By John Addison (12/22/07)
Amaranth Advisors is a hedge fund that keeps making front page news. It is trying to explain to investors how it lost $5 billion in one week betting that natural gas prices would rise. Gas prices fell. $5 billion is gone. Amaranth Advisors is a hedge fund with a trader who forgot to hedge.
The bet could have gone the other way. One good hurricane to disrupt supplies would have spiked prices upward, as would an early cold weather snap to fire up millions of heaters. The bad bet is understandable. In the long term, natural gas prices are likely to return to prices at the start of this year, double what they are now.
Natural gas is likely to become the number one source of energy globally, surpassing current number one – oil. Natural gas is the fuel of choice for modern electric power plants, being cleaner than coal.
Natural gas helps achieve energy independence because it is not refined from oil. Over 90% of the natural gas used in the USA is from North America. Natural gas burns cleaner than gasoline, ethanol and biodiesel. Natural gas is popular with cities and other fleets with low-emission programs. The next time you take a taxi at an airport, it may be running on natural gas. These vehicles get priority at airports.
Natural gas is about 90% methane; the molecule is CH4. The molecule is four hydrogen atoms and one carbon. Natural gas is primarily hydrogen. In fact, most early adapters of hydrogen vehicles are natural gas fleet owners. Most vehicles use compressed natural gas (CNG). Heavy trucks that need more fuel for long distance may use liquid natural gas (LNG). It is expensive to keep natural gas so cold that it stays in liquid form, so CNG is the most popular approach.
There are about ten million natural gas vehicles in operation globally. There are about 150,000 natural gas vehicles in the USA. These vehicles consume 238 million gasoline gallon equivalents. That amount has doubled in only five years. CNG vehicles are popular in fleets that carry lots of people: buses, shuttles and taxis.
Natural gas prices have not been increasing at the speed of gasoline and diesel prices. The fuel price advantage is causing some to switch to CNG. Diesel vehicles are getting more expensive with tough 2007 emission standards. Some diesel makers state that EPA 2010 emissions are impossible. These statements are scaring some to switch to CNG. The federal government offers tax credits up to $40,000 for large natural gas vehicles, creating an added incentive.
Some governments are going beyond incentives and mandating the use of CNG. Seoul, Korea, plans to allow only buses that run on CNG, beginning in 2010. The measure is intended to reduce pollution. Currently, 2,798 of Seoul’s 7,766 registered city buses are CNG buses, and the rest are diesel-powered vehicles.
Since 1993, LAWA has been buying vehicles which reduce smog-forming emissions and which reduce greenhouse gases. LAWA now has 490 alternate-fuel vehicles at the four airports which it operates – LAX, Ontario International, Palmdale and Van Nuys. At LAWA, I met with Dave Waldner, Alternative Fuels Fleet Manager, who has been reducing emissions for over 13 years. He explained that early success started with compressed natural gas (CNG) in vehicles in 1993. Then liquid natural gas (LNG) was used in transit buses. LNG provided for longer-range than CNG. With oil prices increasing over 50% annually, CNG has proved to lower fuel cost. LAWA has secured very favorable long-term contracts, paying a little over $3.00 per thousand cubic feet of natural gas. CNG is also available to the many independent fleet operators and individuals using airports. LAWA encourages independent operators to use clean vehicles that use CNG and hydrogen. Clean Energy operates public CNG stations at LAX and Ontario.
Taxi fleets were early adopters of CNG. They received the strong revenue incentive of getting first priority in passenger pick-ups. They also receive a tax credit of $6,000 per CNG vehicle. There were 156,000 taxis operating in the United States in 2004, less than 2% of these vehicles were natural gas vehicles. The growth opportunity is substantial.
It has not been easy for many other early adopters of CNG vehicles. Individual automobile owners painfully experienced different fueling stations using incompatible pressures and nozzles. Fleet managers spent millions building new facilities to meet fire and safety standards. Heavy CNG vehicles often lack the acceleration and range of their diesel counterparts. Storage makes the vehicles weigh more. In hot weather fills can be slow. Fleet managers have faced hundreds of angry riders, when their natural gas was not delivered as scheduled. Natural gas prices fluctuate dramatically, making long range budgeting difficult.
Several of these problems have been resolved. There are now nozzle and pressure standards. There are more CNG stations and they are easy to find on maps and the Internet. Storage tanks are lighter, reducing the extra vehicle weight and improving performance.
Natural gas is not a panacea. To deal with our climate crisis and free us from depending on oil, many see the answer in a portfolio of energy sources rather than one “silver bullet.” The portfolio could include electricity, next generation biofuels, hydrogen and natural gas.
Los Angeles World Airports (LAWA) opened the first public access hydrogen station in the nation in October 2004. The station supports the fleet of five hydrogen vehicles used daily near Los Angeles International Airport (LAX). It is available to the growing hydrogen fleets at the City of Los Angeles, UCLA, Toyota, Honda, and soon others. It is part of the California Hydrogen Highway.
The station is a jointly funded by BP, Praxair, LAWA, South Coast Air Quality Management District, California Energy Commission and the U.S. Department of Energy, all of which helped fund the $1.5 million construction cost. For station funding partner, BP, this is part of their $8 billion investment in alternative energy. Industrial gas giant, Praxair, is the station operator.
