of 2002 to 2006 when natural gas prices were doubling 
and tripling, natural gas producers wanted to drill and filed 
applications to drill (APD). There were thousands of APDs backlogged 
because of the BLM. The natural gas was in ground, drillers wanted to 
drill and consumers needed the gas, but the government stood in the 
way. Now, new regulations may have the same effect but on both private 
and public lands.
          5. If Congress ``is'' going to get in the business of picking 
        winners and losers--we urge you to ``pick'' manufacturing. 
        Remove barriers that may prevent the manufacturing sector from 
        using our nations' abundant supply of natural gas to build or 
        expand factories and use more natural gas to fuel cogeneration 
        facilities that would increase competitiveness, capital 
        investment, economic growth and jobs.
THE MANUFACTURING SECTOR
    The manufacturing sector uses one-third of the natural gas and one-
third of the electricity, of which about one-third is produced from 
natural gas. Natural gas is used as a fuel for the entire manufacturing 
sector and a feedstock for products such as nitrogen fertilizer and 
chemicals and plastics that are used in everyday life.
    For energy intensive industries, relatively small changes in the 
price of natural gas and electricity can often determine whether they 
are competitive with global competitors (see Exhibit F).
    From 2000 to 2011, the manufacturing sector lost 5.5 million direct 
manufacturing jobs or 32 percent due to a loss of competitiveness (see 
Exhibit G). While much has been said recently about a surge in 
manufacturing and companies bringing jobs back to the United States, it 
is important that we keep reality in perspective. The fact is, over the 
last 2 years, we have increased only 466,000 jobs. This is a good 
start, but a long way from where we need to be to restore output and 
jobs to past levels.
    The manufacturing sector employs 12 million people directly and 
indirectly an additional 5 million. In 2011, we accounted for 86.1 
percent of exports totaling $1.27 trillion. In 2011, $1.71 trillion of 
manufactured products where imported into the U.S. (see Exhibit H). We 
view displacing these imports as a fabulous growth opportunity for U.S. 
manufacturers, high paying jobs and economic growth (see Exhibit I).
    We also believe that the newfound natural gas from shale and the 
hydraulic fracturing process has created a significant opportunity for 
us and the country. We encourage policy makers to work closely and in 
partnership with the oil and natural gas industry to ensure that this 
competitive advantage is not shackled by overregulation and costs.
    We urge you to not artificially create new demand for natural gas 
that may jeopardize the manufacturing sector. Natural gas prices are 
already rising quickly. Today's NYMEX natural gas prices rise 84 
percent by 2020, or a 9.5 percent annual increase. Let the markets 
work, and let end users compete for the natural gas without the 
government picking winners.
    Thank you.

    The Chairman. Thank you all very much for your testimony. 
Let me start with a few questions.
    You know one of the intriguing ideas out there that to deal 
with this so called infrastructure issue with regard to the use 
of natural gas in transportation is this idea of home refueling 
for natural gas vehicles. Most American homes today have 
natural gas or many of them do at any rate. If in fact there 
were a relatively inexpensive and effective way to use your 
natural gas that comes to your home to refuel your vehicle the 
same way that electric car manufacturers are arguing people can 
do in recharging their batteries. That would seem to solve a 
lot of the infrastructure problem with regard to the use of 
natural gas for cars and trucks.
    Mr. Modlin, you folks are in the business of providing 
these kinds of vehicles that use natural gas. Is this something 
you think is a real prospect or is this just pie in the sky? 
There are all kinds of reasons why it's never going to work?
    Mr. Modlin. I think you're on to an important observation.
    The refueling at home does have an advantage of the 
customer not having to go to a gas station. I think one of the 
important observations that we make as an industry is that 
people don't love going to their corner gas station. It's 
something they have to do. So if we can make their life more 
efficient that would be an advantage, we think, to the product.
    A disadvantage right now to home refueling is the pretty 
high cost. It's generally in the neighborhood of $5,000 to put 
a unit in your home. So added onto the cost of the vehicle, 
which is a premium, that's a bit of a barrier.
    But what we are pleased to see is the research going on to 
reduce cost of home refueling apparatus. The industry on its 
own is pursuing that. They're attempting to bring down the cost 
from like about 5,000 to about a third of that.
    The recent announcement from DOE to pursue $500 cost point 
or price point for home re-fueler we think is fantastic.
    So we think the opportunities could be very real. I really 
think customers would appreciate it.
    The Chairman. Dr. Gallagher.
    Mr. Gallagher. I might just add a word if I might because 
we looked at that in this NPC study that I just chaired.
    I don't think you have to have home refueling to make 
natural gas go and to have infrastructure. But I do think to 
the degree we can make it happen, it would be a tremendous 
benefit for everybody. We've got natural gas going into 60 
million homes in the United States. So the gas is there. We 
just need the system.
    The technology is there in a sense in that systems have 
been offered in the past. But there hasn't been a big take up 
primarily for the reason Reg mentions. They've been expensive. 
But they work.
    This new R and D program, that was just announced a week 
ago in Houston, by Deputy Secretary Poneman, Energy. $30 
million for natural gas transportation storage R and D, of 
which, I think, 2 of the 13 projects are going to focus on home 
refueling technology. One of them is led by General Electric, 
by the way. So with some serious players getting involved, I 
think it could have a very nice future.
    The Chairman. Dr. Greene, did you have any thoughts? Have 
you looked at this issue about whether this is a possible 
solution to the need to build infrastructure?
    You advised that you don't think we should build out an 
infrastructure because of the cost and the fact that ultimately 
we're going to have to replace it all, as I understood your 
testimony.
    Mr. Greene. I think what I'm speaking/referring to there is 
a large scale national infrastructure rather than 
infrastructures along specific routes or in specific places 
where natural gas use makes good sense.
    Honda tried to sell such a system along with their natural 
gas powered Civic with not very much success. I think the cost 
was a serious barrier, the cost of the compressor. If that cost 
can be brought down a lot I think this makes more sense for the 
consumer in terms of avoiding trips to the CNG refueling 
station.
    If you think it takes about 6 minutes if your time 
refueling is worth $20 an hour you're talking about something 
like $100 a year saved in time or something like that. So I 
think that it can be helpful. But the costs will have to come 
down considerably.
    The Chairman. Dave, did you have a comment?
    Mr. McCurdy. Just quickly, Mr. Chairman. In mentioned in my 
testimony we see this opportunity for the consumer market. 
This--the long haul is the low hanging fruit where you're going 
to see rapid development to in where the market is moving 
rather dramatically.
    David Greene is right that Honda did offer that. But it was 
prohibitive cost. It was $5 to $7 thousand. The company just 
couldn't sustain that with the small market they have.
    If in fact you get the scale and the price does come in 
that, even in the thousand dollar range, 500 to 1,000, then 
there are other innovative business models. Utilities could in 
fact own those and either lease it or manufacturers could 
include that in a part of the price of the vehicle. It's 
equivalent if you have a gas dryer in your home, a line is 
there.
    You know, we are in a kind of a plug in culture now. We go 
home at night. I plug my iPad in, my iPhone. My wife does the 
same. You know you could come in and plug.
    The difference with the home refueling it doesn't have to 
have the quick refilling. So you can actually plug it in at 
night and it would be a slow refill.
    The other point here and I've heard these claims that 
concern that this market is going to be, the demand is going to 
explode. Then all of a sudden because of vehicles there's not 
going to be availability for industrial use. I don't really 
believe that's the fact.
    When I was in the auto industry, when you're looking at the 
percentage of the market for alternative fuel vehicles, out of 
the 12 plus million vehicles sold a year, it's a relatively 
small number. It's not going to--in a worst case scenario if 
all 12 million converted, sure, there might be a demand issue. 
But that's not going to be the case. You're going to see this 
slower ramp up on the consumer side.
    The Chairman. Senator Murkowski.
    Senator Murkowski. Thank you, Mr. Chairman.
    I want to talk to some of you guys afterwards because I 
have your perfect pilot project. I've got a community up North 
that is isolated from the rest of the world. They're paying 
seven/eight bucks a gallon for gas. Their natural gas is dirt 
cheap. They don't need to worry about fueling up anywhere else 
along the transportation grid because we don't have one. So 
we'll be talking afterwards.
    I want to ask because the Chairman mentions the issue of 
the chicken and the egg in this whole infrastructure and how we 
build this out. So many have said that, you know, it's not, 
this is not doable because we just can't get the infrastructure 
moving to the point that the consumer feels comfortable enough 
to purchase these vehicles. Yet we know that when we're talking 
about the long haul vehicles, we're seeing those changes. I 
think each and every one of you has mentioned instances where 
the private sector is figuring this out.
    The question to each of you is whether or not you see a 
need outside of the desire to get what some might consider to 
be free money. But a need for taxpayer money being used to 
subsidize the development of whether it's vehicles, whether 
it's infrastructure, other expenses that might be associated 
with switching to natural gas or really for any other fuel for 
that matter. Several of you have mentioned the need that we 
need to be technology neutral, fuel neutral.
    So among the 5 of you here today, do you see a need for 
direct Federal dollars? Those kinds of incentives that will 
take taxpayer money at this point in time whether it's for 
infrastructure, vehicles or other?
    We'll start with you, Mr. McCurdy and just go on down.
    Mr. McCurdy. Thank you, Senator. We can talk about Alaska.
    But the Senate recently voted on the Nat Gas Act and there 
were 51 votes for it, but it failed to reach the requisite 60. 
That was a funding neutral provision. There were pay fors for 
that. But the Senate has acted recently so I'm going to leave 
it at that.
    What we've asked for are technology neutral approaches in 
the regulatory front and to correcting some of the tax, current 
taxes, that discriminate against LNG such as the excise tax.
    We believe that the fuel economy rule, the CAF rules, are a 
wonderful opportunity because here is a mandate from government 
for the manufacturing world on a sales average based approach 
to meet certain standards. Here's an opportunity for 
alternative fuel vehicles both electric and natural gas to meet 
that standard by having an equal incentive. So that's meeting 
the standard and a government obligation. It's not direct 
taxpayer expense. Those kind of approaches, we think, can move 
this in a more rapid basis.
    So we all understand that the tough balance that our 
government and our country has to face as far as the rising 
deficits. But we also have a sluggish economy and as we see 
this infrastructure being market driven in fact there's 
opportunity to accelerate that pace with some wise policy 
choices.
    Senator Murkowski. Dr. Gallagher.
    Mr. Gallagher. Thank you.
    The economics, as we said, are starting to move markets 
which is great. I do agree with Dave's comment that we should 
at least not penalize natural gas as a transportation fuel. So 
we really need to equalize this tax on LNG verses diesel at the 
energy equivalent level. It's currently a 17 cent per diesel 
equivalent gallon penalty for using a cleaner, domestic fuel, 
natural gas which I don't think makes a lot of sense.
    There used to be a--so in terms of--so this thing is going 
to go. But we have to realize we're at, really, at the infancy 
of this industry here in the United States particularly for 
long haul where we put the very first long haul truck on the 
road 4 years ago at the Port of Los Angeles, the very first. 
Today there are, you know, a modest number. But it's at the 
infancy. The same is really true for light duty in the United 
States.
    So we're looking for ways that we can encourage and 
accelerate this wonderful transition toward a cleaner, cheaper 
domestic fuel. So I think we look at ways to do that. I'm not 
sure using taxpayer money has to be the way to do that. But we 
look for ways to do it.
    There was a proposal to reinstate the Vehicle Tax Credit 
for heavy duty trucks, floating, recently. Because the current 
price premiums are higher given that there's no scale yet in 
the industry that produces those trucks. That proposal was 
going to pay back all the credits with the fuel cost savings 
over the life of the vehicle. So it was tax neutral, I think.
    So things like that I think could work.
    Last there's other, sort of, non fiduciary budgetary ways 
like going after the $150 billion that the Federal Government 
spends on procuring third party transportation services. We 
could put in alt fuel standards for those procurements. Require 
some percentage of new transportation services provided by 
third parties, the United States Postal Service and others be 
natural gas vehicles, electric vehicles, biofuel vehicles, 
etcetera.
    Thanks.
    Senator Murkowski. My time is expired. But I want to give 
the others a quick opportunity.
    Mr. Modlin. So quickly that I like the ideas that have been 
presented so far.
    The main thing we look at is that the market has to want 
this first. Without a market then none of these efforts are 
going to be of much value.
    Right now we think the value proposition is there for the 
customer to consider with the price difference between natural 
gas and gasoline and diesel. So from a manufacturer's 
standpoint we say the customer should be interested in this.
    Also then with that potential the distributors have seen 
that there's potential here. So what's been interesting for us 
is of companies approaching us and saying can we form 
partnerships in developing or in presenting these products as a 
mutual product to the market. We're working on it. We think 
that has some excitement.
    So what you asked was would dollars from the government 
help?
    I think at this point dollars always help in exciting 
interest in a product. I just witnessed, especially the 
difference between electric vehicles and natural gas where 
electric vehicles are being offered significant incentives to 
move those along. So we're just asking for parity between 
electric vehicle or any other alternative fuel and this so we 
can compete fairly in the marketplace.
    Senator Murkowski. Thank you.
    Mr. Greene. So my general answer is no. I don't see a need 
for the Federal Government to use funds to subsidize natural 
gas infrastructure.
    On the other hand I'm very much in sympathy with the other 
comments about fuel neutral policies. There are definite, real 
benefits in terms of reducing oil dependence, somewhat reducing 
greenhouse gas emissions, somewhat reducing/improving air 
quality. So I think if we can structure policies that in a fuel 
neutral way reflect those values that would be the right way to 
go.
    Senator Murkowski. Mr. Cicio.
    Mr. Cicio. Yes, no funding is necessary. I'll give you a 
real life example.
    Clean Energy Fuels Corporation is offering long term 
contracts. It doesn't matter whether it's to a trucking fleet 
or to a municipal or to a State government or a Federal 
Government. They will sell natural gas at an equivalent price 
of a $1.50 below diesel fuel prices. For diesel users that's 
about a 25 percent savings.
    This company will put in the infrastructure for that long 
term contract and sell the natural gas. The fleet, the user, 
has a 25 percent lower cost. The infrastructure goes in.
    So the market is working.
    The Chairman. I believe Senator Manchin is next.
    Senator Manchin. Thank you very much, Mr. Chairman. Thank 
all of you, panelists.
    I want to just take off on what Mr. Cicio said. To me the 
low hanging fruit is basically the commercial vehicles, State 
by State. It doesn't cost a penny. A long term contract if they 
converted their school buses, their mass transportation, their 
State road vehicles and basically their sanitation which none 
of them ever show up at a filing station right now.
    That would be the cheapest thing we could do. Take a 
tremendous load off of the oil based products that we're 
dependent on right now and not cost a penny. I don't know why 
we, as a body, haven't taken that approach.
    Do you agree with that?
    Mr. Cicio. This is--the spread between the cost of diesel 
and the price of natural gas is so compelling that the 
economics are very clear that you can do these contracts long 
term where there's a winner for the buyer and the seller. It 
doesn't get any better than that.
    Senator Manchin. There's 15 States now that have a 
coalition. 15 States are working together to try to get mass 
purchasing for these--changing their school buses, changing 
their mass transportation, changing their State road vehicles. 
That could have a tremendous impact on the market, I think.
    Mr. Cicio. If just this one company as of December 31st, 
2011 has served 530 fleets and this is just one company. Any 
company in the United States could do this.
    Senator Manchin. I'm saying that I know we have talked 
about, I think it was Mr. Pickens, his long term trucking and 
all this and it's a tremendous cost to the infrastructure. This 
is no cost. It doesn't take any government incentive. It 
doesn't take a penny from any of us right now to make this 
happen.
    Correct? Just the support?
    Mr. Cicio. That's correct.
    Senator Manchin. Let me just go on to, sir. You said also 
in your statement you had used because of EPA you thought 14 
gigawatts of coal fired power plants would be retired. This was 
in your written statement.
    Mr. Cicio. Actually there's under a FERC study.
    Senator Manchin. FERC is 70 to 81.
    Mr. Cicio. I thought it was 81,000 megawatts.
    Senator Manchin. Gigawatts, yes.
    Mr. Cicio. It's in that neighborhood, yes.
    Senator Manchin. OK. With that being said and the demand on 
natural gas, do you think and I don't mean we've had those 11 
or 12 projects, one to export because of the higher prices. 
We've got to be a little bit careful what we're doing cause 
this is the last fuel that, I believe, we have as a Nation that 
could be a renaissance of manufacturing.
    It could be a transformation of transportation fuels. It 
could really get America back in a competitive stage. But also 
there's a balance to be had. Anybody could chime in here. But 
we're watching this very carefully, very much concerned.
    I see my good friend, Senator Wyden, came in. We've had 
some good discussions about this. But I didn't know if any of 
you all would.
    Mr. Gallagher.
    Mr. Gallagher. Yes, I'd love to chime in. Thank you.
    On the business of using our precious natural gas, 
absolutely. But as I mentioned, the guys that look at these 
things in terms of supply of resources. Just last September the 
National Petroleum Council with its 200 member companies, after 
exhaustive analysis of those resources concluded that the 
resources are not only plentiful, they're enormous. They're 
sufficient to not only meet current demands but also new 
demands from power gen, new demands from transportation and new 
demands from export all at reasonable cost.
    Even in our own government agencies the Energy Information 
Agency and the DOE looking out to the year 2035 shows 
maintaining and widening that price gap that we see today with 
oil.
    My second comment, briefly, on the other point about----
    Senator Manchin. I'd like to also know about coal, also 
where you all come down on the side of coal.
    Mr. Gallagher. Sorry?
    Senator Manchin. On coal, coal fired plants, too.
    Do you think we can do a complete fuel switch or there has 
to be a balance?
    Mr. Gallagher. I think there's always--balance always makes 
sense. I testified in Congress 32 years ago about world 
prospects for coal. So there's a role for coal.
    But natural gas is cleaner. It's a lot lower carbon. So 
we're going to see some substitution in natural gas for coal.
    On the truck issues and----
    Senator Manchin. Gas can't carry it all, can it?
    Mr. Gallagher. We don't want to carry everything and the 
economics won't drive natural gas to carry everything. So but 
we'd like to see natural gas--
    Senator Manchin. But your pricing is much more different, 
isn't it?
    The pricing is so unstable with gas verses coal, long term 
contracts coal is much more dependable than gas has been.
    Mr. Gallagher. Used to be, but not so much today.
    Senator Manchin. OK.
    Mr. Gallagher. On the truck I applaud what we're doing at 
the States on the buses that you mentioned, school buses, the 
transit systems, the garbage trucks, the municipal trucks. 
Pretty much every one of those trucks has one of our engines in 
it, by the way, Cummings Westport or Westport engines.
    Senator Manchin. OK.
    Mr. Gallagher. So that's fabulous. We're meeting 20, 30 
percent of some of those markets. But the big consumers of 
energy are the long haul trucks, not the transit district buses 
and the school buses.
    So if we really want to start making substitution for oil 
and saving some carbon we're going to have to move into the 
long haul. That's what we're trying to do.
    Senator Manchin. Yes, sir. Dave?
    Mr. McCurdy. Senator, if I could?
    We hear a lot about price. Since our members, the gas 
utilities that provide gas to--natural gas for 175 plus million 
Americans really appreciate and support low natural gas prices. 
But $2.80 or $2.50, quite frankly, is not sustainable.
    We don't have a supply challenge. We have a demand 
challenge. When the supply, which is there, 100 plus years and 
with advanced technologies, many of us believe that it can 
actually be greater than that.
    But if the differential--and the game changer here, the 
amazing game change, is that natural gas prices are no longer 
pegged to petroleum prices. So that's given the strategic 
advantage to the United States in a second chance here. But 
those prices in most estimates, EIA and the Petroleum Council, 
are looking at it somewhere between $4 and $5 MMBTU in the 
future. You know, that's a fourth of what it was a decade ago.
    What we see is not the absolute price. Quite frankly, 
consumers will get a benefit at $4 natural gas. It's the 
reduced volatility. Until you make sure that the producing 
community at the supply chain, the upper, is in the field than 
you're going to have more price volatility.
    So we think that increasing demand actually will help 
levelize the price and keep it at an affordable level and still 
use this abundant resource which is domestic and very clean.
    The Chairman. Senator Barrasso.
    Senator Barrasso. Thank you, Mr. Chairman.
    Mr. McCurdy, I'd like to ask you about Federal excise tax 
issues on liquefied natural gas. I understand the excise taxes 
are about 70 percent higher for LNG than the diesel fuel on a 
diesel gallon equivalent basis. I mean, you've been in the 
Congress. Just kind of look at the excise taxes and given that 
they go to the Highway Trust Fund.
    I mean, how should Congress end this disparity without 
harming the trust fund?
    Mr. McCurdy. Thank you, Senator. As in my statement I 
mentioned it very briefly. It was recently corrected in the CNG 
arena. But on the tax code for diesel and Mr. Gallagher, Dr. 
Gallagher, mentioned that as well.
    It's 41 cents or about 17 cents difference over the 24 
cents tax, excise tax, for diesel fuel. The reason it was at 
the current level according to government reports is that they 
price it on a volumetric basis as opposed to an energy content.
    Senator Barrasso. Energy, sure.
    Mr. McCurdy. So because of that there is a disadvantage. So 
this could be corrected. You know, the Highway Trust Fund is 
going to be challenged as we know. From the auto world we know 
with the reducing amounts of gas tax collections.
    But there are some who would argue that LNG because it's 
not or CNG is not taxed if it came from the utility. But 
there's ways to look at some equivalency in the transportation 
arena that would help offset as well. So that maybe another 
incentive to get natural gas vehicles on the road and to have 
some reasonable tax approach there.
    But this can be corrected. There's an extender provision 
that and we know how challenging it's going to be between now 
and the end of the year for major tax policy or tax reform. But 
there could be some action taken in the extenders to correct 
this disparity.
    Senator Barrasso. Dr. Gallagher, do you have any additional 
thoughts on how we can do this without harming the trust fund?
    Mr. Gallagher. I think it's an important thing to do. I 
think I don't have anything additional to what Dave has said on 
it.
    Senator Barrasso. Mr. Modlin, any additional thoughts on 
this?
    Mr. Modlin. I have no additional thoughts.
    Senator Barrasso. OK. Thanks.
    Mr. McCurdy, I'd like to ask about the maximum fuel economy 
increased standards and manufacturers of the dual fuel natural 
gas vehicles are subject to less favorable maximum fuel economy 
increase standards than manufacturers of say, plug in hybrids.
    Senator Inhofe has introduced a bill from your home State 
of Oklahoma which would allow manufacturers of dual fuel 
natural gas vehicles to take advantage of the same standards 
set for manufacturers of plug in hybrids. To what extent to 
these less favorable standards maybe discourage production of 
dual fuel natural gas vehicles?
    Mr. McCurdy. That's a great question, Senator.
    The--first of all having been involved in the auto world 
with the setting of the previous standard from 2012 to ?16, we 
saw that there was tremendous fuel savings for the country, 1.8 
billion barrels of oil. So it's good for consumers. I think 
manufacturers have benefited as well. It's not an easy 
consensus, but we did get there.
    For 2017 to 2025 on the light duty vehicles we've asked the 
Administration to include in that rule which is now at OMB, I 
understand, an equalization there with the plug ins. That would 
create an equal incentive for alternative fuel, bi-fuel 
vehicles. Again, I don't think you'd see any impact on the 
price of natural gas. At the same time it would encourage 
manufacturers and support them to make these major capital 
investments.
    That really can be done now, as we speak. We would 
encourage Congress to speak out on that.
    With regard to the previous rule on the heavy duty trucks 
that did not include a provision like this. There are some 
credits there that potentially the Administration could open up 
and revisit.
    So, these both would be very helpful to encourage advanced 
technologies.
    Senator Barrasso. I think I only have time for one last 
question.
    Mr. Cicio, if I could ask you. Your organization opposed 
the Nat Gas Act. In a press release your organization said that 
subsidies are not needed. Natural gas prices, the release said, 
are substantially below that of gasoline and diesel and provide 
consumers significant financial incentives.
    Does your organization oppose all financial incentives for 
natural gas vehicles?
    Mr. Cicio. I believe we do.
    Senator Barrasso. OK. So----
    Mr. Cicio. We haven't, but we haven't considered some of 
the things that's being discussed at this moment.
    Senator Barrasso. OK. Thank you.
    Thank you, Mr. Chairman.
    The Chairman. Senator Franken.
    Senator Franken. Thank you, Mr. Chairman.
    This is really to the whole panel, I guess.
    According to a 2010 MIT study there are significant 
advantages to using natural gas to generate electricity for 
electric vehicles rather than using it as a direct fuel in 
natural gas vehicles.
    For example, 100 cubic feet of natural gas converted to 
electricity can power an electric car 45.7 miles. Whereas the 
same 100 cubic feet used directly in a natural gas vehicle can 
only power it for 22.4 miles which is just under half.
    This study suggests that there is an argument to be made 
for prioritizing electric vehicle infrastructure over natural 
gas vehicle infrastructure. Can you talk about the pros and 
cons of such an approach?
    Mr. Gallagher. If I?
    Senator Franken. Dr. Gallagher.
    Mr. Gallagher. Yes, OK, Dave.
    Senator Franken. I'll go to Dr. Greene after that.
    Mr. Greene. We'll both take a shot at it. Go ahead.
    Mr. Gallagher. I'll start first thanks to Dave's kind pass 
there.
    Yes, I was a reviewer on that MIT study actually. So I'm 
familiar with it. I'll say a couple of things.
    First of all, there's some new MIT work out just in the 
last 90 days from Professor Chris Knittle, who chairs the MIT 
Center for Energy and Environmental Policy Research, CPER, as 
they call it which comes up with quite a different finding 
around natural gas for transportation. Very positive and in 
fact with some specific policy suggestions both for the Federal 
Government and State governments to encourage--
    Senator Franken. Can you speak to this study that you were 
a reviewer on?
    It basically says that if you use natural gas to create 
electricity and then that you can drive a car twice the miles 
that if you use it just as compressed natural gas or liquid 
natural gas. Can you speak to the study I mentioned?
    Mr. Gallagher. Yes. I will say that the work I've done for 
the past 2 years as chair of the Natural Gas Group of the NPC's 
Future Transportation Fuel Study which is going to be released 
next Wednesday here in Washington looked at electric vehicles 
verses natural gas vehicles verse biofuels and hybrids in 
vehicles and gasoline and diesel. Is coming up with some very 
strong findings for the positive benefits of natural gas both 
compared to conventional gasoline and diesel and other 
alternative fuels like electric vehicles.
    It's true that the range. You might be able to go further 
based on the range per unit of natural gas to that question.
    Senator Franken. OK.
    Dr. Greene.
    Mr. Greene. Yes, I think that is probably right. There's a 
lot of assumptions behind it, I'm sure.
    But conversion of natural gas to electricity is relatively 
efficient among ways of converting energy to electricity. The 
electric vehicle is probably 3 times more energy efficient than 
the natural gas vehicle. So that sounds about right.
    Senator Franken. OK. Thank you.
    I'd actually like to move on because, you know, there's one 
area where I do like natural gas a lot. That is for commercial 
and public vehicle fleets rather than for passenger cars. So 
I'd like to get this question out and have it discussed.
    Of the 120,000 natural gas vehicles on the road in the U.S. 
today, most of them are transit buses like those made by New 
Flyer which is a company with manufacturing facilities in St. 
Cloud, Minnesota and Crookston, Minnesota. I think that's--and 
that's because the refueling infrastructure can more easily 
accommodate these fleets and because larger vehicles are 
capable of carrying the heavy tanks required to contain the 
compressed natural gas. I know they're working on the weight of 
those tanks.
    Could you discuss the pros and cons of government policies 
that focus on fleet vehicles as opposed to personal passenger 
vehicles? You can take that answer anywhere you want. I just 
wanted to get the question out.
    Mr. McCurdy. Thanks, Senator.
    I understand the need to get the question in. It's a good 
one because fleet vehicles and long haul is where you're going 
to see the most dramatic early increase. I think something like 
30 percent of all buses being built today are natural gas. 
We'll see that number rise.
    The benefits of fleet vehicles is that they return to base 
either in the evening or sometime.
    Senator Franken. So the infrastructure is there.
    Mr. McCurdy. That's right. The infrastructure is there. The 
value of that infrastructure is that it's hooked up to the 
natural gas pipeline.
    The inefficiency that's not conveyed in the MIT study is 
that when you convert to electricity it's about--it loses 92 
percent of its energy in the transmission as opposed to natural 
gas which only loses about 7 percent. So in fact you'll find 
whether you--if you could refuel at home you would take the 
electric transmission out of the equation and you'd have less 
lost efficiency there. There you could actually see some 
benefit.
    But the fleet----
    Senator Franken. You lose 92 percent?
    Mr. McCurdy. Yup. In transmission. That's right.
    Senator Franken. Is that part of the MIT study?
    Mr. McCurdy. No.
    Senator Franken. I mean, it does seem very--I mean how does 
that factor, I mean.
    Mr. McCurdy. It depends on the transmission line. It 
depends on transmission. But if you're doing wells to wheels, 
if you do wells to wheels and there is a loss of transmission.
    Senator Franken. Dr. Greene, do you have a response to 
that. I saw him react.
    Mr. McCurdy. I can actually provide. We'll provide it to 
you. The----
    Senator Franken. When someone reacts like that I have to 
ask them.
    Dr. Greene.
    Mr. Greene. No, it can't be 92 percent. It's way too high.
    Mr. McCurdy. Actually, we'll provide the study.
    Mr. Greene. So the conversion efficiency from primary 
energy to electricity is going to be somewhere between 33 
percent and even 60 percent depending on how exactly you do it. 
Then the transmission is going to lose single digit percents.
    Senator Franken. OK.
    Mr. McCurdy. Production to through--I'll provide the study 
for you.
    Senator Franken. OK.
    Mr. McCurdy. But----
    Senator Franken. You're from the Natural Gas Association, 
right?
    Mr. McCurdy. Yes, but I support electric vehicles.
    [Laughter.]
    Senator Franken. OK. Yes.
    Mr. McCurdy. Senator, I support--I think that the country 
needs both. I think there's opportunities for both.
    But the important question you asked about the fleets is 
that this is they're 13, I guess now. Senator Manchin mentioned 
15 States. This is where government can actually, through 
directives, have State fleets convert to natural gas. Also 
military facilities and others could do that.
    Senator Franken. Right.
    Mr. McCurdy. There you could see tremendous development 
deployment which helps you get up to scale.
    Senator Franken. I know my time has run out. But Dr. 
Gallagher seemed to want--be itching to go.
    The Chairman. Why don't you give us a quick response, Dr. 
Gallagher? Then we'll go to the next questioner here.
    Mr. Gallagher. Thank you. I'll try to be brief.
    Quickly, factoring in all those efficiency considerations 
that we're talking about the new economics of natural gas 
whether you're looking light duty or bigger vehicles makes 
natural gas vehicles look quite attractive even compared to 
electric vehicles and all of those efficiency considerations. 
But of course we support and like electric vehicles as well.
    Totally applaud and support your comments on moving into 
long haul trucking. We think we can build out the 
infrastructure there. We can use the return to base fleets. We 
can use corridors. That's all fabulous. We can get that 
established.
    Then I think the light duty infrastructure can begin to 
evolve from that pattern.
    Senator Franken. OK.
    Thank you, Mr. Chairman, for indulging me.
    The Chairman. No problem.
    Senator Wyden.
    Senator Wyden. Thank you, Mr. Chairman.
    This has been a very helpful panel. I want to turn to a 
different area. My sense is that the new technologies, the new 
natural gas vehicle technologies, for example, like the better 
fuel tanks, can help make natural gas vehicles more practical.
    But it is not the technology that is hampering the U.S. 
market for natural gas vehicles. It is the economics of the 
market. That is what I'd like to get into with you gentlemen.
    I mean, particularly, the volatility of the U.S. natural 
gas market, in my view, has scared away some of the long term 
investment. The big question now is whether the breakthrough in 
shale gas development is going to alter this equation. Whether, 
in effect, the price advantage of natural gas as a fuel is 
going to continue, especially when other economic sectors go 
out and compete for that fuel to produce electricity or to 
provide feed stock for the chemical industry.
    The natural gas prices today are lower than they have been 
for years, but no less volatile. So, in effect, the volatility 
that we've seen in the past, you know, continues. You see that 
because prices have risen and have fell over the past year from 
less to $2 to more than $5 per thousand cubic feet. That's just 
over the past 12 months.
    I have a considerable concern that tying North American gas 
prices to the international markets. This, of course, would 
happen if you had these LNG construction terminals, export 
terminals, constructed. Certainly has the potential to worsen 
the problem because if you think guessing on the future of 
natural gas prices was a challenge before add the international 
competition from companies that are already paying 4 or 5 times 
as much. See if the road to stability, to stability and 
predictable natural gas prices, that's really the key to 
getting these investments smoothed out.
    So I think what I'd like to ask you, Dr. Greene and you Mr. 
Cicio, in your view what's it's going to take in order to get 
the major players here, businesses and people are purchasing 
for fleets and others, to have the confidence that there's 
going to be a real price advantage which would justify their 
making the switch and in effect, putting their eggs in these 
vehicles?
    Dr. Greene, what's your take on it? Then you as well, Mr. 
Cicio.
    Mr. Greene. There clearly is a price advantage now. I think 
with the increased supplies of natural gas the consensus is 
there will be a price advantage in the future. I think that 
will be true whether or not we allow exports of LNG.
    So I think there will be a price advantage. I think people 
have confidence that there will be a price advantage. I think 
the issues are how convenient, how useful natural gas is in any 
given particular application. Does that offset the price 
advantage or not?
    I do think that Professor Knittle's study, for example, 
makes some very good points about the societal benefits of 
natural gas that are not included in the price, the benefit of 
reducing oil dependence, the benefits of reducing emissions to 
a certain degree. So I guess I think the market does see the 
price advantage of natural gas and does expect that that will 
continue into the future and we'll respond to that accordingly.
    There are additional advantages that are not reflected in 
the price of natural gas. In my view, that should be the focus 
of policy to try and make those clearer.
    Senator Wyden. Mr. Cicio.
    Mr. Cicio. Confidence is an important word. From a 
manufacturer's perspective they would answer, you've got to 
look at 2 parts, both parts of the equation.
    You've got to look at supply.
    You've got to look at demand.
    As you have seen in our testimony, we have, manufacturers 
have concerns on both sides of the equation. On one hand we, 
today, have an abundant supply of natural gas. But we see 
potential headwinds there, including government regulations 
that could impair this robust, economic supply of natural gas.
    On the demand side, we see some extraordinary demand, 
unlike the United States has ever seen before. You mentioned 
exports. We, for the record, we're not against exports. But the 
fact is, and probably in every board room manufacturers are 
talking about their concern about what impact 14 export 
facilities may have.
    Those--if all of them got approved and probably they won't, 
that's a 27 percent increase in demand. Now let's put that in 
perspective. We've increased demand from 2000 to 2011 by 4.4 
percent.
    Manufacturers today are considering investing $65 billion 
in new facilities in the United States, that's mostly 
petrochemical and steel, that would consume some 3.7 trillion 
cubic feet of natural gas a day. Huge into capital investments, 
they want to be sure that the supply is there at an affordable 
price relative to international markets.
    Senator Wyden. We're going to have to do some more work 
following this up with you. I was just struck reading your 
testimony on page one, Mr. Greene. I quote here.
    ``Today's low natural gas prices are not likely to last. 
More likely they will rise over time to levels consistent with 
the world price for LNG adjusted for the cost of liquefaction 
and transport.''
    So I think the point really is, we have got to find that 
sweet spot where companies really do have a sense of stability 
in order to get them to make these long term changes.
    I know my time is up, Mr. Chairman. I thank you for the 
questions.
    The Chairman. Senator Shaheen.
    Senator Shaheen. Thank you, Mr. Chairman.
    Thank you all very much for being here this morning.
    I want to follow up, Mr. Cicio, on the line of questioning 
that Senator Wyden was pursuing.
    But first, I want to thank you and the Industrial Energy 
Consumers of America for endorsing S. 1000.
    Mr. Cicio. You're welcome.
    Senator Shaheen. My energy efficiency legislation with 
Senator Portman because I think regardless of what kind of fuel 
we use, it's important for us to do the very best job we can at 
being energy efficient with whatever we're doing. That's what 
that legislation is designed to address.
    But your testimony mentions that relatively small changes 
in the price of natural gas can often determine whether energy 
intensive businesses can remain competitive. Can you talk a 
little bit more about the role that those prices play with the 
companies that are members of your coalition?
    Mr. Cicio. Most certainly.
    For example, glass production, 20 to 25 percent of the cost 
is energy. If you're using recycled steel, you know, about 50 
percent of the cost is the cost of electricity. If you're 
making chemicals and plastics and fertilizer, 80 percent of the 
cost of the product, its feedstock, is the price of natural 
gas.
    So when we say that relatively small changes in price can 
have a direct impact, you can appreciate why.
    Senator Shaheen. Thank you.
    Mr.--Dr. Gallagher, you talked about the importance of 
addressing long haul trucks because that's where so much of the 
usage is. Can you talk about what the challenges to doing that 
are? Obviously the installations that can refuel those trucks 
is an issue. Are the type of engines also a big issue?
    I mean, how we--let me start a little differently. It 
sounded to me like there was general agreement from all of the 
panelists that one of the best ways to start making the 
transition was through municipal or State vehicle fleets, that 
that's one of the best ways. We've started to do that in New 
Hampshire. We've seen that in some of our cities.
    But as you talk about transitioning to long haul trucks 
what are the big challenges there?
    Mr. Gallagher. OK.
    Yes, we're kind of moving up on engine and vehicle size, so 
buses, transit and school. Refuse, waste management just 
announced that they're going to convert every single diesel 
truck in their fleet to natural gas in the coming years, 18,000 
waste management, garbage trucks.
    So next is the long haul trucks that we're talking about. 
The importance to America is the huge consumption of oil that 
the long haul trucks consume, much larger demands and 
quantities of oil than these other markets that we've already 
busted into.
    The engines are coming along. I say that with some modesty 
in that my companies are creating them and developing them and 
selling them. So, but hundreds of millions of dollars of R and 
D invested in the engines by my company alone in the last 
decade to get us to this point.
    We're still--so what are the barriers? We need more engine 
platforms. So until, currently there's really only one heavy 
duty engine platform, a Westport 15 liter on a Cummins base 
engine. In January there will be a second, a Cummins Westport 
joint venture, 12 liter engine that runs on CNG or LNG. But we 
need more platforms obviously. So that's going to take some 
time.
    We need more OEM vehicle platforms. So we're getting there. 
Kenworth, Peterbilt, Freight Liner are introducing these into 
long haul. But there's still a relatively modest number of 
platforms. So we need more of that.
    The big barriers are--and we talked about the chicken and 
egg. The build out of infrastructure to support these vehicles 
as the demand grows. It's a brand new technology. The first 
truck hit the road 4 years ago in California.
    It's going to take a while to build scale. Because of that 
it's going to take a while to build up the infrastructure to 
support that scale.
    It's going to take a while for the economics to get 
improved. They're good now because we've got this buck fifty a 
gallon fuel cost savings. But the trucks cost more than a 
diesel truck partly because we've only made a couple thousand 
of them in the history of mankind.
    So we need some time to bring the cost down on the vehicle 
price premiums. So that will happen with scale and with 
engineering ingenuity. But anything we can do to help jump 
start, accelerate, these barriers would be helpful.
    Senator Shaheen. Mr. McCurdy, the--in New Hampshire, as I 
said, we've begun moving in some of our communities to 
compressed natural gas. They've seen some significant savings 
in addition to the environmental benefits, cost savings.
    But one of the challenges we have in New Hampshire and in 
the Northeast is that we don't have pipeline capacity to get 
that gas into our communities. So what can you tell us about 
the potential to get additional pipeline capacity into the 
Northeast?
    Mr. McCurdy. Thank you, Senator.
    It's a big concern. We've been approached by Governors. 
We're trying to work with the State regulators since we're a 
regulated industry in the distribution side it really takes the 
State to work with us to expand those lines. There has to be a 
rate base equivalent to that.
    So we've been working with the cinders from Maine and some 
Governors to look at different approaches there. So I think 
there's opportunity. Crtainly those are based with fuel oil. 
They see tremendous opportunities.
    Senator Shaheen. Right. I understand those regulations. We 
permitted 2 gas pipelines through New Hampshire when I was 
Governor.
    Mr. McCurdy. Right.
    Senator Shaheen. So I appreciate that.
    Mr. McCurdy. Yes.
    Senator Shaheen. We need to see the industry though being 
interested in coming up.
    Mr. McCurdy. The industry is interested. Again, we have to 
work with the regulators at State level to make sure the right 
base is there and the economics work.
    If I could, because Senator, I know I need to correct the 
record if I could, Mr. Chairman because I did misspeak on the 
one point that Senator Franken. My staff was able to get the 
facts here. When I said 92 percent, actually when you look at 
source energy to deliver to customer on natural gas if you take 
100 MMBTU, even through the extraction processing, through 
distribution, you still retain 92 percent of that energy.
    In the electricity side if you take 100, you end up with 32 
percent. So there is a 68 percent loss in that process. So in 
transmission is about 6 percent. So David was right on the 
transmission side.
    So I wanted to clarify. Unlike some I, you know, I will 
admit to making a mistake and I did there. But I think it is 
important to note that the efficiency of the process.
    Senator Shaheen. Thank you. My time is up, Mr. Chairman.
    The Chairman. We appreciate the testimony. I think it's 
been very useful, very useful hearing. We will try to take some 
of your suggestions and see if we can follow up with them.
    But thank you very much. That will conclude our hearing.
    [Whereupon, at 11:35 a.m., the hearing was adjourned.]
                               APPENDIXES

