CNG Gaining Traction With Fleets, But Retail Market Dimming

LOS ANGELES – American Honda began offering a natural-gas-fueled Civic to fleets in 1998, adding consumer sales a few years later.

And although more than 200 dealers now sell the Civic Natural Gas, only about 2,100 were delivered in 2013, and the automaker isn’t putting much marketing muscle behind the model.

“At this point, marketing isn’t going to expand sales as much as the fueling infrastructure becoming ubiquitous would,” says Steve Center, vice president-environmental business development office at American Honda.

With the discovery of abundant reserves of natural gas in the U.S., you might think interest in CNG would be skyrocketing.

But while the fuel is becoming more popular as an alternative to gasoline for fleet vehicles, the number of CNG-powered cars on the road remains minuscule, and that’s unlikely to change in the absence of any plans to massively expand the number of CNG fueling stations.

“I am not optimistic about a big CNG consumer market developing before the next decade,” says Dave Hurst, principal research analyst-smart transportation at Navigant Research.

CNG fuel costs about 50% less than gasoline and also is less polluting. So why such slow growth in the car segment?

“There aren’t CNG stations on every corner,” Hurst says.

Navigant forecasts sales of CNG passenger vehicles at only 4,489 units in 2014, rising to 13,043 in 2022. The light-truck sales forecast, which includes more fleet vehicles, is slightly more encouraging: 24,409 units in 2014, rising to 70,924 units in 2022.

Automakers are beginning to offer more vehicles that use CNG. Most are aimed at fleets, however, and manufacturers often are opting for bi-fuel capability, rather than pure-CNG models, while limiting distribution to certain areas of the country.

The hot markets for the Civic Natural Gas are Oklahoma, Salt Lake City and California, Center says. All have large CNG-fueling infrastructures, and in California, the Civic Natural Gas qualifies for a coveted High Occupancy Vehicle lane sticker.

General Motors will offer bi-fuel ’15-model Chevrolet Silverado and GMC Sierra heavy-duty pickups. The automaker expects sales to be concentrated in states such as Oklahoma, which in addition to a CNG-fueling infrastructure has a thriving oil industry.

“Low-hanging fruit is companies that produce oil and gas,” says Mike Jones, GM commercial product and special vehicle manager. “They have been our primary buyers.”

GM this year also will offer a bi-fuel version of its Impala large sedan, but even this is aimed at fleet buyers.

“We were asked by some states to produce more CNG vehicles,” Jones says. “The Impala will appeal to government fleets that need a bigger vehicle.”

Infrastructure isn’t the only drawback to growing CNG passenger-vehicle sales. The fuel tanks are cylindrical, taking up more space than a gasoline tank and reducing a vehicle’s interior room. They also hold less fuel.

Finally, a CNG vehicle costs thousands of dollars more than a gasoline version. In the case of the bi-fuel GM pickups, the premium is $11,000.

Owners of CNG cars can install home refueling equipment, but that can cost $5,000 or more.

While the Department of Energy has given grants to companies such as General Electric to develop lower-cost CNG home refueling systems, “I am not optimistic we will see a $500 unit by 2016,” says Navigant’s Hurst.

There is little additional support coming from the federal government. A tax credit for 30% of the cost of the fueling equipment expired at the end of 2013, as did a tax credit for alternative-use fuel such as CNG.

Demand for CNG is being driven by economics, says Peter Grace, senior vice president-sales and finance at Clean Energy Fuels. “It is not like the government is doing a lot for us here. We are growing this business without government subsidies.”

Clean Energy Fuels owns some 500 of the 660 CNG fueling stations in the U.S. It paid for construction of two-thirds of those stations, Grace says, with the rest paid for by specific companies.

Clean Energy customers, who include Lowe’s and Long Beach (CA) Transit, ordered 70% more CNG vehicles through third-quarter 2013, compared with the same period in 2012. To meet rising demand, Clean Energy added 75 stations in 2013 and about the same number in 2012.

Clean Energy doesn’t see much demand for CNG passenger vehicles, Grace says, citing the size of CNG tanks and the too-limited range of the vehicles between fill-ups.

Not all automakers are CNG-car boosters. Natural gas only makes sense as a fuel for medium-and heavy-duty vehicles, says Tom Stricker, vice president-technical and regulatory issues for Toyota in the U.S.

“There are a lot of things CNG cars can provide you,” he says. “But when the rubber hits the road, it doesn’t do anything for the environment, energy security or the climate.”

Despite languid sales, American Honda is not giving up on natural gas. Unlike earlier models, the ’14 Civic Natural Gas, which goes on sale this month, will come with the same consumer content and technology as a gasoline-fueled Civic, Center says. And it won’t be the last natural gas vehicle from Honda.

“We are studying other Honda models to apply CNG,” he says.