Within transportation, aviation accounts for about 13% of CO2 discharges according to the United Nations Intergovernmental Panel on Climate Change (IPCC). Because the entire industry is committed to jet fuel, reducing this percentage will be difficult. Airport operator, LAWA, has no control over the airplane emissions in the air. On the ground, electric generators are available so that running the tail jet engine is not required to run air conditioning and other accessories. LAWA has taken an active role in reducing the emissions of ground vehicles. These vehicles account for about 50% of airport emissions.
Since 1993, LAWA has been buying vehicles which reduce smog-forming emissions and which reduce greenhouse gases. LAWA now has 490 alternate-fuel vehicles at the four airports which it operates – LAX, Ontario International, Palmdale and Van Nuys. At LAWA, I met with Dave Waldner, Alternative Fuels Fleet Manager, who has been reducing emissions for over 13 years. He is justifiably proud of running the second largest alt-fuel fleet of airport vehicles in the country.
He explained that early success started with compressed natural gas (CNG) in vehicles in 1993. Then liquid natural gas (LNG) was used in transit buses. LNG provided for longer-range than CNG. With oil prices increasing over 50% annually, CNG has proved to lower fuel cost. LAWA has secured very favorable long-term contracts, paying a little over $3.00 per thousand cubic feet of natural gas. CNG is also available to the many independent fleet operators and individuals using airports. LAWA encourages independent operators to use clean vehicles that use CNG and hydrogen. Clean Energy operates public CNG stations at LAX and Ontario.
An easy way to reduce emissions is to encourage people to ride together. For its own employees, LAWA has 70 Van Pools. There are also three pool fleets of 30 vehicles each. Many of these vehicles are hybrids, CNG vehicles, and five are new DaimlerChrysler F-Cell hydrogen fuel cell cars. The only emission from the F-Cells is water vapor.
LAWA has not faced some of the normal challenges in introducing hydrogen transportation. With 13 years of success with CNG there was no concern with introducing another gaseous fuel – hydrogen. Sensors and safety procedures similar to those required for hydrogen had long been used with CNG. Fire department approvals were straightforward. Vehicles are parked outside. The hydrogen fueling station is outside. In the event of a leak, hydrogen vents into the air and quickly disperses.
“To make hydrogen successful,” advises Dave Waldner, “commit to make it work and train all involved people.” Only people who have completed training are allowed to use the five hydrogen vehicles in the fleet. Only people on the list certifying training are given the security code to access the station. Security access for non-LAWA employee access to the public station is managed by Praxair.
At first glance the hydrogen station looks like a normal public gasoline station with the familiar green and white BP logo. 367 kilograms of hydrogen storage tanks are hidden behind an attractive educational display. At a second glance, you see that the logo says “bp hydrogen” and the pump and nozzle are distinct for hydrogen fueling.
At a cost of $13 per kilogram at the pump, hydrogen is more expensive than CNG, gasoline, diesel and other alternatives at the LA airport. Using the zero-emission vehicles is seen as an investment in the future and a commitment to lower overall airport emissions. Even at $13 per kilogram, Praxair is losing money paying for electricity to run the Hydrogenics IGEN 15 electrolyzer creates hydrogen from water; Praxair normally runs the unit only at night when electricity rates are lower. It is capable of producing 24 kg/day. Hydrogen is dispensed at 5,000 psi.
How might the use of hydrogen expand at LAX? Buses are a prime candidate. LAWA owns 62 buses. At the international terminal, they have three hybrid CNG buses that could be converted to hydrogen in one of three ways: HCNG with hydrogen blended with CNG, HICE replacing the small CNG engine with a hydrogen engine, or replacing the existing engines with hydrogen fuel cells.
Other CNG vehicles are candidates to eventually be replaced with hydrogen vehicles. In the short-term special funding or incentives would be required to motivate fleet owners to shift to hydrogen. Taxi fleets were early adopters of CNG. They received the strong revenue incentive of getting first priority in passenger pick-ups. They also receive a tax credit of $6,000 per CNG vehicle. The Ford Crown Victoria has been an ideal size for taxis and police. It is no longer available in CNG and there is no comparable large sedan with large trunk space in hydrogen vehicles. Dave Waldner commented, “Hydrogen vehicles would be suitable for most taxi fares. The average fare is 1.6 passengers requiring modest trunk space. Seattle International Airport has Honda Civic taxi fleets.”
The public is encouraged to reduce emissions in a number of ways. People from all of Southern California can take Amtrak to Union Station where express buses to LAX run frequently. Remote parking lots and hotels offer frequent bus service. People driving hybrids and CNG vehicles to airport parking lots receive discounted parking.
LAWA continues to be a model for major fleet managers who are committed to reduced emissions. For over twelve years, they have been expanding their fleet of alt-fuel vehicles. Through outreach meetings and education they have achieved strong departmental and employee acceptance. With their own success as an example, they have encouraged supporting fleets to shift to CNG. By following the same path that achieved large CNG success, Dave Waldner is optimistic that hydrogen will have a bigger future role at LAWA.