                              ----------                              


                               Appendix I

                   Responses to Additional Questions

                              ----------                              

      Responses of Dave McCurdy to Questions From Senator Bingaman
    Question 1. What are the primary obstacles to building out the 
compressed natural gas infrastructure for light-duty vehicles? Is it a 
potential conflict that many oil and gas companies would be hesitant to 
invest capital to build out infrastructure for selling a product that 
competes with gasoline and diesel?
    Answer. AGA and America's Natural Gas Alliance have formed a 
collaborative effort, the Drive Natural Gas Initiative, to advocate for 
greater use of natural gas as a transportation fuel. One of the 
Initiative's main objectives is to foster the development of refueling 
infrastructure for natural gas vehicles.
    The primary challenge to building a national refueling 
infrastructure is the scale of the overall investment needed. While 
there are over 130,000 gasoline stations nationwide, only 500 
compressed natural gas (CNG) stations are available to the public. 
Building the number of stations needed to make natural gas a mainstream 
transportation fuel will require investments by a great number of 
companies under a variety of business models.
    AGA member companies can play a vital role in the next phase of 
building our national fueling infrastructure for natural gas vehicles. 
Working with their state regulators, a number of our companies are 
exploring innovative approaches to utility participation in this 
market. Natural gas utilities are pioneering new business models, 
forming creative partnerships and investing in cutting-edge 
technologies.
    Greater availability of home refueling appliances for natural gas 
vehicles could transform the market for these vehicles. The ability to 
fuel at home would lessen the need for an extensive network of public 
refueling stations. We believe that in the next few years, home 
refueling for natural gas vehicles will become increasingly available 
and attractive to residential consumers, and our companies will be 
involved in ensuring the safe and reliable operation of these refueling 
appliances.
    Question 2. ARPA-E is funding research on at-home CNG refueling to 
bring down system costs and time required to refuel. Could you please 
provide cost and fill time estimates for current at-home refueling 
systems and comment on the likelihood and possible time-line for such 
systems to become viable and desirable to consumers?
    Answer. A home refueling appliance currently on the market is the 
Phill, manufactured by FuelMaker. This appliance can cost upwards of 
$4,000 with a refueling time ranging between five to eight hours, based 
on the unit's pressure. General Electric and Eaton Corporation both 
recently announced efforts to develop home refueling appliances for 
natural gas vehicles, with goals of reducing the unit cost to around 
$500, and reducing refueling time to under one hour. Both companies 
project that they will produce prototypes by the end of 2015. We 
believe that at this price point, home refueling will be transformative 
for the natural gas vehicle market.
    AGA commends the Department of Energy Advanced Research Projects 
Agency (ARPA-E) on the announcement of a $30 million program to develop 
new ways of harnessing U.S. energy resources to reduce America's 
dependence on foreign oil. Funded through this ARPA-E program, the 
Methane Opportunities for Vehicular Energy (MOVE) program focuses on 
overcoming barriers associated with the adoption of natural gas 
vehicles. One of the program goals is the development of an affordable 
home refuelling appliance for natural gas vehicles.
    Question 3. Are there sensible policy actions, technology-neutral 
or otherwise, that the Congress should be considering to incentivize 
natural gas infrastructure development?
    Answer. Natural gas gives the nation the opportunity to take 
advantage of an abundant domestic resource that will decrease our 
dependence on foreign oil, utilize existing distribution 
infrastructure, and stimulate the economy. Congress should pursue 
technology neutral policies that create a level playing field for all 
alternatives fuels, including natural gas.
    As I described in my testimony before the committee, AGA supports 
the following actions to correct current policies that unfairly 
disadvantage natural gas vehicles:

          Providing equitable tax treatment for liquefied natural gas 
        (LNG).--Currently, each gallon of LNG sold incurs an effective 
        excise tax rate of $0.41 per diesel gallon equivalent versus 
        $0.243 for diesel fuel. This is because LNG has a lower energy 
        density per gallon than diesel, but the tax is applied on a 
        volume (gallon) basis rather than an energy equivalent basis. 
        This discrepancy has been corrected for the sale of CNG, but 
        not for LNG, and provides an unfair disincentive to the sale of 
        LNG.
          Waiving a portion of federal excise taxes on natural gas 
        trucks.--Heavy-duty natural gas trucks cost $30,000 to $60,000 
        more than diesel trucks. The federal excise tax rate of 12 
        percent is imposed on the full cost of a truck. The effect is 
        an additional cost premium of $3600 to $7200 towards a new 
        natural gas truck.
          Establishing parity in federal tax incentives.--Previous 
        federal tax incentives for NGVs have expired. Consumers who 
        purchase electric drive vehicles are eligible for a federal tax 
        credit of up to $7500. Similar consumer incentives toward the 
        purchase of NGVs could encourage greater adoption.

    Question 4. With the recent natural gas boom in the U.S. natural 
gas is enjoying a low price relative to gasoline and diesel. How much 
can this price go up before it is no longer economically viable to 
convert to LNG or CNG vehicles in the various transportation 
categories?
    Answer. The natural gas commodity price accounts for a small 
fraction of the price of compressed natural gas (CNG) the consumer sees 
at the fueling station. The majority of the pump price at a station 
operated by a regulated utility reflects fixed costs related to 
transportation, distribution, and compression of the natural gas; 
maintenance fees; a regulated rate of return; and state and federal 
taxes. This pricing structure means that even if the commodity price of 
natural gas were to increase significantly, the price of fueling a 
natural gas vehicle would not change considerably.
    At current commodity prices, the natural gas commodity contributes 
about $0.32 for each gasoline gallon equivalent (gge) of CNG sold. The 
current national average cost of CNG is about $2.00 per gge, meaning 
that the natural gas commodity price accounts for only 16 percent of 
the price at the CNG pump. In contrast, the commodity price of oil 
contributes 60 to 80 percent of the pump price of gasoline and diesel.
    To put this in context, if the commodity price of natural gas were 
to double overnight from $2.00 to $4.00 per mmBtu, leaving all fixed 
costs the same, the new CNG pump price would only increase from $2.00 
to $2.32.
    The Energy Information Agency (EIA) projects natural gas commodity 
prices (Henry Hub price per mmBtu) to increase to $7.37 in 2035. EIA 
meanwhile projects petroleum prices to be $145 per barrel by the same 
year. At these levels, CNG will retain a significant cost advantage 
over petroleum-derived fuels.
    Question 5. What role does the possibility of LNG exports (and 
possible related price increases) have on the economic viability of 
natural gas vehicles in the long-term?
    Answer. The natural gas market in North America today is 
characterized by abundance in supply. AGA believes that this expanding 
resource base is capable of satisfying existing and emerging markets, 
including the LNG export market. The possibility of LNG exports will 
improve the overall health of the market by incentivizing the continued 
production of natural gas and contributing to the balance of trade. Any 
fluctuations in the price of natural gas, resulting from LNG exports, 
will be marginal and natural gas will remain an affordable and 
attractive option for consumers.
      Responses of Dave McCurdy to Questions From Senator Cantwell
    In a study published in 2010, researchers at the Massachusetts 
Institute of Technology concluded that methanol was the `liquid fuel 
most efficiently and inexpensively produced from natural gas,' and they 
recommended methanol as the most effective way to integrate natural gas 
into our transportation economy.
    I would appreciate hearing the views of the American Gas 
Association as to the potential of using methanol to power our 
transportation system since methanol today is made primarily from the 
steam reformation of natural gas, a mature and inexpensive technology. 
As I understand it, today the U.S. has produces roughly 280 million 
gallons of methanol, and by 2015 that number will increase to one 
billion gallons. On the ground that means three methanol plants will be 
reactivated in Texas and a fourth will be moved from Chile to Louisiana 
to take advantage of today's lower natural gas costs. 1.
    Question 1. Is the AGA supportive of expanding methanol production 
from domestic natural gas sources?
    Answer. AGA supports technology-neutral policies that allow all 
alternative fuels to compete in the market, including the direct use of 
natural gas (in the form of liquefied natural gas or compressed natural 
gas), electricity derived from batteries or fuel cells, biofuels, and 
other liquid fuels such as methanol.
    Given a level playing field, AGA believes that the direct use of 
natural gas will compete more successfully in the market than methanol 
for a number of reasons. First, using natural gas as a transportation 
fuel utilizes the country's existing gas distribution infrastructure 
and does not require the significant additional investment in 
industrial scale conversion of natural gas to methanol. Industrial-
scale methanol production is highly capital-intensive: a facility can 
cost more than $700 million.
    Moreover, using methanol as a transportation fuel would require the 
establishment of a transportation and distribution system since none 
exists today. In contrast, AGA members own and operate over two million 
miles of natural gas distribution pipeline, making its direct use a 
more efficient and affordable choice.
    Question 2. How large a market is methanol producers for AGA 
members, and would that grow if methanol were used in America's 
transportation system?
    Answer. Methanol does not provide a market for local distribution 
companies (LDCs), which comprise AGA's membership. Large industrial 
users of natural gas typically bypass LDCs and enter into direct 
contracts with either natural gas producers or interstate pipelines.
    I understand that at today's natural gas prices methanol costs 
about 35 cents a gallon to produce, and for the past five years, the 
wholesale price for natural gas-derived methanol has ranged between 
$1.05 and $1.15 a gallon.
    Question 3. How do you think the price of methanol will change over 
the next decade as the price of natural gas changes?
    Answer. Since AGA members are not involved in the methanol market, 
AGA has no comment.
                                 ______
                                 
   Responses of Michael Gallagher to Questions From Senator Bingaman
    Question 1. Although you did not specifically address the non-road 
transportation sector including marine, rail, and mining/oil/gas fleets 
in your testimony, can you please provide an analysis of the potential 
market and driving factors for or against conversion to natural gas in 
the non-road sector.
    Answer. Please see the attached PDF* document for details titled 
`Natural Gas as a Transportation Fuel'. The potential market for 
natural gas in these sectors is tremendous because these off-road and 
high horse power segments represent highly concentrated areas of high 
fuel consumption.
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    * Attached PDF has been retained in committee file.
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    Firstly, the driving forces for the conversion of these sectors to 
natural gas are the abundant domestic supply of low cost natural gas 
that is less vulnerable to supply disruptions, geopolitical factors and 
volatility in price fluctuations. Secondly, natural gas emits lower 
greenhouse gasses and because it is a cleaner burning fuel, it can help 
reduce criteria emissions in off-road segments, in areas that have 
emissions reductions mandates or are suffering from poor air quality. 
Finally, companies such as Westport have developed robust high 
performance technologies for the conversion to natural gas, allowing 
diesel-like performance in horsepower and torque so there is no 
compromise in operability or performance of the engine. These 
technological advancements in engine development have not existed in 
the past. Companies like Westport and others are examining ways to 
deliver natural gas alternatives to diesel fueled engines in 
locomotives, mining, marine and in the oil and gas industries.
    Some of the barriers to adoption are the cost and speed to which 
these technologies can be commercialized. Westport is currently working 
with industry partners such as Electro Motive Diesel and Caterpillar to 
adapt the success we have seen with the on-road engines to higher 
horsepower applications. As with any new technology, the costs per unit 
of these products are higher than the closest diesel alternative. Not 
until higher volumes are manufactured do the costs generally decline 
per unit. While monetary incentives are not always possible, incentives 
for companies to adopt natural gas engines in off-road segments 
requires government support through policies to give confidence to 
purchasers to make the investment in natural gas technologies and 
infrastructure. There are also regulatory hurdles around the use, 
transportation and taxation of LNG as a transportation fuel as well as 
the classification of vehicles and engines under existing regulations 
by governing regulatory agencies. In an oil-centric environment, new 
rules, regulations, and standards must be developed, changed or adapted 
to consider the specialized characteristics and considerations of using 
LNG. Barriers such the small incremental weight of tanks and taxation 
of LNG fuel compared to diesel can and have hampered the speed to which 
new technologies can be adopted and deployed.
    Question 2. What factors played a role in Westport's decision to 
build the LNG engines you spoke about in your testimony? What does the 
market space for these engines look like and are others entering into 
it and building engines for long haul as well or are they waiting to 
see how Westport's experience plays out?
    Answer. Westport's decision to build LNG engines centered on the 
research of Dr. Phillip Hill, the inventor of the High Pressure Direct 
Injection Technology (HPDI). The goal was to find a way to reduce 
emissions for on-road vehicles, namely class 8 trucks that were and 
continue to be responsible for criteria pollutants in air-challenged 
areas around the country. As an example, regions such as Southern 
California continue to suffer from air quality issues, resulting from 
air borne pollutants such as nitrous oxides, carbon monoxide, sulfur 
dioxides and particulate matter that can contribute to negative 
respiratory events within the population.
    The general principal was developed around the logic that a cleaner 
fuel used in an engine would result in cleaner emissions at the tail 
pipe. After experimenting on various fuels and fuel blends, Dr. Hill 
discovered that natural gas would provide the cleanest emissions, and 
provide the power required by truck operators.
    Natural gas, primarily composed of methane, burns more cleanly than 
diesel or gasoline. As a transportation fuel, natural gas produces 
significantly less NOX, PM and GHG emissions than petroleum 
based fuels. Natural gas is a safe, stable fuel and in the form of LNG 
has an energy density of 60% of diesel fuel.
    Natural gas, in addition to its emissions benefits, is an abundant 
and domestically available fuel which in some cases can be obtained 
from renewable sources as bio-methane.\1\
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    \1\ Diagram-Westport.com website
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    Westport's HPDI technology allows for the use of natural gas in a 
manner that preserves the diesel performance characteristics of the 
engine. Westport's injector technology is unique within the industry 
and currently, we are the only company offering a 15L compression 
ignition dedicated natural gas engine for on-road use in the market 
today. Through Westport's joint venture with Cummins and Cummins-
Westport, there are two spark ignited engine offerings available: the 
8.9L and the 11.9L engine, to be released soon. Both are based on a 
gasoline base engine technology and have slightly different performance 
characteristics. In the Westport case, the LNG is pumped from the 
storage tanks warmed, and pressurized through the fuel system and then 
injected at high pressure as compressed natural gas into the engine. 
The decision to use an integrated LNG fuel system is based on the fact 
that the type of truck for which this technology was developed has 
limited space on board to store fuel. The weight and size of the tanks 
was a consideration in the design. Liquefied natural gas contains 
approximately 40% less energy per diesel gallon equivalent (DGE) than a 
diesel fuel and as a result, more fuel in volume must be stored on 
board to allow for the equivalent mileage range of the truck.
    Trucks are constrained by the 80,000 lbs GCW requirement of 
interstate highway travel and the weight of tanks can constrain the 
amount of freight allowed on board.
    Compressed natural gas would require a higher volume of fuel and 
fuel tanks than LNG for the same fuel equivalent. Heavy duty trucks 
operating with CNG on board storage capabilities would require a larger 
number of storage tanks on board the truck resulting in a higher weight 
vehicle, and reduced payload capacity. Even vehicles that use onboard 
LNG storage\2\ tanks are sensitive to the additional weight of the 
tanks which due to their construction of double walled stainless steel, 
are heavier by weight than a traditional diesel tank. The following 
diagram illustrates the differences in volume and range of natural gas 
and diesel. The extra weight and reduced payload capacity due to the 
80,000lb interstate highway rule has been a deterrent for some fleets 
to adopt this technology. A Federal weight exemption between 1000-
2000lbs could significantly impact adoption for fleets that are 
sensitive to weight and payload considerations.
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    \2\ Westport HD presentation
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    The market for heavy duty class 8 trucks that are capable of 
transporting heavy loads is growing rapidly, however, there are only a 
few companies that offer factory installed engines in new trucks. 
Westport and Cummins-Westport are the industry leaders in both the 
compression ignition (HPDI) and spark ignited engine technologies. 
Engine manufacturers such as Cummins, Volvo, Navistar, and others offer 
or are planning to develop and offer heavy duty natural gas trucks and 
engines. Most of the other players in this arena are developers of 
aftermarket dual-fuel systems which use different combinations and 
proportions of natural gas fuel or bi-fuel systems that can run on 
natural gas or other fuels
    The market potential for dedicated heavy duty natural gas vehicles 
is promising as the cost of diesel continues to rise and the cost of 
fuel becomes more of a factor in the ability of American companies to 
remain competitive. In the refuse industry alone, companies such as 
Waste Management have converted a large percentage of their fleet to 
natural gas vehicles and are planning to move to all natural gas in the 
future. In the class 8 sector, the market is now focused on high 
mileage fleets that log greater than 60,000 miles per year per vehicle. 
This has been the market focus because the fuel cost savings are high 
enough to offset the higher incremental cost of natural gas vehicles on 
the market today. Although great strides have been made in combustion 
technology and engine and fuel systems development, the relatively low 
volumes of vehicles, compared to diesel, on the road means there is 
still a significantly higher incremental cost for the purchase of a 
natural gas class 8 truck.
    In consort with vehicle availability, the build-out of natural gas 
infrastructure is critical to the long term success of these vehicles. 
Fleets whose operations include return-to-base or corridor routes have 
seen the greatest success with transitioning their fleets to natural 
gas because of the ability to locate fuelling stations within their 
area of operations. In areas where some public infrastructure is 
available, such as Southern California and the Los Angeles to Las Vegas 
to Salt Lake City corridor, the market has benefited from early 
adopters who have established fuelling stations and fleets are able to 
convert a smaller number of trucks. However in regions where natural 
gas is not yet established, fleets must convert a larger number of 
vehicles to create enough demand to support fuelling stations. As well, 
the number of vehicles must be significant enough for truck dealerships 
and maintenance facilities to invest in accommodating natural gas 
vehicles.
    Thank you for allowing us the opportunity to present further 
details.
                                 ______
                                 
       Responses of Reg Modlin to Questions From Senator Bingaman
    Question 1. As you mentioned, Chrysler has recently introduced the 
bi-fuel natural gas/gasoline truck to the U.S. market and through its 
industry partner, Fiat, sells dedicated natural gas vehicles in Italy. 
Can you detail some of the policies that have been implemented in Italy 
that have been successful in driving consumer demand for natural gas 
vehicles there and comment on whether similar policies might be 
implemented in the U.S.?
    Answer. The following are examples of policies that were enacted in 
Italy in an attempt to increase consumer demand for vehicles operating 
on compressed natural gas (CNG).

          1. Favorable fuel taxation of CNG for transportation.
          2. Customer purchase incentives to offset the incremental 
        cost of the CNG system compared to an equivalent gasoline-
        powered vehicle. The incentive ranged from 1,500 ? to 3,500 ? 
        per vehicle based upon a vehicle's CO2 emissions.
          3. Subsidies for new refueling stations with a financial 
        contribution up to 40 percent of the total cost.
          4. Streamlined regulatory and permitting procedures for 
        locating and operating new CNG refueling stations.

    Similar policies could also be implemented in the U.S. in an 
attempt to increase consumer demand for natural gas vehicles. Current 
U.S. polices relating to other alternative fuels and alternative fuel 
vehicles, such as incentives to purchase battery electric vehicles, 
should be technology and fuel-neutral and applied to all alternative 
fuels and alternative fuel vehicles to create a level playing field.
    Question 2. If lack of infrastructure is the problem for consumer 
natural gas vehicles, why not build fueling stations at dealerships or 
fund research to provide better and less expensive at-home fueling 
systems?
    Answer. Generally, retail refueling stations are not located at 
franchised dealerships. Dealerships that sell natural gas vehicles may 
have to install limited CNG fueling capacity to support repair 
operations similar to what they have today for gasoline and diesel-
powered vehicles.
    Chrysler is closely following research and development efforts by 
third-parties regarding home refueling appliances, including research 
programs funded by the U.S. Department of Energy. Recent progress to 
develop a more efficient, affordable, fast-fueling and maintenance-free 
appliance for transferring CNG to light-duty vehicles is encouraging.
    Question 3. How do the infrastructure challenges for CNG vehicles 
compare to other alternative fuel technologies like electric vehicles?
    Answer. The challenges to developing a robust refueling 
infrastructure for CNG vehicles are similar to the challenges facing 
other alternative fueled vehicles, such as vehicles operating on 
electricity, ethanol, methanol and hydrogen. Any alternative fuel must 
be widely available and priced competitively with gasoline in order to 
drive consumer demand. Burdensome permitting procedures and limited 
investment dollars are also obstacles to the greater availability and 
accessibility of alternative fuels.
       Responses of Reg Modlin to Questions From Senator Cantwell
    I understand that Chrysler has long been an industry leader in 
exploring alternatives ways to fuel America's cars. Chrysler invented 
the smart sensor for alcohol and was the first to commit to the 
production of methanol-gasoline flex fuel vehicle (FFVs). According to 
an article in the Chicago Tribune on May 3, 1991, ``Chrysler has come 
up with an engine that can detect what kind of fuel is being used and 
adjust itselfwithout any intervention by the owner-to run on gas, 
methanol or a mixture of the two that could range up to an 85 percent 
concentration of methanol.'' The article also stated that Chrysler 
would produce cars for the 1993 model year that can run either on 
gasoline or methanol-or on a combination of the two fuels . . . In an 
effort to reduce the nation`s dependence on foreign fuel and to clean 
up the atmosphere.''
    Question 1. Is the article correct in stating that Chrysler has had 
the capacity to make methanol FFVs since the early 1990s?
    Answer. After years of research and development, Chrysler 
introduced two models of flex fuel vehicles (FFVs) in 1993 and 1994 
that were capable of operating on methanol. Both models, the Dodge 
Spirit (1993) and Dodge Intrepid (1994), were discontinued due to low 
consumer demand and lack of methanol fuel in the marketplace.
    Question 2. If yes, what was the cost of making such FFV cars in 
the early 1990s, and would that cost be less today because modern 
engines have additional sensors and emission control upgrades?
    Answer. In the early 1990s, the cost of adding a new fuel sensor 
and upgrading the engine and fuel systems to accommodate methanol fuel 
was several hundred dollars per vehicle. The cost to provide M85 
capability for today's vehicles that are not capable of running on E85 
would likely be similar.
    Question 3. According to the 1991 Chicago Tribune article, Chrysler 
didn't intend to pass any additional costs along to consumers, is that 
what happened?
    Answer. In an effort to encourage customers to purchase methanol-
capable FFVs, Chrysler did not pass any of the additional costs 
associated with the FFV upgrades along to consumers.
    The seminal Massachusetts Institute of Technology Institute report 
entitled ``The Future of Natural Gas 2011'' found that ``methanol could 
be used in tri-flexible-fuel, light-duty (and heavy-duty) vehicles in a 
manner similar to present ethanol-gasoline flex fuel vehicles, with 
modest incremental vehicle cost. These tri-flex-fuel vehicles could be 
operated on a wide range of mixtures of methanol, ethanol and gasoline. 
For long distance driving, gasoline could be used in the flex-fuel 
engine to maximize range. Present ethanol-gasoline flex-fuel vehicles 
in the U.S. are sold at the same price as their gasoline counterparts. 
Adding methanol capability to a factory 85% ethanol blend (E85) 
vehicle, to create tri-flex fuel capability, would require an air/fuel 
mixture control to accommodate an expanded fuel/air range with addition 
of an alcohol sensor and would result in an extra cost of $100 to $200, 
most likely at the lower end of that range with sufficient 
production.''
    Question 4. Do you generally agree with MIT's conclusions?
    Answer. A tri-fuel vehicle could potentially be developed once a 
durable and reliable tri-fuel sensor is invented. The tri-fuel sensor 
would have to accurately identify and measure the correct amount of 
each fuel type in the vehicle, be it methanol, ethanol, gasoline, or 
any combination of the three. In addition to the costs associated with 
the new sensor, there would also be costs incurred for fuel system 
material upgrades to accommodate multiple types of alcohols. 
Furthermore, additional emission controls may be required to comply 
with today's more stringent tailpipe emission and onboard diagnostic 
requirements. Once developed, the cost of such a fuel sensor system to 
accommodate tri-fuel capability may be approximately $200 per vehicle.
    Question 5. Please speak specifically to the marginal costs 
estimated by MIT of producing tri-flex fuel capability at scale.
    Answer. The MIT cost projections for a tri-fuel system as 
identified in the question above appear reasonably accurate. This cost 
is in addition to the incremental cost for engine and fuel system 
upgrades that are already built into vehicles that are E85 capable. It 
should be noted that using methanol as a transportation fuel will 
require the construction and deployment of a methanol distribution 
network that currently does not exist. In contrast, an extensive 
natural gas pipeline distribution network already exists in the U.S.
    Question 6. What are the specific upgrades necessary to make a 
vehicle have tri-flex fuel capability?
    Answer. Ethanol, methanol and gasoline each have unique physical 
and chemical properties. As a result, engine and fuel system upgrades, 
in addition to a new fuel sensor, would be required to accommodate all 
possible combinations of ethanol, methanol and gasoline. The vehicle's 
powertrain would also need to complete full useful life durability 
testing and be calibrated for satisfactory emissions, driveability, and 
performance on all possible combinations of ethanol, methanol and 
gasoline.
    Vehicles that are capable of operating on multiple fuels cannot be 
optimized for any one particular fuel, which results in decreased fuel 
efficiency compared to an optimized dedicated fuel vehicle. The 
inability to fully optimize a vehicle's fuel efficiency could 
potentially hamper a manufacturer's ability to comply with current and 
future greenhouse gas and fuel economy standards, as well as meet 
consumer demand for more fuel efficient vehicles.
    Question 7. What are the specific differences in parts or 
technology between a non-FFV Chrysler model and an E85 FFV models? (for 
example, what is the difference between a 2012 Chrysler 300 3.6 L E85 
and a 2012 Chrysler 300 3.6 L; or a 2012 Dodge Durango 3.6 FFV and a 
2012 Dodge Durango 3.6L; or a Jeep Grand Cherokee 3.6 L FFV and a Jeep 
Grand Cherokee 3.6L)
    Answer. FFV models have engine upgrades to the valve seats and 
piston rings because ethanol acts as a cleansing agent and inhibits 
lubricity. The entire fuel system (tank, fuel pump, lines, injectors 
and elastomers) is upgraded to protect against corrosion, decomposition 
and swelling of the elastomers, and chemical attack and stress cracking 
of plastics. The FFV engine must also be calibrated to operate and meet 
exhaust and evaporative emission requirements on all possible blends of 
gasoline and ethanol.
    Today, all 3.6L engines and fuel systems in the Chrysler 300, Dodge 
Durango and Jeep Grand Cherokee are E85 flexible-fuel capable. Though 
capable, not all 3.6L equipped vehicles are offered for sale in 
California as FFVs due to the State's more stringent exhaust emission 
requirements.
    Question 8. I understand that today's E85 FFVs may be tested with 
methanol, please describe the testing and certification procedures for 
flex fuel vehicles Chrysler produces today.
    Answer. Chrysler's E85 FFVs are neither designed nor tested to 
operate on methanol, and therefore methanol usage is not permitted in 
any of Chrysler's vehicles, including E85 FFVs. Extensive development 
and certification testing is performed only with E85 and gasoline at 
multiple temperatures and against multiple driving cycles. The addition 
of methanol, once capability is established, would expand the testing 
and certification accordingly.
    In your testimony, you discussed Chrysler's decision to re-enter 
the CNG vehicle market with the CNG Ram truck.
    Question 9. Can you please provide a comparison of the marginal 
cost to consumers of making Chrysler's new CNG Ram 2500 pick-up truck 
be capable of running on compressed natural gas and gasoline versus the 
cost of making the same Ram 2500 pick-up truck being capable of running 
on methanol and gasoline?
    Answer. The marginal cost of a bi-fuel CNG vehicle compared to a 
conventional gasolinepowered vehicle is driven primarily by the high 
pressure fuel tanks. This marginal cost is likely greater than the 
marginal cost associated with a methanol FFV, which is discussed in the 
response to Question 2 above.
    Question 10. Would a methanol FFV Ram 2500 be less likely to need 
federal subsidies to be competitive than a CNG Ram 2500?
    Answer. Government incentives for alternative fuels should be 
technology and fuel neutral so that one alternative fuel is not 
unfairly advantaged over others. To compete fairly with conventional 
gasoline-powered vehicles, any alternative fuel vehicle, including a 
methanol FFV, would likely need some form of government incentive. 
However, government incentives for methanol would likely be ineffectual 
if methanol fuel is not readily available in the marketplace.
    I understand that between 2005 and 2011 China increased its 
methanol production capacity from 1.5 billion gallons a year to 15.5 
billion gallons and they are already blending around 15% methanol in 
its automotive fuel. 26 of China's mainland 30 provinces have carried 
out testing and demonstrations of methanol fuel and methanol fuel 
vehicles. Chinese automakers like Cherry, Geely, Shanghai Automotive, 
andMaple have rolled out cars that can run on M100 or M85.
    Question 11. Do you believe U.S. automakers will soon have to offer 
methanol FFVs cars in order to stay competitive in the Chinese market?
    Answer. Chrysler is not aware of any immediate plans by China's 
domestic auto industry to transition to methanol fuel other than as a 
potential gasoline extender in low level blends.
    Question 12. If the Chinese government requires new light duty 
vehicles to be capable of running on methanol, how would Chrysler 
respond?
    Answer. Chrysler has not evaluated the potential impact if the 
Chinese government were to require new light-duty vehicles to be 
capable of running on methanol. If that were to occur, Chrysler would 
have to evaluate whether building vehicles to comply with such methanol 
requirements was commercially practicable.
                                 ______
                                 
    Responses of David L. Greene to Questions From Senator bingaman
    Question 1. In your testimony you mentioned the concept of a 
technology-neutral ``feebates'' policy that would naturally incentivize 
alternative fuels and greater efficiency in the use of existing fuels. 
Please describe how such a policy would operate and what you would 
expect the effects of a feebates policy would be on natural gas and 
other types of vehicles.
    Answer. Feebates are a technology-neutral fiscal policy that can be 
used to internalize external costs as well as address other market 
shortcomings. A feebate system consists of a performance benchmark(s) 
and a feebate rate. Benchmarks can be a single value, vary by type of 
vehicle or be a function of vehicle attributes, such as a vehicle's 
footprint, just as the current fuel economy and emission standards are. 
For example, one benchmark might be petroleum consumption per vehicle 
mile (for example, 0.03 gallons/mile) and the rate might be chosen to 
reflect the marginal social costs of oil dependence (for example, $500 
per 0.01 gallons per mile). In this example, a new vehicle rated at 25 
miles per gallon (0.04 gallons per mile) would pay a fee at time of 
sale of ($500/0.01gal/mi)X(0.03-0.04) = -$500, while a vehicle rated at 
50 miles per gallon would receive a rebate of ($500/0.01gal/mi)X(0.03-
0.02) = $500 (fees are represented as negative numbers, rebates as 
positive). A feebate system could be based on more than one factor. For 
example, the feebate might be calculated as a sum of a petroleum 
component and a carbon dioxide emissions component. Suppose the 
benchmark were set at 266 g/mi and the feebate rate for carbon dioxide 
at $10/g/mi. A vehicle getting 50 miles per gallon (0.02 gal/mi) and 
emitting 177 gm/mi of carbon dioxide would receive a total rebate of 
($500/0.01gal/mi)X(0.03-0.02) + ($10/g/mi)X(266-177) = $500 + $890 = 
$1390.
    Natural gas vehicles would likely benefit significantly from the 
feebate system described above because they do not consume petroleum. 
Assume for simplicity that the feebate system were based on tank-to-
wheels petroleum use and tailpipe carbon dioxide emissions. The natural 
gas vehicle (with an energy efficiency of 0.03 gallons of gasoline 
equivalent energy per mile) would have no petroleum consumption and 
about 20% lower carbon dioxide emissions. Its feebate would be: ($500/
0.01gal/mi)X(0.03-0.00) + ($10/g/mi)X(266-142) = $1,500 + $1,240 = 
$2,740, almost twice that of an equally energy efficient gasoline 
vehicle.
    Question 2. There are numerous ways that natural gas could be used 
in transportation, both directly and indirectly. All of them would seem 
to offer different levels of economic and environmental benefit. You 
testified that an electric vehicle charged off energy generated at a 
natural gas power plant could go about twice the distance of a natural 
gas vehicle powered off the same amount of natural gas. Could you 
please evaluate the environmental benefits in terms of greenhouse gas 
emissions and non-greenhouse gas emissions as well as the gasoline 
displacement for this same scenario?
    Answer. Argonne National Laboratory's GREET model (ANL, 2012) can 
provide answers to questions 2 and 3 based on comparable vehicles. The 
GREET model estimates used to produce figures 1-3 are based on current 
technology. Future technologies could change the results for both 
vehicles and upstream activities. In addition, natural gas powered 
internal combustion engine vehicles and battery electric vehicles are 
not entirely comparable due to the shorter range and longer recharging 
time of the battery electric vehicle. Setting that difference aside, 
the following calculations are based on a typical, new U.S. passenger 
car. Figure 1* shows estimated well-to-wheel energy use by vehicle 
propulsion technology. The well-to-wheel energy use for a dedicated CNG 
vehicle is 6,079 Btu/mile, 73% more than an electric vehicle (EV) using 
electricity produced from the average US grid sources. The energy use 
of a Bi-fuel, CNG and gasoline vehicle is 6,346, 80% higher than the EV 
using grid-average electricity. Despite the fact that, in the U.S. 
electricity is produced from natural gas with an average efficiency of 
42% while the overall grid average energy efficiency is only 35%, the 
GREET model estimates that well-to-wheels energy use per mile would be 
somewhat higher for an EV using electricity produced entirely from 
natural gas. A dedicated CNG vehicle is estimated to use 62% more 
energy per mile than a comparable EV using electricity produced from 
natural gas.
---------------------------------------------------------------------------
    * All figures have been retained in committee files.
---------------------------------------------------------------------------
    The greenhouse gas emissions of the two propulsion systems are 
strongly correlated with their energy use if the U.S. average grid is 
assumed to be the source of electricity (Figure 2). Electricity 
generation from natural gas produces about 25% fewer carbon dioxide 
emissions per kWh than the average U.S. grid. Even considering that 
methane leakage per kWh would likely be somewhat higher for electricity 
produced from natural gas, an electric vehicle using electricity 
produced with natural gas would likely produce about 60% of the well-
to-wheel GHG emissions of a CNG vehicle.
    Neither the CNG nor the electric vehicle use gasoline directly, but 
the GREET well-to-wheels analysis shows that both pathways consume 
negligible quantities (<1% of total energy) of petroleum for such 
activities as transporting feedstocks and vehicle lubrication. The 
GREET model estimates are per vehicle mile. It is not certain that the 
two vehicle types would displace the same number of gasoline vehicle 
miles. The empirical evidence at present is of limited usefulness 
because neither vehicle type is widely used by the public.
    Other pollutant emissions are generally higher for the EV using 
U.S. grid electricity (Figure 3). Exceptions are volatile organic 
compounds (VOC) and carbon monoxide (CO), where the CNG vehicle's 
emissions are substantially higher. The EV using electricity generated 
from natural gas has the lowest pollutant emissions of large 
particulates (PM10), fine particulates (PM2.5) and oxides of nitrogen 
(NOx) and sulfur (SOx). Well-to-wheels, the FCV using hydrogen from 
natural gas produces more PM10, PM2.5 and SOx than the CNG vehicle but 
fewer emissions of VOCs, CO and NOx.
    Question 3. Along similar lines as question 2, natural gas can be 
reformed into hydrogen and used in a fuel cell or processed to make 
methanol or ethanol which can be used directly as alternative fuels. 
Can you please compare the distance a consumer car could travel on each 
of these fuels as well as compressed natural gas given an equivalent 
amount of natural gas for each? How would the emissions for each 
technology compare to the others? And how much gasoline would be 
displaced in each case?
    Answer. Again using the GREET model results shown in figure 1, a 
fuel cell vehicle using hydrogen made by distributed reforming of 
natural gas could travel 40% to 50% farther on a given amount of 
natural gas than a vehicle powered by natural gas in an internal 
combustion engine, and 67% to 75% farther than a vehicle powered by 
methanol produced from natural gas. Since methanol can be produced from 
natural gas more energy efficiently than ethanol, the results for a 
vehicle powered by ethanol from natural gas would be less favorable. 
The well-to-wheel greenhouse gas emissions of vehicles burning natural 
gas in internal combustion engines are 40% to 50% higher than those of 
a hydrogen fuel cell vehicle using hydrogen produced from natural gas 
(figure 2). The natural gas powered ICE vehicles and the hydrogen fuel 
cell vehicles both use negligible amounts of petroleum on a well-to-
wheels basis, would be likely to be driven an equal number of miles, 
and would displace 99% of the petroleum used by a conventional gasoline 
vehicle.
    Question 4. In your written testimony you noted that, over time, 
you expected natural gas prices to rise to the level of the world price 
for LNG adjusted for costs of liquefaction and transport. Is this 
because, in your view, the United States will inevitably export 
significant amounts of LNG, or are there other reasons that such a 
price adjustment will occur?
    Answer. I do believe that if our shale gas resources are produced 
as projected by the Energy Information Administration's 2012 Annual 
Energy Outlook, the U.S. will export significant amounts of natural 
gas. The 2012 AEO Reference Case, for example, projects that the U.S. 
will become a net exporter of natural gas by 2025 and will have net 
exports of 1.4 TCF by 2035. This will create the option, in at least 
some regions, to sell gas domestically or to export it. Given this 
option, the price of domestic gas should rise to approximately the 
world FOB price of LNG, minus the cost of transport and liquefaction. 
However, natural gas and other energy sources can be substituted in 
other areas, as well, including electricity generation, industrial 
uses, home heating and even transport. Because of these opportunities 
for substitution, it is highly unlikely that the current price 
advantage of natural gas will continue for decades into the future. 
Contrary to the EIA's projections, I do not believe that markets will 
tolerate a $15/mmBtu price differential between gas and oil for more 
than a few years at the most (figure 4). At these prices market forces 
will encourage oil production, discourage gas production and encourage 
alternative uses for natural gas until the price gap is substantially 
narrowed. Oil prices are likely to be lower, at times, than the EIA 
projection shown in figure 1 and natural gas prices are likely to be 
higher.
    Responses of David L. Greene to Questions From Senator Cantwell
    The seminal Massachusetts Institute of Technology Institute report 
entitled ``The Future of Natural Gas 2011'' found that ``methanol could 
be used in tri-flexible-fuel, light-duty (and heavy-duty) vehicles in a 
manner similar to present ethanol-gasoline flex fuel vehicles, with 
modest incremental vehicle cost. These tri-flex-fuel vehicles could be 
operated on a wide range of mixtures of methanol, ethanol and gasoline. 
For long distance driving, gasoline could be used in the flex-fuel 
engine to maximize range. Present ethanol-gasoline flex-fuel vehicles 
in the U.S. are sold at the same price as their gasoline counterparts. 
Adding methanol capability to a factory 85% ethanol blend (E85) 
vehicle, to create tri-flex fuel capability, would require an air/fuel 
mixture control to accommodate an expanded fuel/air range with addition 
of an alcohol sensor and would result in an extra cost of $100 to $200, 
most likely at the lower end of that range with sufficient 
production.''
    Question 1. Do you generally agree with MIT's conclusions?
    Answer. Yes, I agree with the MIT study's conclusions about tri-
flex-fuel technology and its costs. Although FFVs are sold at the same 
price as their gasoline counterparts, it is my opinion that they cost 
$50 to $100 more to manufacture. Still, the extra cost of tri-flex-fuel 
vehicles is likely to be in the range of $100 to $200.
    Through the Renewable Fuel Standard, Congress has called for the 
steady increase of biofuels in the transportation sector through 2022. 
But today, with virtually every gallon of gasoline in America 
containing ten percent ethanol, coupled with very little growth in 
gasoline consumption, there is effectively no way to consume the 
additional gallons of biofuels required to be produced by the RFS.
    To introduce more biofuels into the transportation sector, it seems 
like more vehicles capable of running higher alcohol blends and the 
infrastructure to deliver higher blend fuels will be needed. I note 
from your testimony that you do not believe that the infrastructure for 
introducing natural gas into the transportation sector makes sense.
    Question 2. Would you support building out the infrastructure for 
fueling flex fuel vehicles so that they could be fueled with natural 
gas derived methanol?
    Answer. First, I would like to clarify my comments about natural 
gas infrastructure. I do not believe it would be wise to deploy a large 
scale (by which I mean nationwide or nearly nationwide) natural gas 
refueling infrastructure because of the very modest or possibly 
negligible fuel cycle greenhouse gas benefits of natural gas as a 
transportation fuel. It is my opinion that it would take two decades or 
more to build up such an infrastructure and to sell the numbers of 
natural gas vehicles necessary to make it economically viable. By that 
time, we would need to begin dismantling it in order to reduce 
greenhouse gas emissions from transportation as part of an overall 
strategy to reduce the impacts of climate change. On a smaller scale, 
specialized natural gas infrastructure for transportation vehicles 
could be economical and contribute to national energy security without 
producing an unacceptable quantity of greenhouse gas emissions. For 
example, the MIT study's suggestion to replace 5% of US oil consumption 
(approximately 1 mmbd) with 2 TCF of natural gas use in transportation 
is ambitious and a reasonable compromise between energy security and 
mitigation of climate change. Likewise, the Energy Information 
Administration's analysis of the potential for high levels of future 
LNG use by heavy duty vehicles also proposes an ambitious but limited 
transition to natural gas use by these vehicles (1.87 quads, or 
somewhat less than 1 mmbd of petroleum displacement). As the MIT study 
also notes, the GHG emissions from using natural gas derived methanol, 
including full fuel cycle emissions of methane, could be somewhat 
higher than those of gasoline. Increased natural gas use in 
transportation will have unambiguous energy security benefits but will 
do little, if anything, to help achieve GHG mitigation unless it is 
used indirectly by electric or hydrogen fuel cell vehicles. In my 
opinion, deployment of a CNG, LNG, methanol or flex-fueling 
infrastructure in special applications where it could be economical, 
would be beneficial to national energy security at an acceptable cost 
in increased GHG emissions. A full-scale, nationwide deployment of 
vehicles and refueling infrastructure, in my opinion, would not.
    I would also like to modify my response to a question about the 
desirability of using federal funds to subsidize natural gas refueling 
infrastructure. Given that the value of reducing petroleum dependence 
is not fully reflected in the price of petroleum or petroleum-powered 
vehicles, subsidization of natural gas vehicles and natural gas 
refueling infrastructure to reflect the value of reducing the nation's 
dependence on petroleum is justified. Existing incentives for vehicles 
that do not use petroleum should be taken into account in considering 
how much should be spent on infrastructure.
    Question 3. Does the ability to substitute various fuels and fuel 
sources in Flex-Fuel Vehicles (FFVs) make methanol from natural gas a 
less risky investment proposition?
    Answer. There would likely be no risk for FFV owners but 
substantial risk for fuel providers. Consumers' choices among fuels for 
fuel flexible vehicles are likely to be highly sensitive to the prices 
of the fuels and motorists could easily switch from one fuel to another 
as prices changed. The range the fuels will provide is likely to be 
their principal difference. However, the prices of the fuel options are 
likely to be both correlated and volatile, as the prices of gasoline 
and fuel ethanol have been. High oil prices will benefit investments in 
methanol infrastructure but low oil prices could make the investments 
unprofitable. If oil prices decrease significantly in the future, 
investments in methanol production and refueling infrastructure could 
become uneconomical.
                              Appendix II

              Additional Material Submitted for the Record

                              ----------                              

 Prepared Statement of Gregory A. Dolan, Acting CEO, Methanol Institute
    Mr. Chairman, thank you for providing an opportunity to submit 
testimony on behalf of the Methanol Institute. My name is Gregory 
Dolan, and I am the Acting CEO for the global trade association that 
represents methanol producers, distributors and related technology 
companies around the world. The United States is currently reliving an 
all-too-familiar experience with sustained high gasoline prices causing 
us to seek alternatives to satisfy our growing energy needs. Energy 
drives commerce, and can fuel our economic recovery, but the current 
price situation is putting an unbearable burden on American families 
and businesses.
    My testimony here focuses on the global experience with methanol 
fuels, and offer some insight into how the U.S. can once again regain 
its position as a leader in transportation innovation.
    In the late 1970's, when high gasoline prices driven by instability 
in the Middle East led to long lines at gas stations, our country began 
to explore new alternatives in earnest. At that time in California, the 
state government looked at the range of alternative fuels that could 
reduce the economic burden of oil and also provide environmental 
benefits for consumers. California determined that methanol offered the 
best range of benefits. They launched the nation's first large-scale 
alternative fuel demonstration program placing nearly 18,000 methanol 
fueled vehicles onto their roads and establishing a network of one 
hundred methanol fueling stations. America was leading the way in 
transportation innovation with the methanol experiment.
    Methanol is the most basic form of alcohol, is naturally occurring, 
and is ever-present in our environment. Commercially, methanol can be 
made from anything that is, or ever was, a plant--meaning it is made 
from natural gas and coal, but it is also made from forest thinnings, 
biomass, industrial and municipal solid waste, and even CO2 
itself. We have members around the globe that are actively producing 
these second generation biofuels, at commercial scale. Worldwide most 
methanol is made from the steam reformation of natural gas, a mature 
production process that is much more efficient and economical than 
other ``gas-to-liquid'' transportation fuels such as Fischer-Tropsch 
diesel. Global methanol demand exceeds 15 billion gallons per year, 
while generating $35 billion in economic activity and 100,000 jobs.
    California did not only choose methanol for the wide availability 
of different feedstocks to produce it, they also selected methanol for 
its low-cost and excellent performance. With its high octane rating and 
efficient burning performance, methanol is most often associated with 
motor racing in the United States. The low cost of methanol is truly 
the impressive feature though. For the past five years, the wholesale 
cost of methanol has ranged from $1.05 to $1.15 per gallon. If you were 
to sell methanol fuel as M-85 at the pump today, including all 
distribution, taxes and retail mark up, the 15% gasoline--and 
accounting for the difference in energy density--consumers would pay 
$3.00 a gallon without any incentives; more than $0.40 cheaper than the 
national average of $3.44 for a gallon of regular gasoline (and more 
than $1.00 a gallon less than the AAA quoted price of $4.13 for E-85 
ethanol fuel blends). That is over $750 in savings for the average 
household every year--almost 8% of a minimum wage earners annual 
income, a group that is hit hardest by fluctuations in energy prices.
    California's experiment continued for a number of years, but 
ultimately more powerful interests asserted themselves in the 
transportation market and prices for gasoline were brought back down 
towards historic norms, and consumers and governments quickly forgot 
about the stinging pains of high prices and continued business as 
usual. The question that is on everyone's mind today is ultimately, how 
do we implement meaningful long-term change that will have a 
substantive impact on our dependence on foreign oil, help reduce costs 
at the pump, and be a bridge to the next generation of energy 
innovation?
    Other countries are answering that question by taking on the 
methanol experiment and implementing it on a much larger scale. In 
China for example, a country that does not have extensive liquid fuel 
holdings, methanol makes up about 8% of their transportation fuel 
pool--and they use domestic feedstocks to meet that demand. The Chinese 
have buses, taxis, fleets, and passenger vehicles on the road that are 
running on M-15, M-85 and even M-100 fuel. China's powerful National 
Development and Reform Commission considers coal-based methanol to be a 
strategic transportation fuel. Between 2005 and 2011, China increased 
its methanol production capacity from 1.5 billion gallons a year to 
15.5 billion gallons.
    Israel is also building from America's innovation, and is currently 
launching a pilot program for methanol fueled vehicles to take 
advantage of new natural gas finds in the region. Brazil has often 
employed methanol to help extend the pool of ethanol produced from 
sugar cane. The European Union has in place fuel specifications that 
allow for low-level methanol blending. And we are seeing methanol fuel 
programs developing in Trinidad & Tobago, Denmark, Iceland, Australia, 
Malaysia, even in Pakistan and Iran.
    There are no technical hurdles to the use of methanol as an 
alternative fuel. Methanol--like ethanol--is slightly more corrosive 
than gasoline, which means we need to use alcohol compatible materials 
in fuel-wetted car parts. Additionally, today's modern cars employ 
computer technology that recognizes the oxygen content of the fuel and 
adjusts the engine timing accordingly, and can be modified to recognize 
varying levels of mixed alcohol fuels.
    Flexible fuel vehicles or ``FFV's'' are often interpreted as some 
wholly new technology, or an entirely different vehicle. That is not 
the case. To create a truly flexible fuel vehicle that can operate on 
methanol, ethanol, gasoline, and most other liquid fuels, costs about 
$150. That's about 0.005% of the $30,000 sticker price for the average 
new car, and consumers could recoup that cost difference in about three 
months from methanol fuel savings. Everything about the vehicle is the 
same, and the transition would be practically invisible to the 
consumer--except when they pull up to the pump to fill their tank, 
where they would truly have fuel choice.
    By comparison, the cost for a compressed natural gas-capable Honda 
Civic is about $6,000 more than its gasoline counter-part, meaning the 
payback period for the consumer in fuel savings would be measured in 
years. In 13 years of production, Honda has only sold 13,000 CNG-
Civics, while the number of flexible fuel vehicles on U.S. highways is 
approaching 12 million. Vehicle conversion costs are even higher, with 
a price tag of $13,500 to provide a 13-gasoline gallon equivalent 
natural gas fuel capacity to a Ford Crown Victoria, and $18,500 for a 
Ford F150 pick-up truck. Compressed and liquefied natural gas works 
well in bus and long-haul truck fleets; it is not a solution for the 
passenger car fleet.
    The current fleet of FFV's that are on the road today are warranted 
to run on ethanol only, and they are facing the classic chicken-and-egg 
conundrum. With a limited number of vehicles on the road today, gas 
stations are hesitant to put in pumps. Likewise, automakers are also 
hesitant to produce FFV's claiming a low availability of refueling 
stations.
    Congress has a chance to act, to break the chicken-and-the-egg 
cycle and take a critical step that costs the taxpayers nothing, but 
can serve as a bridge forward in energy innovation. That step would be 
to raise the standards for new cars on the road to ensure that they are 
compatible with multiple types of fuel.
    When consumers can truly choose between fuel options in their 
vehicle, then the monopoly that oil currently maintains in 
transportation can be effectively broken. This will not only enable 
emerging technologies and fuel options to permeate the market, but will 
also force gasoline to compete at the pump, dollar for dollar, and 
drastically reduce the cost of gasoline itself as well. Today only 
about 3.5% of vehicles on the road are ethanol-only FFV's. With a much 
larger portion of vehicles capable of using alternative fuels, then 
fueling station owners will have the economic incentive to install or 
upgrade pumps. The first stations to install these pumps will be able 
to command considerable margins for the fuel, while still saving 
consumers money. And stations dispensing liquid alcohol fuels cost a 
small fraction of the fueling equipment needed to compress natural gas 
to 3600 psi and pump it into a fuel cylinder.
    The United States is currently experiencing a boom in natural gas 
production that is creating sustainably low prices for this powerful 
energy source. In Beaumont, Texas, a methanol plant that had been 
mothballed for years due to high natural gas prices is now coming back 
to life. LyondellBassell has announced that it will reopen a methanol 
plant next year in Channelview, Texas, Celanese has also announced 
plans to restart a methanol plant in Clear Lake, Texas, and Methanex is 
moving an idled methanol plant in Chile to Louisiana. Low natural gas 
prices are leading a resurgence of the domestic methanol industry.
    In a study published in 2010, researchers at the Massachusetts 
Institute of Technology concluded that methanol was the `liquid fuel 
most efficiently and inexpensively produced from natural gas,' and they 
recommended methanol as the most effective way to integrate natural gas 
into our transportation economy.
    Your colleagues, Senators Maria Cantwell and Richard Lugar, have 
introduced legislation that would take the first step in our path away 
from oil dependency. They have introduced the Open Fuels Standard Act 
of 2011 (S. 1603), which has been referred to the Commerce, Science and 
Transportation Committee for consideration. A companion bill has been 
introduced by Congressmen John Shimkus and Eliot Engel in the House 
(H.R. 1687). The OFS would require that an increasing percentage of 
vehicles sold in the U.S. be capable of running on alternative fuels in 
addition to, or replacement of, gasoline. This means that electric 
vehicles, natural gas vehicles, fuel cells, hydrogen, biodiesel, and of 
course alcohol FFV's would all qualify under this standard.
    This bill is about competition and economics; it is not about 
dictating what alternatives should be moved forward. Our addiction to 
oil produces numerous negative consequences to our health, our economy, 
and our national security. The Open Fuels Standard Act would ensure 
that new vehicles on the road are not dependent on oil-derived gasoline 
and are not aiding the continued monopoly and hold oil has on our 
economy. As former Pennsylvania Governor and Homeland Security 
Secretary Tom Ridge and former Secretary of Transportation Mary Peters 
wrote in the New York Times: ``If Congress were to enact an open fuel 
standard that required new cars to be warranted to run on all-alcohol 
fuels, including methanol, natural gas could compete with oil in the 
liquid fuels market.''
    The OFS has another potentially significant benefit. Researchers at 
Ford recently published a paper noting that the octane rating of the 
U.S. fuel pool has not increased since the 1970s, and suggesting that 
the addition of a mid-range alcohol fuel blend (20-30% alcohol, up from 
today's 10% ethanol) would facilitate a four to seven point increase in 
the octane rating of U.S. fuels. With this octane boost, automakers 
could increase engine compression ratios and turbocharging to 
significantly increase vehicle efficiency, and facilitate compliance 
with not only the upcoming increased corporate average fuel economy 
ratings but also the renewable fuel standard targets.
    Innovation is within our reach, and the role of government has 
always been to foster innovation and technology, not direct it. By 
embracing choice as offered by the Open Fuels Standard Act, Congress 
has the chance to take action that will help serve as a bridge to new 
technologies and new solutions. At no cost to the federal government, 
adoption of the OFS would provide a clear signal that the U.S. is 
serious about kicking the oil habit.
    America--like other countries--is currently experiencing a renewed 
interest in methanol as a sustainable energy source, and we encourage 
you to continue to foster the innovation that America began more than 
three decades ago so that we can reclaim our role as the leading 
innovators in alternative transportation fuels.
    Thank you for providing an opportunity for the Methanol Institute 
to contribute our thoughts on this critical issue.
                                 ______
                                 
        Prepared Statement of American Honda Motor Company, Inc.
Introduction
    Honda appreciates the opportunity to submit written testimony on 
the subject of the July 24, 2012 Senate Energy Committee hearing 
entitled, ``Exploring Natural Gas as a Transportation Fuel.'' Honda has 
extensive experience with light duty natural gas passenger vehicles and 
looks forward to sharing some of our experience with the Committee.
    First produced in Ohio beginning in 1998, the Civic Natural Gas is 
the only mass-produced, dedicated compressed natural gas (CNG) 
passenger vehicle built and sold for the consumer market in the U.S. It 
was the world's first CNG vehicle to be built entirely on the same 
assembly line as its gasoline counterparts, ensuring build quality 
without compromise. The production of the vehicle recently shifted to 
Honda's newest manufacturing facility in Greensburg, Indiana. Honda has 
sold more than 13,000 Civic Natural Gas vehicles. While our sales in 
the first decade of the vehicle were targeted primarily to fleets, over 
80 percent of our sales today are to individual retail consumers.
    This year, Honda has significantly increased production and is 
expanding its fleet and retail dealership network from 71 dealers in 
four states to approximately 200 dealers in 37 states (see Appendix A 
for a full list of states). The increased availability of the Civic 
Natural Gas helps bring lower cost and inherently clean-burning natural 
gas vehicles to an even broader audience while also supporting 
diversity in transportation energy resources.
History
    Honda first started to research the possibility of a CNG passenger 
vehicle in the mid-1990s in response to two concerns: reducing 
emissions and energy security. California aggressively reduced smog 
emissions with their Low Emission Vehicle (LEV) regulations. At the 
time, no gasoline-powered cars were clean enough to meet the new, lower 
standards, and the general industry consensus was that only electric 
vehicles could achieve zero or near-zero emission levels. Honda pursued 
other options, such as alternative fuels, mainly to see how close an 
internal combustion engine could get to zero emissions. Additionally, 
the Energy Policy Act of 1992, developed in response to the first Gulf 
War, encouraged private and public fleets to adopt alternative fuel 
vehicles for their home-based, centrally refueled fleets. Today's Civic 
Natural Gas is the product of both of those efforts.
    We chose the Civic as the optimal platform because many private and 
public fleets were focused on compact cars with low operating costs, 
and among the vehicles made by Honda, the Civic was the obvious choice 
to fit that need. Additionally, the highly efficient Civic platform 
would enable us to deliver a vehicle with exceptional range--an 
important value for any alterative fuel vehicle with limited refueling 
infrastructure. We were able to achieve over 200 miles range and the 
cleanest Internal Combustion Engine (ICE) ever tested by the US EPA.
Dedicated vs. Bi-Fuel Vehicle
    Honda offers a dedicated natural gas vehicle because it allows for 
manufacturing and production efficiencies, and guarantees 100 percent 
petroleum displacement. Only a dedicated vehicle can ensure the use of 
the alternative fuel, thus achieving environmental and energy policy 
goals, including reduced emissions, reduced CO2, energy 
diversity, and energy security. Additionally, the dedicated vehicle 
design allows Honda to optimize the engine design for natural gas, 
assuring maximum range, an essential attribute.
            Environmental Benefits
    The Civic Natural Gas is the only vehicle certified by the 
Environmental Protection Agency (EPA) to meet both Federal Tier 2 Bin 2 
and Inherently Low Emission Vehicle (ILEV) zero evaporative emission 
certification standards. EPA has said that it is the cleanest internal 
combustion vehicle it ever tested. In 2011, it was named ``America's 
Greenest Vehicle'' for the eighth time by the American Council for an 
Energy-Efficient Economy (ACEEE), and Green Car Journal bestowed its 
Green Car of the Yearr award on the Civic Natural Gas in 2012. The 
Civic Natural Gas has greenhouse gas emissions that are approximately 
20 percent lower than a similar gasoline powered Civic, due to the 
reduced carbon content of methane compared to gasoline.
            Safety
    Despite the differences in fuel properties and fuel storage, safety 
concerns have been fully addressed in the Civic Natural Gas. The Civic 
Natural Gas is Federal Motor Vehicle Safety Standard-tested as a 
natural gas vehicle, and has achieved a 5-Star overall safety rating by 
the National Highway Transportation Safety Administration (NHTSA). It 
also has a designation as an Insurance Institute for Highway Safety 
(IIHS) Top Safety Pick.
            Consumer Benefits
    From a consumer point of view, the driving experience of a 
dedicated NGV is superior to a bi-fuel NGV. The engine of the Civic 
Natural Gas is designed specifically for the combustion properties of 
natural gas, and incorporates unique features to operate exclusively on 
compressed natural gas. There are approximately 210 parts on the Civic 
NGV that are unique to this model. Some of those key differences in 
vehicle components and design include:

   A compressed natural gas tank that is made from aluminum and 
        military grade reinforced carbon fiber, and stores eight 
        gasoline gallons equivalent (GGE) of CNG at 3600 psi.
   The compression ratio is increased to 12.7:1, compared to 
        10.6:1 in the Civic sedan's gasoline-powered engine.
   Exclusive fuel injectors, intake and exhaust valves, and 
        valve seats are designed to accommodate the unique properties 
        of natural gas.
   Stronger connecting rods and crankshaft, as well as special 
        pistons that are used to accommodate both the higher 
        compression ratio of the engine and higher octane rating of the 
        fuel.

    As a result, dedicated NGVs, when compared to bi-fuel vehicles, 
deliver superior driving performance, higher fuel economy, lower 
emissions, and better durability.
    One of the major selling points of the Civic Natural Gas in 
particular is that the driving dynamics are virtually identical to the 
gasoline Civic. The Civic Natural Gas has a fuel economy of 27 MPGge 
city/38 MPGge highway/31 MPGge combined, while the gasoline-powered 
Civic has a very comparable fuel economy of 28 MPG city/39 MPG highway/
32 MPG combined. The horsepower on the Civic Natural Gas is 110, while 
the gasoline-powered Civic is 140. And like the gasoline version, 
refueling takes less than five minutes. These attributes make the 
likelihood of consumer acceptance high.
    Another benefit that excites our customers is the possibility of 
home refueling appliances that tap into the existing natural gas line 
at home. Home refueling is extremely convenient and economical. Honda 
has supported the development, sales and distribution of such an 
appliance (FuelMaker's PHILLTTM\1\ ) and believes a new, 
lower cost yet more durable home-refueling option would accelerate 
consumer sales of NGVs. We are pleased to see the renewed interest and 
development of home refueling devices by GE and other companies.
---------------------------------------------------------------------------
    \1\ In May 2009, Fuel Systems Solutions, Inc. completed the 
purchase of selected assets and technology for compressed natural gas 
refueling products manufactured by FuelMaker Corporation, including the 
home refueling appliance marketed under the PhilTM brand. 
Fuel Systems Solutions currently markets the home refueling appliance 
through their subsidiary company, BRC Fuelmaker.
---------------------------------------------------------------------------
    From the fueling perspective, natural gas appeals directly to 
consumers' pocketbooks. A typical new Civic will consume 500 gallons of 
gasoline: 15,000 miles/year at an average of 30 mpg. If a consumer 
switches from gasoline to CNG, and achieves approximately 30 MPGge, 
then the savings will be $500/year for each $1/gallon savings. 
Compressed natural gas often costs as much as $3 less per GGE than 
gasoline, and on average in the largest markets about $2 less per GGE, 
for savings ranging from $1,000 to $1,500 per year.
Honda's Approach to Alternative Technology Vehicles
    In addition to the Civic Natural Gas, Honda is a leader in the 
development of leading-edge technologies to improve fuel efficiency and 
displace petroleum, including vehicles powered by advanced gasoline 
engines, gasoline-electric hybrid, plug-in hybrid electric, battery-
electric and hydrogen fuel cell-electric vehicles. Honda believes this 
comprehensive portfolio approach is the right way to address our 
nation's near-and long-term transportation needs.
            Natural Gas and Fuel Cell Electric Vehicles
    Honda fully supports the use of natural gas as a transportation 
fuel in internal combustion engines. But the newly developed abundance 
of domestic natural gas offers another significant opportunity for 
advancing its use in transportation--the fuel cell electric vehicle 
(FCEV). Natural gas is the most widely used fuel stock today to produce 
hydrogen, which offers zero emission transportation while cutting 
CO2 emissions 60-plus percent on a well-to-wheel basis. As 
such, Honda supports revising the fuel tax credit to include natural 
gas use as a feedstock for hydrogen.
    While Honda firmly believes that CNG vehicles should play a strong 
role in today's consumer vehicle mix, fuel cell electric vehicles hold 
the most promise in the long-run to displace petroleum across the 
transportation sector, from light-duty passenger vehicles of all sizes 
to buses and heavy-duty trucks. Our investment in the Civic Natural Gas 
has helped in the design of our fuel cell-electric vehicle, the FCX 
Clarity, in many ways, including the compressed gas fuel tank.
Challenges
    The greatest challenge to natural gas vehicles for both fleet and 
retail consumers is the lack of a consumer-friendly CNG fueling 
infrastructure network. As with any alternative fuel vehicle, consumers 
must have the confidence that they will be able to refuel wherever 
necessary. Although there are over 1000 natural gas stations online in 
the U.S. today, only half of those are available to the public, mainly 
in California, New York, Utah, and Oklahoma, and many are designed 
primarily to serve fleet operations rather than retail consumers. We 
also see promising public infrastructure growth in major metropolitan 
areas like Denver, Atlanta, Detroit, and Chicago. Building the CNG 
refueling infrastructure contributes directly to the future success of 
expanding hydrogen refueling infrastructure, by expanding the supplier 
base for compressors, dispensers, and gas storage tubes, as well as the 
knowledge base of constructors who can build and operate those 
stations.
    Another challenge is the incremental cost of the Civic Natural Gas 
as compared to its gasoline-powered counterpart. The CNG tank is the 
single most expensive component that differs from the gasoline-powered 
Civic. Currently, the Civic NGV incremental cost is $6,935.\2\
---------------------------------------------------------------------------
    \2\ For comparison purposes, the Civic Natural Gas is a model that 
is between--both feature-wise and pricing--the gasoline-powered Civic 
LX and the gasoline-powered Civic EX.
---------------------------------------------------------------------------
Incentives
    Honda supports technology-neutral, performance-based incentives at 
the federal, state, and local levels, and as a general philosophy, 
Honda believes that incentives should be proportionate to their social 
values. Alternative fuel vehicle incentives should correspond to the 
amount of petroleum displaced. Therefore, dedicated alternative fuel 
vehicles should receive the highest incentives. Historically, natural 
gas vehicles have benefited from incentives in four key areas: a 
vehicle tax credit for consumers; an infrastructure tax credit for fuel 
producers; a fuel credit for the alternative fuel; and a production tax 
credit for manufacturing in the U.S. Honda supports such a 
comprehensive type of approach for a limited but certain period of time 
that addresses the various market challenges. Additionally, non-
financial incentives such as single-occupant access to High Occupancy 
Vehicle (HOV) lanes, free access to toll lanes, and free parking have 
proven effective at attracting customers.
    Honda also supports the inclusion of natural gas vehicles on EPA's 
list of alternative fuel vehicles receiving incentives in the 2017--
2025 Corporate Average Fuel Economy (CAFE) and Greenhouse Gas 
standards. These incentives are designed to support powertrain/fuel 
combinations that have the potential to lower GHG emissions but have 
near-term market barriers to overcome, such as infrastructure and 
market acceptance.
    In its proposed GHG rulemaking for 2017--2025, EPA created two 
categories of incentives for alternative fuel vehicles: dedicated 
(e.g., electric vehicles and fuel cell electric vehicles) and bi-fuel 
(e.g., plug-in hybrid electric vehicles). Honda believes that dedicated 
natural gas vehicles should receive the higher dedicated vehicle 
multiplier (2.0), and bi-fuel natural gas vehicles should receive the 
lower bi-fuel multiplier (1.6). The application of GHG multipliers is a 
low or no cost policy tool that can encourage automakers to more 
aggressively bring these vehicles to market, thus bringing the cost of 
the technology down and maximizing the societal benefits of using 
natural gas.
    In May 2012, 13 states, led by the governors from Oklahoma and 
Colorado, joined together to undertake an initiative to expand the CNG 
vehicle footprint in their state fleets. A formal request for proposals 
(RFP) from the states and solicitation offers from auto dealers are 
expected in the coming months. This is an excellent example of 
government acting to send a clear signal to both automakers and fuel 
producers that there will be a market for their products. (See Appendix 
B for a full list of states.)
Conclusion
    Honda strongly supports light duty passenger NGVs as one of several 
promising technologies to displace petroleum, reduce smog, and cut 
CO2. Dedicated NGVs are 100% effective in achieving that 
goal. Honda has shown a long term commitment to the technology and to 
finding ways to expand its application; first in fleets and now with a 
focus on individual customers. We also believe that natural gas vehicle 
development is a major contributor to the growth of the FCEV market 
worldwide.
    Infrastructure development is a challenge but with greater efforts 
being undertaken, such as those led by the governors of Colorado and 
Oklahoma, Honda is hopeful infrastructure development can proceed on a 
parallel track with vehicle deployment. The deployment of other 
infrastructure options, such as home refueling, could accelerate this 
effort.
Appendix--A, States to sell the Civic Natural Gas to retail customers
    Alaska, Alabama, Arkansas, Arizona, California, Colorado, 
Connecticut, Delaware, Florida, Georgia, Illinois, Indiana, Louisiana, 
Massachusetts, Maryland, Michigan, Minnesota, Missouri, North Carolina, 
Nebraska, New Hampshire, New Jersey, New Mexico, Nevada, New York, 
Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, 
Tennessee, Texas, Utah, Virginia, Washington, Wisconsin.
Appendix--B, States looking to expand their CNG fleet footprint
    Colorado, Kentucky, Louisiana, Maine, Mississippi, New Mexico, 
Ohio, Oklahoma, Pennsylvania, Texas, Utah, West Virginia, and Wyoming.
                                 ______
                                 
         Statement of the United States Energy Security Council
    Mr. Chairman, members of the Committee, the United States Energy 
Security Council is America's highest level extra-governmental group 
dedicated to introducing competition into the transportation fuel 
sector. Members of the Council include former Secretaries of Defense, 
State, Interior, Transportation, Homeland Security, Agriculture, Navy 
and Air Force, Former Chairman of the Fed, three former National 
Security Advisors, Directors of Central Intelligence and National 
Reconnaissance Office, U.S. Senators, flag officers, prominent business 
leaders and a Nobel Laureate. The Council holds that the current 
changes in energy markets present great challenges to the U.S. but at 
the same time open unique opportunities that, if correctly exploited, 
could significantly strengthen America's strategic posture and bring 
about a fundamental and favorable shift in the world's economic balance 
of power. The strategic importance of oil to our society is derived not 
from the amount of oil we import or consume but from oil's virtual 
monopoly over transportation fuel. This monopoly is enabled by the fact 
that for the most part our automobiles are blocked to fuels not made 
from oil. Since 2005 roughly 100 million new petroleum-only vehicles 
rolled onto U.S. roads, each with an average lifespan of 15 years. This 
means we are effectively locking ourselves to petroleum for the next 
two decades, with all the implications. The shale gas revolution 
provides a unique opportunity to transition America's transportation 
system from a single commodity sector to one in which consumers can 
arbitrage between petroleum-based fuels and natural gas-derived fuels, 
among others.
Immediate goal: opening the fuel market to natural gas
    Less than a decade ago, natural gas prices hovered around $8 mmbtu. 
In May 2003, one of our members, then Federal Reserve Chairman Alan 
Greenspan warned in a testimony before the Congressional Joint Economic 
Committee that tight natural gas supplies presented ``an extremely 
serious problem.'' Two years later, in a June 2005 white paper, Senator 
James Inhofe, then Chairman of the Senate Committee on Environment and 
Public Works, noted ``the days of low gas prices are over, and the 
nation is in the midst of a very real natural gas crisis.'' Much has 
happened since, and today our natural gas predicament is not a result 
of lack of supply but lack of demand. Indeed we are awash with cheap 
natural gas. The price of U.S. natural gas has declined by about 80% 
between 2008 and 2012. As Rex W. Tillerson, Chairman and CEO, Exxon 
Mobil Corporation, a major gas producer, recently put it: ``We are all 
losing our shirts today. [.] We're making no money. It's all in the 
red.''
    The recent shale gas revolution has disconnected prices of the oil 
and natural gas, two commodities whose prices traditionally tracked 
each other. While natural gas prices hit rock bottom, oil prices have 
rebounded more or less to their pre-2009 level. Shale gas is currently 
34% of U.S. natural gas production and will reach 43% in 2015 and 
double by 2035 to 60%. But if prices remain low, the natural gas 
industry will have little incentive to invest in further growth and 
natural gas projects will be mothballed, the shale gas revolution will 
die in its infancy and the promise of new jobs and economic activity 
will fade out. However, sending a market signal that our vehicles are 
open to fuels made from natural gas would give the industry the 
certainty it needs to continue and grow this sector to the benefit of 
its investors and our economy writ large.
    A number of automotive technologies allow us to take advantage of 
natural gas' low cost. One way to use natural gas in automobiles is to 
use it to generate electricity to charge battery operated vehicles. 
Plug-in-hybrid and pure electric vehicles are entering the market 
slowly. They are clean, cheap to operate and quiet, and in many 
respects their performance is superior to that of gasoline cars. 
Furthermore, vehicle electrification offers great flexibility. If 
natural gas prices were to spike, there is always coal, nuclear or 
renewable power to rely upon for power generation. But due to the high 
cost of the automotive batteries, mass market penetration of plug-in-
hybrid-electric vehicles and pure electric vehicles will take a very 
long time. For this reason, parallel to advancing the electrification 
of transportation, the U.S. would best be served from a transportation 
fuel market open to competition from a variety of fuels that are 
commercial and economic today. 



    Another way to run cars on natural gas is to convert them to run on 
compressed natural gas (CNG). CNG vehicles have a dedicated fuel line 
and a large gas canister in the trunk. Few ready-made CNG cars are 
manufactured by the OEMs. The cost of converting a light-duty vehicle 
to CNG is expensive-roughly $10,000. At such a high incremental cost, 
the payback period for most Americans, even with current low natural 
gas prices, would be longer than the expected ownership time of the 
car. Payback period would only be reasonable in high mileage users 
(over 35,000 miles per year) such as taxis, buses, garbage trucks, etc.
The methanol option
    This leaves one realistic way of opening cars to natural gas 
without adding thousands of dollars to the cost of the vehicle. A 
Massachusetts Institute of Technology (MIT) study entitled The Future 
of Natural Gas determined the most economical way to utilize natural 
gas in transportation is to convert it to the liquid fuel methanol 
(wood alcohol) due to low cost, mature production and vehicle 
technology. Our transportation system is based on liquid fuels. A flex 
fuel vehicle that can run on methanol (and ethanol) in addition to 
gasoline costs automakers about $150 more to make than a gasoline-only 
car. Today about 90% of the worldwide production of methanol is derived 
from natural gas. At today's natural gas prices methanol costs about 35 
cents a gallon to produce. For the past five years the wholesale price 
for natural gas-derived methanol has ranged between $1.05 and $1.15 a 
gallon--without any subsidies. As methanol packs less energy per gallon 
than gasoline, to travel the same distance on M85 (a blend of 85% 
methanol and 15% gasoline) a consumer would pay about $3 including 
taxes, distribution, and retail markup to travel the same distance on 
methanol as on a gallon of gasoline, well below the current national 
average for gasoline. The MIT report points out that the production 
cost of natural gas conversion to methanol is 30 percent cheaper on an 
energy equivalent basis than conversion to diesel fuel (commonly 
referred to as GTL).
    China is already blending 15% methanol in its automotive fuel--in 
China primarily made from coal--and 26 of its mainland 30 provinces 
have carried out testing and demonstrations of methanol fuel and 
methanol fuel vehicles. In Shanxi Province (Population 36 million) 
light duty vehicles fuel regularly with M15 without any impact on the 
engine, roughly 70,000 taxis were converted to run on M100 and M85, and 
more than 1,200 service stations offer methanol blends. The number of 
refueling stations offering alcohol fuel will double by 2015. Chinese 
automakers like Cherry, Geely, Shanghai Automotive, and Maple have 
rolled out cars that can run on M100 or M85 and U.S. automakers like GM 
and Ford will soon have to offer methanol cars in order to stay 
competitive in the Chinese market. Methanol is so economically 
attractive that illegal blending is rampant in China. Israel, which has 
newly discovered reserves of natural gas, has identified methanol as 
the most economic way to utilize its bonanza and it is now following 
China's footsteps, conducting a national pilot on methanol blending.
The Open Fuel Standard
    Congress can break oil's virtual monopoly over transportation fuel 
and open the transportation sector to natural gas by enacting an Open 
Fuel Standard, ensuring that every new car put on the road is open to 
some sort of fuel competition. The cheapest way to enable fuel 
competition is the flex fuel car, which looks and operates exactly like 
a gasoline car but has a $150 set of features which enables it to run 
on any combination of gasoline and a variety of alcohol fuels made from 
natural gas, coal and biomass.
    The bipartisan Open Fuel Standard Act of 2011 (S.1603) introduced 
in the Senate by Senators Cantwell and Lugar would ensure that cars 
sold in the U.S. are open to fuel competition so drivers can compare 
prices per mile and make on-the-fly choices between gasoline or diesel 
and non-petroleum fuels. The technology neutral Open Fuel Standard 
would ensure no less than 50% of new automobiles in model years 2015, 
2016, and 2017 and no less than 80% of new vehicles in model year 2018 
and beyond would be warranted to operate on at least some non-petroleum 
fuels in addition to or instead of petroleum based fuels. The Open Fuel 
Standard would provide certainty to investors to expand nonpetroleum 
fuel production capacity and fueling stations to install pumps 
supplying economically competitive non-petroleum fuels. A companion 
Open Fuel Standard Act (HR 1687) was introduced in the House.



    The combination of high oil prices and low natural gas prices 
creates a historical opportunity for the U.S. to arbitrage between 
natural gas and oil in the transportation fuel market, but this cannot 
happen as long as cars sold in the U.S. are blocked to fuel 
competition. In time of fiscal tightness expensive policies involving 
mass subsidization are not likely to enjoy broad political support. 
What is needed are solutions that enable natural gas to compete against 
oil without burdening taxpayers with the cost and without embarking on 
major infrastructure changes. The Open Fuel Standard is a no subsidy 
approach to opening the market to natural gas fuels. We hope that this 
distinguished committee will give this approach serious consideration.
              Statement of the American Chemistry Council
                              introduction
    The American Chemistry Council (ACC\1\) commends the Senate Energy 
and Natural Resources Committee for holding a hearing on Natural Gas 
and Transportation. The natural gas market is going through many 
changes as new sources of supply come onto the market, and as new and 
growing demand markets emerge, including the use of natural gas as a 
transportation fuel. It is abundantly clear that these new market 
dynamics are creating a significant competitive advantage for American 
manufacturers generally, and for the U.S. chemical industry in 
particular. We encourage policy makers to use caution before supporting 
policies that may distort and disrupt this fast-changing market. 
Policies that may be intended to support one sector of the natural gas 
market may have the unintended effect of causing serious damage to 
other sectors of the market.
---------------------------------------------------------------------------
    \1\ ACC represents the leading companies engaged in the business of 
chemistry. ACC members apply the science of chemistry to make 
innovative products and sservices that make people's lives better, 
healthier and safer. ACC is committed to improved environmental, health 
and safety performance through Responsible Care, common sense advicacy 
designed to address major public policy issues, and health and 
environmental research and product testing. The business of chemistry 
is a $720 billion enterprise and a key element of the nation's economy. 
It is one of the nation's largest exporters, accounting for ten cents 
out of every dollar in U.S. exports. Chemistry companies are among the 
largest investors in research and development. Safety and security have 
always been primary concerns of ACC members, and they have intensified 
their efforts, working closely with government agencies to improve 
security and to defend against any threat to the nation's critical 
infrastructure.
---------------------------------------------------------------------------
    Natural gas from shale rock formations is a critical component of a 
comprehensive domestic energy plan that encourages the development of 
the entire portfolio of U.S. energy sources, including fossil fuels, 
renewables and energy efficiency. Access to vast new supplies of 
domestic shale gas, rich in the ethane needed for chemical production, 
is revitalizing the chemical industry and America's manufacturing base.
    Natural Gas Market Fundamentals
    According to the Energy Information Administration's (EIA) July 
2012 Short-Term Energy Outlook, U.S. natural gas production increased 
by nearly 8 percent in 2011 and is expected to increase again in 2012. 
The U.S. is producing record amounts of natural gas and is now the 
largest natural gas producer in the world. EIA notes that the strong 
growth in production was ``driven in large part'' by increases in shale 
gas production.
    Concurrent with the increase in natural gas supply, demand is 
increasing. U.S. natural gas consumption has increased in 2012 to 
nearly 70 billion cubic feet (BCF) per day, a record high. Consumption 
is fueled by a 21 percent increase in the use of natural gas to fuel 
electrical power generation. In some markets, natural gas prices have 
dipped below coal prices and for the first time ever, natural gas and 
coal-fired generation are at approximately the same level. A year ago, 
coal surpassed natural gas by a nearly 2:1 ratio.
    Natural gas inventories remain at high levels and EIA is now 
projecting that inventory levels going into the winter heating season 
will set a new record high slightly above 4,000 BCF. As a result of 
strong production and bulging inventories, U.S. natural gas prices 
remain at ``historically low levels,'' according to EIA. The June, 2012 
Henry Hub spot price averaged 46 percent less than the June, 2011 
price. Looking ahead EIA projects that U.S. natural gas prices will 
remain low throughout 2013.
    The historically low prices for natural gas confer a significant 
competitive advantage for U.S. manufacturers compared to their 
counterparts around the world.
Importance of Natural Gas to Manufacturing
    Natural gas from shale is possibly the most important domestic 
energy development in the last 50 years. It has huge potential for the 
United States. Many are aware of the bright outlook for production-
related jobs, but shale gas is helping to revive American manufacturing 
and create hundreds of thousands of jobs, leading our economic recovery 
and strengthening the Nation's energy security.
    The business of U.S. chemistry is among America's most energy 
intensive manufacturing sectors. A few short years ago, in the face of 
high and volatile domestic natural gas prices, U.S. chemical 
manufacturers were at the top of the global price curve. Those high 
prices were forcing production and jobs to leave the country.
    Today, U.S. chemical manufacturers are again leading the global 
industry. New investments and the jobs associated with them are 
increasing significantly. For example, ACC has identified more than 30 
new capital investment projects announced by U.S. chemical companies. 
Those projects represent more than $30 billion in new investments, and 
will increase U.S. petrochemical manufacturing capacity by 
approximately one-third. Much of that new capacity is being developed 
to serve global markets and will give a substantial boost to U.S. 
exports.
    The business of chemistry uses natural gas not only for heat and 
power at our manufacturing plants, but as the key raw material, or 
``feedstock'' for chemistry products. Chemical products are key 
ingredients in 96% of all manufactured goods, including cosmetics, 
electronic products, pharmaceuticals and plastics. A healthy, 
competitive U.S. chemical industry helps make other U.S. 
manufacturers--those that use the products of chemistry to make other 
goods--more competitive as well.
    ACC recently completed a report that shows the positive impacts of 
shale gas on eight natural gas-intensive industries (paper, chemicals, 
plastic & rubber products, glass, iron & steel, aluminum, foundries, 
and fabricated metal products). Our analysis demonstrated that the 
United States can expect some $121 billion in increased manufacturing 
output, which will generate 200,000 new, high-paying jobs. Further, we 
expect an additional 979,000 jobs will be created in the supply chain 
and elsewhere in the economy through the indirect and induced economic 
effects of expanded production from these eight core manufacturing 
industries. Thus, we should expect some 1.2 million American jobs to be 
generated from the effects of expanded production of natural gas in the 
United States.
Other Growing Markets for Natural Gas
    While power generation and manufacturing are the two biggest 
markets for natural gas, the clear economic advantage enjoyed by 
natural gas is naturally attracting other sectors. A good deal of 
attention is focused on deploying natural gas as a transportation fuel, 
particularly for fleet vehicles and long-haul freight trucks (natural 
gas vehicles, or NGVs).
    Natural gas-based transportation fuels have lower operating costs 
and a smaller environmental footprint than conventional transportation. 
On the other hand, NGVs are more expensive to buy, and the refueling 
infrastructure is not yet deployed to adequately serve the needs of 
long-haul freight trucks.
    There has been considerable debate about government's role in 
promoting the development of the NGV market. The administration 
supports policies to spur deployment of NGV, primarily as a way to 
reduce dependence on imported oil. But does the NGV market need 
government incentives in order to succeed in the market? Based on 
dozens of buying decisions being made by vehicle operators, the 
anecdotal evidence suggests the NGV market is doing quite well without 
the help of costly new government subsidies. Consider:

   ``Garbage companies will recoup the higher costs of a 
        natural gas truck within two years through fuels savings. 
        That's why almost 40 percent of new trash truck sold last year 
        were natural gas trucks.'' Richard Kolodziej, President, 
        Natural Gas Vehicles of America, The Morning Call, May 13, 
        2012.
   ``According to Waste Management, 80 percent of the trucks it 
        purchases during the next five years will be fueled by natural 
        gas.'' Wall Street Journal, May 23, 2012.
   ``Ford, Chrysler and GM will all have natural gas powered 
        pickup trucks on the road this year. Those manufacturers 
        wouldn't invest in CNG vehicles if they didn't believe that 
        demand will continue to rise in the future.'' Bob Strickland, 
        Manager of Natural Gas Transportation at Alagasco, The 
        Birmingham News, April 26, 2012.
   ``The United States could have tens of thousands of natural 
        gas filling stations for vehicles in five years.'' Aubrey 
        McClendon, Chairman of Chesapeake Energy Corporation. ``He 
        noted that the company plans to invest $1 billion over 10 years 
        on infrastructure to support natural gas as a fuel for 
        vehicles.'' Pittsburgh Tribune Review, September 8, 2011.
Policy Considerations
    The U.S. natural gas market is as dynamic as it has ever been. 
Demand from the power sector is growing rapidly. U.S. manufacturers are 
taking advantage of affordable natural gas and natural gas liquids to 
invest billions in new capacity here in the U.S. reversing decades of 
decline among energy-intensive industries. Natural gas is making rapid 
inroads in the transportation market. On the supply side, new sources 
of natural gas supply are being found in shale rock formations all over 
the country.
    In short, the natural gas market is finding its new equilibrium. It 
is vitally important that policymakers refrain from taking actions that 
would distort the rapidly changing market for natural gas.
    The government should not act to artificially inflate demand for 
natural gas by subsidizing the purchase of natural gas vehicles, for 
instance. Nor should the government artificially restrict access to 
promising new sources of natural gas supply as it is proposing to do in 
its new 5 year plan to develop oil and gas reserves in the Outer 
Continental Shelf. If policymakers take steps to encourage demand 
growth in natural gas markets, it should also act to ensure that access 
to supply sources can also grow to keep pace with demand and prevent 
price volatility.
    Abundant and affordable supplies of natural gas are creating an 
economic renaissance in the U.S. manufacturing sector and are 
challenging the status quo in power and transportation markets as well. 
Last year, the National Petroleum Council, the Congressionally-mandated 
advisory council to the Secretary of Energy, completed a three-year 
study of North American oil and gas markets and concluded there are 
enough natural gas resources available to meet ``any demand scenario.'' 
That conclusion depends on letting the market is work without undue 
interference or policy-induced volatility.
                                 ______
                                 
              Statement of America's Natural Gas Alliance
    Good morning Chairman Bingaman, Ranking Member Murkowski, and 
Members of the Committee. America's Natural Gas Alliance appreciates 
the opportunity to express our member's views on natural gas use in 
transportation. ANGA is an educational and advocacy organization 
dedicated to increasing appreciation for the environmental, economic, 
and national security benefits of North American natural gas. ANGA's 30 
members include many leading, North American independent natural gas 
exploration and production companies. Their collective natural gas 
output comprises approximately 40 percent of total annual U.S. natural 
gas production.
    ANGA works to promote a policy environment that increases market-
driven use of natural gas as a transportation fuel. We especially 
support efforts to encourage a substantial transition of fleet vehicles 
to natural gas through policies that encourage natural gas vehicle 
(NGV) conversions and original equipment manufacturer (OEM) production. 
ANGA also supports significant expansion of natural gas fueling 
infrastructure along key transportation corridors throughout North 
America. These targeted efforts represent the most prudent and 
efficient means to encourage the development of economies of scale 
within this market while decreasing emissions, dramatically reducing 
exportation of domestic capital, and advancing U.S. energy security. 
Similarly, ANGA is aware of the current challenges in this economic 
climate and the responsibility at all levels of government to be 
conservative in its expenditure of public funds. ANGA's efforts 
emphasize the importance to maintain parity among alternative 
transportation fuel policies.
    ANGA also collaborates with the American Gas Association in the 
Drive Natural Gas Initiative to advance a common vision of enhancing 
our national energy security by promoting the development of natural 
gas vehicles and infrastructure throughout North America. Our joint 
activities focus on infrastructure development, vehicle production, 
marketing and education for clean transportation solutions, and 
targeted advocacy. Our aim is to work in a cooperative and 
complementary fashion with other stakeholders who share our commitment 
to promoting natural gas vehicles and clean, American transportation 
solutions.
Supply and Demand
    Natural gas vehicles represent a tremendous energy security and 
environmental opportunity for the United States. With the advent of new 
technologies and the advancement of shale gas production, the United 
States has now surpassed Russia as the world's top producer of natural 
gas, according to the EIA.\1\ Indeed, in the last decade alone, the 
Potential Gas Committee estimates of natural gas resources have 
increased by more than 70 percent, almost all from shale gas. EIA 
estimates of natural gas resources increased by 86 percent over a 
three-year period. The size of the resource could increase further as 
exploration and technology advances continue to provide more 
information, something which has already been observed in Alaska, in 
the Gulf of Mexico, and in other newly accessed resource basins.
---------------------------------------------------------------------------
    \1\ The U.S. surpassed Russia as world's leading producer of dry 
natural gas in 2009 and 2010, March 13, 2012, EIA Today in Energy
---------------------------------------------------------------------------
    In addition, crude oil and natural gas prices in the U.S. have 
diverged since about 2009. The EIA projects this trend to continue and 
the gap to widen through 2035. A key reason for this is that oil is a 
far more fungible commodity in the global market than natural gas. 
Domestic natural gas prices are down primarily due to dramatically 
increased supply from the shale plays. At the same time, rising global 
demand for oil (primarily from Asia) along with an unstable Middle-east 
has caused oil prices to rise.
    Although the United States has a rich abundance of natural gas 
energy, less than 0.1% of domestic natural gas in 2010 fueled our 
nation's vehicles, according to EIA. This remains true despite the fact 
that there are over twelve million NGVs worldwide today and the number 
is growing. Only about one percent of those twelve million vehicles are 
in use here in the United States, despite our vast resources. Interest 
in NGV transportation has increased throughout the country, which has 
presented an opportunity in the United States for many of the leading 
auto manufacturers that already produce NGVs elsewhere, including Ford, 
GM, Chrysler, Fiat, Toyota, Honda, Nissan, Hyundai, Volkswagen and 
Mercedes, among others. Many truck manufacturers are already ramping up 
NGV volumes in the United States, including Daimler Trucks, Volvo, 
Kenworth, Peterbilt, and Navistar. Therefore, combined with continued 
safe and responsible development of our domestic natural gas resource, 
stable market growth among domestic end users, and consistent policy 
signals from Washington, natural gas as a transportation fuel can help 
to provide a low cost way to achieve emission reductions and energy 
security goals in the transportation sector.
CNG/LNG
    Both liquefied natural gas (LNG) and compressed natural gas (CNG) 
offer fleets the opportunity to improve their environmental footprint, 
increase use of a domestic resource, and lower overall operating costs, 
therefore providing a multitude of benefits for both companies and the 
general public. CNG/LNG also provides new opportunities in emerging 
nonroad and marine engine applications. Natural gas is the alternative 
fuel of choice for most heavy-duty vehicle operators and many light-and 
medium-duty fleets and consumers. NGVs provide similar power, torque 
and fuel range as conventionally-fueled vehicles, while providing fuel 
cost savings and lower emissions. Additionally, NGV options are ready 
in a variety of factory-direct applications that can meet most fleets' 
light-duty, medium-duty and heavy-duty operational needs.
    Natural gas is an extremely versatile transportation fuel that can 
be sold in the compressed or liquefied state, or as a feedstock to 
produce other liquid fuels. CNG is made by compressing natural gas to 
about 3600 pounds per square inch (psi). LNG is made by cryogenically 
cooling natural gas to -260 F. Natural gas stations can provide CNG, 
LNG, or a combination of the two.
    CNG is ideal for light and medium duty vehicles and any heavy-duty 
fleets whose operations remain more local, such as municipal 
operations, refuse collection, and some delivery applications. There 
are two types of CNG stations: fast-fill and time-fill. A fast-fill 
station is more expensive than time-fill, but is excellent for retail 
sales and supporting fleets that require speedy fueling similar to 
conventional fuels. A time-fill station is less expensive, but works 
best for fleets that return to central locations and are parked for 
extended periods--generally overnight--such as a refuse hauling fleet. 
Time-fill fueling is also available for passenger vehicles, with home 
fueling appliances that connect to the home's gas line and fuel CNG-
powered vehicles over a multi-hour timeframe.
    LNG vehicles provide the best commercially available technology for 
heavy-duty fleets with high fuel use and long-distance travel demands. 
This is because cooling gaseous natural gas to make liquid takes up 
about 1/600th the original volume, meaning trucks can carry more energy 
in their tanks as LNG versus CNG. LNG is dispensed in fast-fill 
stations via mobile or permanent stations. Mobile stations, which 
consist of an insulated LNG tank and dispensing equipment built on a 
trailer that can be parked, provide an ideal option for off-road 
fueling and remote locations without pipeline access to natural gas. 
Mobile stations can also provide important fuel support until permanent 
LNG stations can be built.
Infrastructure
    As of June, 2012, there are currently 53 LNG fueling stations\2\ in 
the U.S. serving over 3,300 LNG vehicles\3\. Of the 53 LNG fueling 
stations, 36 are located in California. California is typically an 
early adopter for new vehicle technologies, due to local air quality 
challenges and associated government programs that support 
environmental protection. Although the existing network of LNG stations 
is highly concentrated in California and other southwestern early 
adopter states, these early alternative fuel leaders laid the 
groundwork for a growing national network of natural gas refueling 
stations.
---------------------------------------------------------------------------
    \2\ ``Alternative Fuels Station Locator'' US Department of Energy 
Alternative Fuels Data Center, June 2012
    \3\ ``Alternatives to Transportation Fuels'' US Energy Information 
Administration, 2010
---------------------------------------------------------------------------
    Approximately 100 additional LNG stations are in the planning 
stages nationwide. 90% of these stations will be located outside of 
California, significantly improving the geographic distribution of 
stations and opportunities for an alternative fuel future.
    A large nationwide network of CNG fueling stations already exists. 
Currently, there are over 1,000 CNG stations in the U.S, with 36 states 
that have at least five CNG stations\4\. About half of the CNG stations 
are for public use and others are for fleet-specific vehicle use only, 
although the prevalence of both is increasing. As of June 2012, there 
were 94 CNG stations currently planned or under development\5\. Recent 
CNG announcements by retailers such as Love's, Kwik Trip, Flying J, and 
Clean Energy demonstrate growing mainstream demand for CNG fueling.
---------------------------------------------------------------------------
    \4\ ``Alternative Fuels Station Locator'' US Department of Energy 
Alternative Fuels Data Center, June 2012
    \5\ ``Alternative Fuels Station Locator'' US Department of Energy 
Alternative Fuels Data Center, June 2012
---------------------------------------------------------------------------
    ANGA works to increase this momentum by supporting major expansions 
of natural gas fueling stations along key highways, in order to support 
the transition to a lower cost, domestically produced transportation 
future. One region where ANGA has had recent success is the Texas Clean 
Transportation Triangle, or CTT. The goal of the CTT is to develop 
sufficient natural gas stations and initial fleet users to transform 
heavy-duty trucking in Texas. On July 15, 2011, Texas Governor Rick 
Perry signed into law Senate Bill 385, a first-of-its-kind legislation 
designed to help create a sustainable network of natural gas-refueling 
stations along the interstate highways connecting Houston, San Antonio, 
Austin, and Dallas/Fort Worth. The CTT legislation allocates funding 
from the Texas Emissions Reduction Plan (TERP) to support the 
development of new stations and the deployment of NGVs. For the 
biennium 2012-2013, over $4.2 million was committed to funding natural 
gas stations, and $18.3 million to the Natural Gas Vehicle Rebate/Grant 
Program.
    The first round of CTT grant funding was very successful. In April 
2012, the Texas Commission on Environmental Quality (TCEQ) received 21 
applications for the development of natural gas fueling stations along 
the CTT. These proposed projects include 3 LNG stations, 4 LCNG 
stations, and 14 CNG stations. All proposed stations will offer public 
access and be located within 3 miles of one of the major interstate 
freeways along the triangle. Natural gas truck sales are expected to 
expand further as program truck rebates are released in early July 
2012.
    This great program developed thanks to the leadership and support 
of the State Legislature of Texas, the TCEQ, and the Governor's office. 
An unprecedented consortium of more than 200 stakeholders was engaged 
in the strategic plan, including fleet operators such as United Parcel 
Service and business groups such as the Houston NGV Alliance and the 
Metroplex NGV Consortium. They were joined by utilities, fuel suppliers 
such as Clean Energy Fuels Corp., natural gas producers, and 
universities. Similar broad stakeholder efforts are now underway in 
other parts of the country, especially in areas of shale gas 
production, like the Marcellus or Rocky Mountain regions.
         LNG--An ideal alternative fuel for long-haul trucking
    Interest in fueling options from long-haul truck operators drives 
much of this infrastructure growth. Energy security and transportation 
air quality are complex problems that require the right fuel for the 
right application. Natural gas is a practical, cost-effective 
alternative fuel that can support the operational needs of our nation's 
heaviest vehicles. The transition to a natural-gas powered 
transportation future will increase energy security, grow the American 
workforce, and improve air quality.
    Heavy-duty vehicles account for just over two percent of the U.S. 
vehicle population, but they consume more than 21 percent of the 
nation's transportation fuel\6\. Currently, diesel costs $3.36 per 
gallon\7\, versus $2.31 per diesel gallon equivalent of CNG\8\. Our 
heavy-duty transportation economy could save $54 billion in fuel costs 
each year with a conversion to natural gas, freeing up these billions 
of dollars to reinvest in local businesses and economies.
---------------------------------------------------------------------------
    \6\ ``Transportation Energy Data Book'', U.S. Department of Energy, 
2010 Table 5.4
    \7\ http://www.eia.gov/petroleum/gasdiesel/ as of 7/2/2012
    \8\ ``Clean Cities Alternative Fuels Price Report'', U.S. 
Department of Energy, April 2012
---------------------------------------------------------------------------
    Diesel fuel use is rising. Our consumer economy relies on heavy-
duty trucks and fueling networks to transport our nation's goods and 
drive our economy. Due to growing demand over the last several decades, 
the number of trucks--and associated diesel consumption--is increasing. 
Of the 4.8 million heavy-duty trucks (Class 7 & 8)\9\ on our roads, 4.2 
million run on diesel. These heavy-duty trucks consume over 70% of all 
diesel in the United States\10\. By 2035, the number of heavy-duty 
trucks will increase by almost 70% and will consume 34% more oil to 
meet our transportation demand\11\.
---------------------------------------------------------------------------
    \9\ ``Highway Statistic 2010'', Federal Highway Administration, 
Table VM-1 and ``Transportation Energy Data Book'', U.S. Department of 
Energy, 2010 Table 5.4
    \10\ ``Transportation Energy Data Book'', U.S. Department of 
Energy, 2010 Table 5.4
    \11\ ``Annual Energy Outlook 2011'', U.S. Energy Information 
Administration, 2011, Supplemental Tables 45-72
---------------------------------------------------------------------------
    Average annual mileage per heavy-duty tractor in the United States 
is 69,000 miles, which equates to approximately 11,700 gallons of 
diesel per vehicle each year (assuming 5.9 mpg\12\). Using the national 
average fuel consumption for a heavy duty tractor, the current annual 
diesel consumption for heavy-duty tractors is approximately 30 billion 
gallons of diesel per year, or 82 million diesel gallons per day.
---------------------------------------------------------------------------
    \12\ ``Highway Statistic 2010'', Federal Highway Administration, 
Table VM-1
---------------------------------------------------------------------------
    Natural gas offers a clear, cost-effective path to energy security 
and economic growth. As the public network for CNG and LNG stations 
expands, more Americans will have access to a domestic, low-cost 
alternative to high gasoline prices and foreign oil.
   Governors' NGV Memorandum of Understanding and Light Duty Momentum
    Momentum for increased NGV use is growing throughout the nation. 
Last fall, Oklahoma Governor Mary Fallin and Colorado Governor John 
Hickenlooper announced a high-level, bipartisan initiative to use NGVs 
in state fleets by aggregating vehicle purchase numbers. Since then the 
Governors of 11 additional states have signed the NGV MOU and have 
worked closely with the natural gas community to support the growth of 
infrastructure and fueling station initiatives to serve the increasing 
number of public and private NGVs on the road.
    The governors recently took their efforts to a whole new level. In 
a letter to 19 auto manufacturers with plants in the U.S., the team of 
governors pushed for the increased production of more affordable 
compressed natural gas (CNG) vehicles. As an incentive, the governors 
re-affirmed their commitment to buy CNG vehicles for their respective 
state fleets.
    This bipartisan team of governors recognizes that their combined 
purchasing power is one way to encourage auto manufacturers to harness 
the abundant and affordable natural gas resources right here in 
America. They are asking automakers to consider seriously the value in 
producing new NGV models not only for state fleets but also for the 
everyday consumer. This ``power in numbers'' can--and will--help 
jumpstart cleaner transportation choices, and with their powerful 
collective voice, this gubernatorial team certainly is on the road to a 
better future with cleaner, more affordable natural gas vehicles.
    Automakers are responding as well, with Chrysler recently bringing 
online the U.S.'s only OEM factory-built, CNG/gasoline bi-fuel (capable 
or running on gasoline and CNG) pickup truck, built on the production 
line by Chrysler itself. Other manufacturers such as Ford and GM are 
similarly increasing their bi-fuel options. Honda is also ramping up 
long-term efforts to market its Civic Natural Gas, with new dealerships 
across the country signing up to sell the CNG car, which is made in 
America at Honda's Greensburg, Indiana plant.
Federal Policy Choices
    ANGA supports constructive policies to promote natural gas vehicles 
and all of the benefits they bring for local air quality, community 
health and U.S. energy security. From government purchasing decisions, 
to support for transportation corridors that expand fueling 
infrastructure, policymakers at all levels of government can play a 
significant role in encouraging this clean form of transportation.
    At the federal level, ANGA supports efforts to create a level 
playing field among alternative fuels policies. We agree that it takes 
``all of the above'' alternative fuels to enhance our energy security. 
However, current levels of federal support for NGVs are not on par with 
other alternatives. We encourage the Committee to take a comprehensive 
technology-and feedstock-neutral approach when evaluating current 
levels of federal support for alternative fuels among all areas of the 
federal government, including Executive branch federal fleet 
performance, federal agency regulatory programs such as CAFE and EPA 
GHG standards, existing mandates such as the Renewable Fuel Standard, 
and Research and Development programs.
    We look forward to continuing to work with the Committee on 
constructive policies that help to level the playing field for all 
alternative fuels and contribute to greater energy security though the 
increased use of natural gas.
                                 ______
                                 
               American Fuel & Petrochemical Manufacturers,
                                     Washington, DC, July 24, 2012.
Hon. Jeff Bingaman,
Chairman, U.S. Senate Committee on Energy and Natural Resources, 304 
        Dirksen Senate Office Building, Washington, DC.
Hon. Lisa Murkowski,
 Ranking Member, U.S. Senate Committee on Energy and Natural Resources, 
        304 Dirksen Senate Office Building, Washington, DC.
RE: Committee Hearing on Natural Gas and Transportation

    Dear Chairman Bingaman and Ranking Member Murkowski:
    AFPM, the American Fuel & Petrochemical Manufacturers, respectfully 
submits this letter for the record regarding the Senate Energy and 
Natural Resources Committee's July 24th hearing, ``Natural Gas and 
Transportation.'' AFPM is a trade association representing high-tech 
American manufacturers of virtually the entire U.S. supply of gasoline, 
diesel, jet fuel, other fuels and home heating oil, as well as the 
petrochemicals used as building blocks for thousands of products vital 
to everyday life. AFPM's members have a significant interest in the 
natural gas markets-as both producers and consumers.
    The U.S. is experiencing a renaissance in natural gas production. 
In four short years, the ``shale revolution'' in the U.S. has changed 
the conversation from one of energy scarcity to one of abundance. In 
2005, the U.S. was producing 48 billion cubic feet (BCF) of natural gas 
per day. Today, the U.S. is producing nearly 65 BCF per day, a 35 
percent increase. During the same time, the price of natural gas fell 
from more than $13 per million BTU (MMBTU) to less than $3 per MMBTU, 
and U.S. proved reserves grew from an estimated 10-15 years to 40-100 
years.
    The resultant effects on U.S. manufacturing, the economy, and the 
environment have been overwhelmingly positive and did not require 
subsidies, mandates, or blue-ribbon panels to come about. Rather, the 
marketplace induced investment, and technology and innovation propelled 
exploration. These investments and innovations have brought prices down 
to today's levels. In other words, the market works.
    Abundant and affordable natural gas benefits many industries and 
the consumers they serve. AFPM's fuel production members are able to 
power refineries at a lower cost, just as residential consumers enjoy 
lower heating and air-conditioning bills. AFPM's petrochemical members 
now have access to an important low-cost feedstock for the 
petrochemicals that go into everything from iPhones to Kevlar to 
medical devices to solar panels. New investment and infrastructure to 
produce these products is being planned or built in areas of the 
country that are still suffering from the decline of U.S. 
manufacturing. In turn, construction of new drilling equipment and 
plant construction drive demand for steel, concrete, labor and many 
other products and services. Just last week, North Dakota--which is the 
epicenter of the Baakan shale boom--reported that its unemployment rate 
is less than 3 percent. The growth in shale production is so rapid that 
other businesses are having trouble keeping up with demand. A recent 
report prepared for the US Conference of Mayors identified the chemical 
industry as a key driver of economic growth across a number of metro 
areas:

          The industry surge this decade in investment, jobs, and 
        incomes has been largely spurred by low natural gas prices, a 
        result of the rapid incorporation of new drilling techniques to 
        extract shale and other unconventional gas supplies in the US. 
        Investment in the US is now competitive with overseas 
        locations. And the new gas fields have spurred investment not 
        only in the Gulf of Mexico region, but across the US. For 
        instance, a petrochemical processing, ``Cracker,'' plant is to 
        be constructed in the Pittsburgh metro owing to its proximity 
        to shale gas supplies.
          Twenty eight metros have employment in excess of 10,000 in 
        this sector, and 206 metros employ more than 1,000 in the 
        chemicals and plastics industries. Notably fast growth occurred 
        in 2011 in Minneapolis, Dallas, San Diego, and Milwaukee among 
        large metros, and in Muskegon [MI], Greeley [CO], Spokane [WA], 
        Gadsden [AL], and Warren [MI].\1\ (state abbreviations added)
---------------------------------------------------------------------------
    \1\ http://usmayors.org/metroeconomies/0712/FullReport.pdf

    In addition to keeping electricity prices stable and driving new 
investment in petrochemical production, the natural gas revolution is 
driving investment in natural gas vehicles (NGVs) and infrastructure. 
There are currently more than 110,000 NGV's on the road and a recent 
report released from Pike Research estimates that the market for NGVs 
will grow steadily in the coming years, particularly in commercial 
trucking and in fleets. In fact, fleet sales of NGV's are currently 
growing at a rate of 10.8 percent annually.\2\ This growth has been 
fueled by market forces rather than government subsidies and mandates. 
Where the savings from natural gas have been great enough to offset the 
cost of NGVs and refueling infrastructure, fleet owners have behaved 
rationally and invested in these alternatives.
---------------------------------------------------------------------------
    \2\ http://www.pikeresearch.com/wordpress/wp-content/uploads/2012/
07/LDNGV-12-Executive-Summary.pdf
---------------------------------------------------------------------------
    AFPM welcomes market developments attributable to increased natural 
gas production, but urges Congress to refrain from layering new 
subsidies and mandates onto a market that is already working. In 
particular, new mandates and subsides, in the form of legislation such 
as the NAT GAS Act, will distort markets that are currently allocating 
natural gas to the most efficient use.
    Creating artificial demand for natural gas could lead to unnatural, 
large-scale fuel switching that could abruptly drive up natural gas 
costs to the detriment of industrial consumers that use natural gas to 
power facilities or as a feedstock for chemical production. Just as the 
low prices we have seen to date are attracting new investment and 
bringing back manufacturing jobs, government induced higher costs will 
dissuade investment and threaten jobs. In other words, government 
simply does not have the ability to foresee the unintended consequences 
of picking winners and losers in the marketplace.
    For examples of unintended consequences, one needs to look no 
further than the Renewable Fuels Standard, which has layered an 
unworkable mandate to blend increasing volume of biofuels into the fuel 
supply on America's refineries. Countless economists have identified 
the RFS--which is primarily being met by corn ethanol -as a driver of 
higher corn prices and resultant economic difficulties and job loss in 
meat and poultry production. In the refining industry, the volume of 
biofuels the RFS envisions cannot be integrated into the national fuel 
supply without a prohibitively expensive and unrealistic overhaul of 
the nation's fueling infrastructure and vehicle fleets. Moreover, 
investment in ethanol facilities is capital that may have otherwise 
gone to NGV infrastructure if not for government mandates. Similarly, 
subsidies for NGVs may divert investment from some other, more 
efficient, investment. In all cases, consumers ultimately bear the 
costs of these policies, either in higher prices or in less innovative 
products.
    To be clear, AFPM is not anti-NGV, not anti-biofuel, and not 
seeking to drive out competition. Rather, AFPM's members are pro-
competition on a level playing field, free of government-selected 
winners and losers. If there is an efficient use of a resource to 
compete with petroleum fuels, market forces will ensure such a fuel is 
made available to consumers, just as they have with other technologies. 
Allowing the marketplace to dictate fuel choice ensures U.S. taxpayers 
are not put at risk, and indeed, will benefit from the highest quality, 
lowest cost fuels that the marketplace can produce.
    AFPM appreciates the opportunity to share its views. Please contact 
Geoff Moody, AFPM's director of government relations, with any 
questions.
            Sincerely,
                                         Charles T. Drevna,
                                                         President.
                                 ______
                                 
  Statement of Alex Schroeder, Colorado Energy Office, Denver Colorado
    Chairman Bingaman, Ranking Member Murkowski, and Members of the 
Committee:
    Thank you for the opportunity to participate in today's hearing on 
Natural Gas and Transportation. This topic is both very relevant and 
timely in the context of a broad, bi-partisan effort among states. 
While all of us are approaching opportunities for the nation's 
increased supply of natural gas on a variety of fronts, we are 
delighted today to announce that the release of a multi-state request 
for proposals (RFP) to procure natural gas vehicles for state fleets.
    Over the past year, Colorado Governor John Hickenlooper has worked 
with Oklahoma Governor Mary Fallin to spearhead a multi-state, bi-
partisan memorandum of understanding (MOU)* to increase the use of 
natural gas vehicles in state fleets. They have been joined by the 
Governors of Kentucky, Louisiana, Maine, Mississippi, New Mexico, Ohio, 
Pennsylvania, Texas, Utah, West Virginia and Wyoming in making fleet 
commitments to encourage the production of natural gas vehicles (NGV) 
that are comparable in price and performance to their gasoline 
counterparts. The RFP seeks to issue an award by early October 2012 and 
will have an interim informational meeting in Oklahoma City on August 
8th, 2012.
---------------------------------------------------------------------------
    * The Memorandum of Understanding has been retained in committee 
files.
---------------------------------------------------------------------------
    In the most basic terms, the MOU seeks to aggregate and leverage 
the state's fleet purchasing power to deliver a volume to manufacturers 
that will be sufficient enough to lower the incremental cost of NGVs 
and to drive technical innovation on both vehicle and component design. 
To be clear, this effort seeks to form a partnership with auto 
manufacturers in developing the market for natural gas vehicles as we 
certainly appreciate the complexities involved in vehicle manufacturing 
and marketing.
    The MOU seeks to extend this effort to local governments in each of 
the participating states. In Colorado, local governments makeup a 
significant portion of vehicle purchases made through the state bid 
system creating a substantial opportunity to further leverage our 
efforts. Recognizing the dilemma of requiring both vehicles and 
infrastructure in order to achieve market penetration, the MOU also 
seeks to address the availability of natural gas fueling stations. 
States have an opportunity to strategically place these vehicles in 
locations where their fuel demand can provide market certainty to 
retailers that are considering natural gas fueling stations.
    While significant momentum has been established over the past year, 
it is our intention that this be a continuing effort so that automakers 
can have confidence in our commitment to this market. We would 
encourage the federal government to consider its role in participating 
in the market for natural gas vehicles as part of the stated commitment 
to purchase alternative fueled vehicles exclusively by 2015. 
Additionally, it is our hope that the forthcoming corporate average 
fuel economy (CAFE) standards reflect a truly fuel neutral standard 
that will guide us swiftly towards the twin goals of reducing petroleum 
imports and vehicle emissions.
    Beyond the MOU, Colorado has had a number of recent high-profile 
successes in increasing the use of natural gas in transportation. This 
spring, the Roaring Forks Transportation Authority (RFTA) announced 
that it would be operating the nation's first rural bus rapid transit 
system exclusively on natural gas, which will save RFTA $375,000 a year 
in fuel costs and decrease the likelihood of requiring fare increases 
from spiking fuel prices. We are also encouraged by and appreciative of 
efforts by our natural gas producers and other private sector fleets in 
operating their vehicles on natural gas. UPS currently operates its 
largest fleet of compressed natural gas package trucks in the Denver 
Metro area and last fall Republic Services, a refuse hauler, began the 
conversion of their entire fleet to CNG. The fact that many of these 
companies are making the switch on an economic basis is very 
encouraging to the future market for natural gas in transportation.
    As a state that imports 2/3 of the oil it consumes, and exports 3/4 
of the natural gas that it produces, Colorado can vastly improve its 
energy security through the increased adoption of natural gas vehicles. 
Our efforts on NGVs are the tip of the spear in the larger objective of 
diversifying our state's fuel mix to use more of what we produce right 
here in Colorado. From advanced engine design, to battery technology, 
to cellulosic biofuels, Colorado has a multitude of opportunities to 
continue its leadership role in clean energy by expanding our efforts 
in advanced vehicles and transportation fuels. Everyone plays a part in 
ensuring the success of these efforts and we look forward to 
opportunities to partnering with this Committee, Congress, and the 
federal government to do so. We again thank you for the opportunity to 
provide testimony in today's hearing.
                                 ______
                                 
             Statement of Natural Gas Vehicles for America
Introduction
    NGVAmerica is pleased to offer the following written statement with 
regard to this hearing. NGVAmerica is a national organization dedicated 
to the development of a growing and sustainable market for vehicles 
powered by natural gas and biomethane. NGVAmerica represents more than 
150 companies, including: vehicle manufacturers; natural gas vehicle 
component manufacturers; natural gas distribution, transmission, and 
production companies; natural gas development organizations; 
environmental and non-profit advocacy organizations; state and local 
government agencies; and fleet operators.
    The purpose of the Committee's hearing on July 24, 2012 is to 
receive testimony concerning opportunities for, current level of 
investment in, and barriers to the expanded usage of natural gas as a 
fuel for transportation.
Natural Gas Vehicles Should be a Part of Future Energy Legislation
    Today, natural gas vehicles (NGVs) are uniquely positioned to help 
the United States achieve a number of critical policy objectives. The 
increased use of natural NGVs can reduce our dependence on foreign oil 
while reducing greenhouse gas emissions and urban pollution. And, 
equally important, increased use of NGVs will benefit the economy by 
stimulating demand for domestic natural gas and by lowering fuel cost 
to businesses, fleets and consumers that operate NGVs. Future energy 
legislation that is intended to reduce reliance on oil consumption 
should explicitly promote the use of NGVs. Both the House and Senate 
have introduced a number of energy bills that promote the increased use 
of alternative fuel vehicles. Some of these bills, like the New 
Alternative Transportation to Give Americans Solutions (NAT GAS) Act of 
2011 (S. 1863, HR 1380), are targeted specifically to NGVs. We urge the 
committee members to work to ensure passage of the NAT GAS Act before 
the 112th Congress comes to an end, and ensure that any future 
legislative actions by this Congress include policies that promote 
NGVs. We also urge Congress to remove federal barriers that are slowing 
the use of NGVs.
Reducing Reliance on Foreign Oil
    Reliance on foreign oil exacts a high toll on the U.S. in terms of 
direct economic costs and indirect energy security costs. In the past 
three years (2009--2011), the US spent nearly $760 billion on imported 
petroleum. More recently, the tab for imported oil has been much higher 
as oil prices hover between $85 and $100 per barrel. In the coming 
decade, the EIA forecasts total expenditures for petroleum imports to 
top $3.4 trillion dollars.\1\ The High Oil Case estimates that 
expenditures for oil will exceed $4.5 trillion dollars. This wealth 
transfer, as Boone Pickens likes to say, is quite possibly the largest 
wealth transfer in history. Our reliance on oil not only affects our 
trade balance but makes the U.S. vulnerable to price spikes and supply 
disruptions. And high oil prices result in a windfall for regimes that 
may not be friendly to the U.S.
---------------------------------------------------------------------------
    \1\ See EIA, 2012 Annual Energy Outlook, Table 11 (Reference Case).
---------------------------------------------------------------------------
    Fortunately, the U.S. has an unprecedented opportunity to displace 
petroleum with domestic natural gas. As President Obama recently 
declared, the U.S. is ``the Saudi Arabia of natural gas.'' The EIA, the 
Potential Gas Committee and other expert bodies now estimate that the 
U.S. has up to a 100 year supply of natural gas. The Potential Gas 
Committee's 2011 bi-annual report indicates that the U.S. now has a 
total future supply of 2,170 trillion cubic feet of natural gas. The 
2011 report includes the highest resource estimate in the Committee's 
history. The availability of this significant domestic resource 
provides an unprecedented opportunity to solve a number of pressing 
national objectives like transforming the transportation sector.
    Increasing the use for natural gas in transportation will keep our 
economy growing by supporting new jobs and economic development. In 
2008, U.S. production of 20 Tcf of natural gas supported nearly 3 
million jobs.\2\ In his State of the Union remarks before Congress, the 
President indicated that new development of natural gas could result in 
600,000 new jobs in this decade alone. Thus, increasing demand for 
natural gas as a transportation fuel will help put more people to work 
and ensure that we put this natural gas to good use, here where it can 
have the most benefit for U.S. energy users.
---------------------------------------------------------------------------
    \2\ ``The Contributions of the Natural Gas Industry to the U.S. 
National and State Economies,'' IHS Global Insight 2009, p.1.
---------------------------------------------------------------------------
    Natural gas benefits our economy because it is a low cost energy 
that helps businesses grow while at the same time controlling costs. 
Natural gas is priced much lower than petroleum. The two fuels no 
longer track one another--and haven't for many years. The current 
future contract price for natural gas (NYMEX August) is approximately 
$3 per million Btu, which equates to a per-barrel of oil price of only 
$17.40 while oil is trading at close to $90 a barrel. The low price of 
natural gas translates into significant savings for fleets and 
consumers who use natural gas to fuel their vehicles. In most areas of 
the country, natural gas sells at about a $1.50 discount compared to 
gasoline and diesel fuel. EIA's long-term forecast projects that 
differential between natural gas and petroleum fuels will remain as 
high as $2 per energy-equivalent unit.
The Opportunity for NGVs
    NGVAmerica believes that there could be a substantial market for 
NGVs in all applications. However, the most immediate opportunity for 
displacing petroleum and increasing the use of natural gas as 
transportation fuel lies with light-, medium-and heavy-duty fleets--
especially trucks, buses and other heavier vehicles.
    Today, the U.S. only has about 120,000 NGVs. Vehicle demand has 
been growing, but slowly. However, because of the large fuel use per-
vehicle, the amount of natural gas used (and petroleum displaced) has 
been increasingly at a robust pace. NGVAmerica estimates that, in 2010, 
NGVs used about 43 billion cubic feet of natural gas. That is the 
equivalent of about 320 million gallons of gasoline that was not 
imported, and a savings in overseas expenditures of about a billion 
dollars.
    The U.S. currently leads the world in offerings of new medium-and 
heavy-duty NGVs. In the past several years, virtually all the major 
truck and bus manufacturers in the U.S. have begun offering factory-
built NGVs. The impressive list of manufacturers includes: Kenworth, 
International/ESI, Peterbilt, Mack, American LaFrance/Condor, Crane 
Carrier, AutoCAD Truck, Capacity, Thomas Built Bus, Blue Bird Bus, 
Optima, NABI, El Dorado, New Flyer, Daimler/Orion, Freightliner, 
Gillis, Workhorse Chassis, Elgin, Allianz/Johnston, Schwarz, and Tyco. 
Major successes in terms of market penetration: NGVs made up 40 percent 
of all refuse trucks ordered in 2011, and 30 percent of transit bus 
orders. While these markets are still relatively small in terms of 
overall sales, it does point to the inroads natural gas vehicles are 
making. The future of natural gas as a transportation fuel is likely 
tied to its ability to gain traction in the heavy-duty short-haul and 
over-the-road trucking market. Some of the most exciting developments 
underway for NGVs are in this market. Trucks are the economic lifeblood 
of America. Everything we buy moves by truck. Reducing the cost of 
trucking by using less-expensive natural gas reduces the cost of 
everything, benefiting businesses and consumers alike.
    The current picture regarding light duty vehicle development is 
somewhat different. NGVs are not yet economic for most owners of light-
duty vehicles. The primary reason is that these vehicles have higher 
initial purchase costs than conventionally fueled vehicles, but are not 
driven enough miles or consume enough lower-cost fuel for the fuel cost 
savings that they offer to offset this higher purchase cost in a 
reasonable number of years. That being said there are some high-fuel 
use applications, like taxicabs and delivery vehicles, where light duty 
NGVs already make economic sense. Reductions in cost spurred on by 
increased production and technology improvements are likely to improve 
the future prospects of NGVs in the light duty market.
    Outside the U.S., demand for NGVs is growing at a rapid pace, and 
much of this growth is in the light-duty vehicle market. In the last 
seven years, the global market for NGVs has more than tripled with a 
compound growth rate of over 17 percent per year. In fact, NGVs are the 
fastest growing alternative to petroleum vehicles in the world. In 
2003, there were only about 2.8 million NGVs globally. Today, there are 
over 15 million NGVs in operation worldwide. This rapid growth points 
to the fact that rapid scaling up of NGVs is possible. The NGV Global 
(the international NGV association) forecasts that, by 2020, there will 
be 65 million NGVs on the world's roads. Unfortunately, the U.S. 
currently ranks 17th in the world in total number of NGVs--despite 
having more vehicles on the road than all the other fourteen countries 
combined.
    As noted above, most of the new NGVs sold outside the U.S. are 
light-duty vehicles. In many countries, tax and other government 
policies help make NGVs even more economically attractive to consumers. 
As a result, in overseas markets, NGVs are now available from almost 
all major OEMs, including: Ford, GM, Toyota, Honda, Nissan, Hyundai, 
Fiat, Volkswagen and Mercedes. In 2009, Fiat offered 14 separate NGV 
models, and more than 100,000 NGVs were sold in that year in Italy 
alone, comprising some 7 percent of the new vehicle market. Most U.S. 
manufacturers currently offer NGVs in Europe, South America and Asia, 
but only Honda currently offers a light-duty OEM NGV product in the 
U.S.--the Honda Civic Natural Gas. General Motor currently offers the 
GMC medium-duty Savana and Chevrolet Express vans as fully-backed, 
factory produced NGVs rated above 8,500 lbs. GVWR. This summer, General 
Motors and Chrysler will begin offering factory built natural gas 
powered pickup trucks. As these offerings show, U.S. automakers 
certainly have the capability to produce NGVs--IF the proper incentives 
are in place.
    Recent events are clearly pointing to a viable domestic market for 
light-duty NGVs. We are particularly encouraged by the unprecedented 
Memorandum of Understanding (MOU) concerning NGVs that has now been 
signed by 13 state governors. The MOU urges U.S. automakers to expand 
their offerings of NGVs and attempts to stimulate the market for such 
vehicles by signaling the intent of these states to purchase NGVs. As 
noted above, in just the past two years, GM and Chrysler have announced 
plans to produce NGVs for the U.S. market. Honda also has expanded its 
production capacity for the Honda NGV offering, and is now marketing 
the car to consumers as well as fleets. Another telling factor is the 
significant growth in the aftermarket offerings here in the U.S., where 
nearly a dozen manufacturers offer systems to retrofit light-duty 
vehicles to operate on natural gas. These offerings include systems for 
the Fusion, Focus, Impala, Malibu, Milan, Transit Connect, in addition 
to a variety of popular pickup truck offerings. Ford, while not 
offering a factory NGV, has been working closely with the aftermarket 
industry to ensure that aftermarket systems offered for its vehicles 
meet its demanding standards for quality. These activities clearly show 
that there is very strong interest in bringing more NGV products to the 
U.S. passenger car and light-duty segment.
Investments in Fueling Infrastructure
    Natural gas fueling infrastructure development is once again on the 
rise, recently exceeding 1,000 stations. More importantly, major 
industry players such as Apache Corporation, Clean Energy Fuels, 
Chesapeake Energy, and Shell Oil have recently committed hundreds of 
millions in new capital toward the development of natural gas fueling 
infrastructure. The largest of these announcements include deals to 
develop liquefied natural gas (LNG) fueling at Flying J and Travel 
Centers of America (TA) truck stops across the country. These efforts 
will soon make it possible for LNG trucks to serve most major areas of 
the country. President Obama's Blueprint for Energy, announced on 
January 26th, also calls for development of natural gas corridors.
Barriers to Increased Use of NGVs
    As just noted, the most significant barriers to increase use of 
NGVs are starting to come down. Those barriers have historically been a 
lack of vehicle offerings and limited fueling infrastructure. 
Automakers and investors are starting to address these issues. 
Economics also has been a barrier in times when oil prices have 
plummeted. The current outlook, however, appears to favor the long-term 
economic viability of natural gas as a transportation fuel.
    Barriers do continue to exist, however. Building out a national 
fueling infrastructure to support a new fuel is a daunting task. It 
requires enormous capital and a belief that the demand for the new fuel 
will materialize. Other policies and incentives are necessary to 
support the investments being made by businesses and fleets.
    Here is a list of the some of the federal barriers that continue to 
exist:

   Inequitable tax treatment of LNG. Today, LNG pays an 
        effective excise tax rate or $0.41 per diesel gallon equivalent 
        versus $0.243 for diesel fuel. LNG has less energy per gallon 
        than diesel and it takes 1.7 gallons of LNG to equal the energy 
        content in one diesel gallon. This discrepancy increases the 
        taxes paid by fleets and reduces the economic benefit of 
        switching to natural gas. From a budgetary standpoint fixing 
        this issue should not be a problem because the impact is 
        neutral since energy diesel gallon equivalent of LNG that is 
        used would pay $0.243--just like every diesel gallon.
   Higher FET taxes on natural gas trucks. Natural gas trucks 
        currently cost more than diesel trucks, in some cases $30,000--
        $60,000 more. And since the federal excise tax on trucks (12% 
        tax) is imposed on the full cost of a truck, natural gas trucks 
        pay a much higher tax than comparable diesel trucks. The effect 
        of this provision is to increase the cost of a new natural gas 
        truck by several more thousand dollars.
   EPA & NHTSA Regulations. The U.S. EPA and NHTSA recently 
        have proposed or finalized new fuel efficiency and greenhouse 
        gas emission standards for motor vehicles. In most cases, these 
        rules provide added incentives for manufacturers who produce 
        electric vehicles or other advanced technology vehicles, but 
        they do not currently provide incentives for NGVs. To EPA's and 
        NHTSA's credit, the proposed light duty 2017-2025 regulations 
        do include some incentives for NGVs but these incentives still 
        fall short of providing equitable treatment. The natural gas 
        industry has provided extensive comments to the agencies 
        regarding these rulemakings and is hopeful of a favorable 
        outcome in the 2017-2025 rulemaking. However, the agencies 
        should reopen the now finalized heavy-duty rulemaking in order 
        to provide equitable incentives for NGVs.
   Federal fleet programs. The federal government purchases 
        thousands of vehicles each year. Federal policies currently 
        favor purchase of flexible fueled vehicles and hybrid-electric 
        vehicles. These vehicles are largely fueled by petroleum. Most 
        federal agencies do not operate their flexible fueled vehicles 
        on ethanol. Moreover, hybrid electric vehicles, while recently 
        classified as alternative fuel vehicles, rely 100% on petroleum 
        for their motive fuel. The federal government should join with 
        the state governors and start placing orders for NGVs.
   Research and development programs. The federal government 
        currently has no ongoing research and development efforts to 
        secure advancements in the use of NGVs. ARPA-E's recently 
        announced awards for $30 million in new funding for NGV 
        projects. However, this effort, while important, represents 
        only a very small investment relative to the hundreds of 
        millions that are going to support biofuels and electric 
        vehicles. Moreover, the ARPA-E funding is a one-time only 
        opportunity. The lack of a standing R&D program for NGVs 
        signals to industry and the market that the federal government 
        is not interested in facilitating the use of NGVs.
   Federal tax incentives. There currently are no federal tax 
        incentives for NGVs. Previous incentives have expired and the 
        Congress has not acted on legislation to revise or extend these 
        incentives. Electric vehicles, however, continue to benefit for 
        a $7,500 tax credits. The $7,500 tax credit provides a huge 
        incentive for manufacturers to offer electric vehicles because 
        it only phases out after 200,000 (per manufacturer) of these 
        vehicles are sold. That equates to $1.5 billion in tax credit 
        incentives per manufacturer! Congress needs to provide similar 
        incentives for light-, medium-and heavy-duty NGVs.

Why NGVs need incentives
    Currently, NGVs cost more to buy than comparable gasoline or diesel 
powered vehicles. But they cost less to operate. The more miles a 
vehicle is driven each year, the faster the payback and the more likely 
the owners can justify the investment in NGVs. For some of the most 
fuel intensive fleets and vehicle applications, NGVs already are 
economic. However, to expand the use of NGVs and maximize NGVs' oil 
displacement potential, the first-cost or incremental cost of NGVs 
needs to be brought down rapidly. And this will only happen with large 
scale production and increased economies of scale. The NAT GAS Act (S. 
1863, HR 1380), provides the means to accelerate demand for NGVs and to 
help manufacturers achieve economies of scale and build-out much needed 
fueling infrastructure. The cost of these incentives is scored at 
roughly $5 billion. The Senate version, however, includes a pay-for 
provision that over-time compensates the federal budget for the cost of 
the incentives by imposing fees on NGV users. Whether it is paid for 
via this fee or not, the investment in NGVs makes sense when compared 
to the trillions that will be spent on imported oil.
    NGVs do not need technical breakthroughs to capitalize on the 
potential of natural gas as a transportation fuel. What is needed most 
is to grow demand for these vehicles faster. Federal leadership in 
leading in breaking down barriers and providing incentives will make 
this happen. Congress can help jumpstart that growth.
Conclusion
    The U.S. has an unprecedented opportunity to displace petroleum 
with domestic natural gas. Now is the time to act to encourage the 
increased use of natural gas vehicles. We have an abundant supply of 
readily available, low-cost domestic natural gas. The fact that this 
fuel is domestic, low-cost, and clean means that America can achieve 
multiple national goals (energy security, clean air, economic security) 
all the while helping fleets and businesses to lower their costs, thus 
improving economic prosperity. Today, nearly every major truck or bus 
manufacturer in the U.S. is now offering factory-built NGV models. 
Federal policies and incentives, however, are needed to aid in the 
successful market penetration of these vehicles and to help accelerate 
their use so that the benefits of increased natural gas use can be 
realized.
                                 ______
                                 
                Statement of the VNG.CO Bala, Cynwyd, PA
Introduction
    The purpose of the Committee's hearing on July 24, 2012 was to 
receive testimony concerning opportunities for, current level of 
investment in, and barriers to the expanded usage of natural gas as a 
fuel for transportation. VNG.CO (``VNG'') is pleased to offer the 
following written statement with regard to the hearing.
    VNG is a Pennsylvania-based company that is developing a 
nationwide, retail-oriented, gaseous-fueling network to supply the 
growing number of gaseous fuel vehicles expected to be produced over 
the next decade and beyond. Founded by seasoned, highly successful, and 
proven entrepreneurs from the automotive sector (Harvey Lamm, founder 
and former Chairman and CEO of Subaru of America), and with experience 
in national multi-billion dollar infrastructure development (Bob 
Annunziata, founder and former Chairman and CEO of Teleport 
Communications Group), VNG has the experience and industry 
relationships to achieve the successful build-out of a national 
compressed natural gas (``CNG'') fueling network.
    VNG is initially building a national public-access fueling network 
that will deliver CNG to light-duty natural gas vehicles (``NGVs'') in 
the fleet and mass-market consumer segments. Later, the CNG network can 
also evolve to deliver gaseous hydrogen, thus serving as a near-term 
platform for NGVs as well as a long-term platform for the deployment of 
hydrogen fuel cell electric vehicles.
Reducing America's Dependence on Foreign Oil
    Since the oil crises of the 1970s, reducing America's dependence on 
foreign oil has been a critical goal for economic, environmental, and 
national security reasons. However, the U.S. has not made significant 
progress towards achieving this goal in the more than forty years since 
2 it was set, largely due to continued dependence on petroleum-based 
fuels for transportation, especially for light-duty vehicles, which 
account for seventy-five percent (75%) of on-road petroleum consumption 
and greenhouse gas emissions. Unless and until we are able to fuel 
America's light-duty fleet on a cleaner, domestic source of fuel, the 
nation will continue to fall far short of achieving its energy 
independence and environmental goals.
NGVs Offer Opportunity for ``Larger, Earlier, Faster'' Impacts on Oil 
        Consumption
    Today, for the first time, America has access to an abundant, low-
cost, domestic alternative fuel supply that is capable of meeting the 
fuel needs of America's fleet of light-duty vehicles on a mass-market 
scale. Recent advances in hydraulic fracturing and horizontal drilling 
techniques have unleashed an abundance of natural gas that experts 
predict will last over 100 years. This ``shale gas revolution'' has led 
to a substantial price advantage for natural gas over gasoline of 
roughly 40% today, and this advantage is projected by the U.S. 
Department of Energy to be sustained for decades to come.
    With these low, stable natural gas prices, light-duty NGVs have 
unique potential to be an affordable, mass-market alternative fuel 
solution. NGVs are a proven commercial technology with no technical 
barriers, and offer range, refueling, performance, and functionality on 
par with the full range of gasoline vehicles. By contrast, today's 
battery-electric vehicles have limited range, long recharging times, 
and are impractical for the light truck models (such as pickups, 
minivans, and SUVs) popular with fleets and many consumers due to the 
weight of the battery packs that would be needed to move these larger 
vehicles. For these reasons, a comprehensive study of transportation 
fuels just released by the Department of Energy's National Petroleum 
Council (NPC) found that ``the benefits from natural gas may be larger, 
earlier, and faster than alternative technologies.''\1\. NGVs are also 
based on the same internal combustion engine (``ICE'') technology as 
gasoline vehicles, which are expected to remain the ``dominant'' 
propulsion technology through 2050.\2\
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    \1\ http://npc.org/FTF-report-080112/Natural_Gas_Analysis-08112.pdf
    \2\ http://npc.org/FTF-report-080112/Ch2-LDV-08112.pdf
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    The build-out of a national CNG fueling network on par with our 
existing gasoline stations and the accompanying conversion of America's 
light-duty fleet to natural gas would rank amongst the seminal 
achievements of this nation, on par with the construction of the 
nation's railroads, the interstate highway system, and the space 
program--and it would provide benefits on a similar scale. The 
conversion to natural gas of America's light-duty fleet will spur 
American innovation, support tens of thousands of jobs in the 
automotive, gas production, and construction sectors, eliminate as much 
as $400 billion in annual payments to foreign (and often hostile) 
countries for oil imports, and reduce emissions of greenhouse gases and 
other pollutants. Because natural gas is typically forty percent (40%) 
less expensive than gasoline on a gallon equivalent basis, conversion 
of the entire light-duty fleet to NGVs would also in effect provide an 
economic stimulus of $200 billion per year based on current gasoline 
expenditures of nearly $500 billion per year.
    The conversion of America's light-duty fleet to natural gas and the 
development of a national CNG fueling infrastructure will also lay the 
foundation for the future adoption of hydrogen FCEVs, a zero-emission 
gaseous vehicle technology that can overcome the refueling and range 
issues surrounding EVs but face major obstacles in reducing vehicle and 
refueling infrastructure costs. The development of on-board gaseous 
fuel storage and management technologies for NGVs will contribute to 
their development for FCEVs, and existing CNG fueling infrastructure 
can serve as a platform for the development of a network for hydrogen 
fueling since natural gas is a feedstock for producing hydrogen and 
both natural gas and hydrogen use similar compressing and dispensing 
equipment. Thus, a transition to CNG will also accelerate the 
technology development of FCEVs and lower the costs of an eventual 
hydrogen refueling infrastructure build-out.
Simple, No-Cost (And Cost-Saving) Measures to Spur NGV Production
    NGVs offer the greatest potential to reduce America's dependence on 
foreign oil and emissions from America's light-duty fleet, and they are 
ready to begin making an impact today. Private entities such as VNG.CO 
and others are ready, willing, and able to develop the national fueling 
infrastructure required to support natural gas vehicles. However, while 
GM and Chrysler have recently made available bi-fuel NGV versions of 
popular pickup trucks, the mass-market adoption of light-duty NGVs will 
require higher volume production of a wider variety of vehicle models 
to ensure that NGVs are a cost-effective option for all fleets and 
consumers.
    Fortunately, achieving this goal does not require massive 
government investment or subsidy programs. In order to encourage auto 
manufacturers to produce natural gas vehicles in sufficient volumes so 
as to achieve economies of scale that will substantially lower the 
price of NGVs, the federal government should take the following steps, 
which have no budgetary impact and, in the case of federal fleet 
purchases of NGVs, could even save taxpayers' money:

          1. Ensure that the pending EPA greenhouse gas regulations 
        provide regulatory (non-financial) incentives for the 
        production of NGVs that are similar to those offered for 
        electric vehicles, in recognition of the important short-and 
        long-term benefits of NGVs and subsequent gaseous fuel 
        technologies for meeting emissions goals;
          2. Remove the existing statutory cap on the credits NHTSA can 
        provide bi-fuel NGVs under the CAFE regulations; current law 
        requires bi-fuel NGVs to share a limited pool of credits with 
        flex-fuel E85 vehicles;
          3. Allow states to permit special access to High Occupancy 
        Vehicle (``HOV'') lanes for both dedicated and bi-fuel NGVs; 
        and
          4. Encourage federal fleets to convert to NGVs. Low natural 
        gas prices will likely result in overall savings on the cost of 
        operating these government fleets. The federal government has 
        an in-place mandate to solely purchase alternative fuel 
        vehicles by the end of 2015, and meeting these requirements 
        with NGVs helps to provide automakers with a real market 
        incentive to increase production volumes and reduce incremental 
        vehicle costs. State governments are already undertaking such 
        an initiative, aggregating their demand for NGVs in a multi-
        state effort with 20 participating states--and adding the 
        federal government's support along similar lines would greatly 
        increase the impact of this approach.

    The conversion to natural gas of the light duty fleet market is 
nearing the beginning of a ``virtuous cycle'' whereby the increasing 
availability of CNG fueling increases demand for NGVs, and increased 
demand for NGVs results in higher-volume production, a broader range of 
vehicle offerings, and lower costs. With the simple measures outlined 
above, the federal government can kick-start this virtuous cycle so 
that in a matter of years--not decades--the expanding availability of 
CNG fueling as well as a growing number of low-cost NGV models will 
make natural gas the fuel of choice for all light-duty vehicles. 







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