December 2017, Vol. 244, No. 12
Features
NATURAL GAS TRANSPORTATION: Expanding with Renewable Natural Gas
Partners in the Houston-based energy private equity firm, EIV Capital LLC, obviously liked what they saw in the natural gas transportation space, and particularly renewable natural gas (RNG), or biomethane, because last summer they plunked down $47 million in equity funds in Chicago-based AMP Americas.
An RNG producer/marketer, along with being the developer of compressed natural gas (CNG) fueling stations and other infrastructure, AMP is using the capital infusion to pursue various growth opportunities across its three business units.
That both the venture capital firm and the natural gas vehicle (NGV) fueling firm are on the same page bodes well for the prospects in the alternative transportation niche. EIV apparently has bought into the concept that the heavy-duty fleet operators are undergoing a major transformation, and companies like AMP are positioned to be an integral part of the shift with its RNG from dairy operations, network of fast-fill CNG fueling stations, and its ampRenew program for providing RNG fuel to partner and ampCNG stations.
AMP CEO Grant Zimmerman has touted the fact that EIV has a track record for growing energy businesses, and he sees AMP using the added capital boost to build more biogas production, new fueling stations and growing its team. Conversely, EIV’s Patti Melcher, a managing partner, said she sees AMP as being “in an excellent position to flourish” in what she called “an exciting and important market.”
“Today, 20-30% of all natural gas used for on-road transportation is RNG, and based on this fact alone, NGVs already are delivering substantial greenhouse gas (GHG) emission reductions,” NGVAmerica’s Chief Counsel Jeffrey Clarke told the U.S. Department of Transportation (DOT) in September.
According to the Energy Information Administration (EIA), which tracks biofuels, in 2016 about 189 million gallons of RNG were used to meet about 82% of the federal targets set specifically for cellulosic biofuel. Combined production of liquefied RNG and compressed RNG grew from 33 million gallons of ethanol equivalent (GEE) in 2014 to the 189 million GEE in 2016. At the same time, the Environmental Protection Agency (EPA) was projecting 238 million gallons of cellulosic biofuel would be produced in 2018, 221 million gallons of which are expected to be CNG- or LNG-derived from RNG.
RNG can be produced in several different ways. At landfills, organic matter naturally decomposes, and a system of perforated pipes with a vacuum collects the landfill gas. At other waste facilities, including wastewater treatment plants, municipal solid waste plants, and agricultural residues, an anaerobic digester unit is usually deployed to break down the organic matter. The EIA reported that in mid-2017 there were about 50 facilities producing RNG that were registered and tracked by the EPA.
Closing out 2017 and heading into a second year of the Trump administration, the alternative fuel space faces uncertainty tied to the White House agenda to rollback regulations, particularly in the energy and transportation sectors. There is a viable future for NGVs and RNG but it is unclear what Trump’s broader agenda will do to it. This examination included an attempt to search for the prominent strategy scenarios for the future development of NGV transportation, and the specific role that RNG would likely play across all vehicle/equipment sectors and specific to the heavy-duty applications.
NGVAmerica President Daniel Gage said in 2017 the attention was most intensively focused on heavy-duty Class 4 to 8 vehicles and continues to include NGV acquisitions by transit and refuse-hauling fleet operators along with short-haul trucking fleets. Going forward, Gage said he thinks there are “several significant factors that could accelerate demand and an uptick in NGVs,” including a half-billion-dollar funding from California in 2017-18 and the $2.9 billion federal Volkswagen legal settlement.
“Leading fleets, such as UPS, Waste Management and the Los Angeles Metropolitan Transportation Administration (LAMTA), are increasingly moving to use more RNG in their fleets,” Gage said. “RNG will play an increasingly larger role in helping fleets meet their sustainability goals and help state and federal agencies achieve their public policy goals.”
EIA reports from two years ago talked about how the 189 million gallons of RNG used in 2016 met 82% of the federal targets set specifically for cellulosic biofuel.
A key for the traditional energy sector, particularly those companies building infrastructure, is whether the obvious potential is realized. That will largely depend on regulatory and economic developments that remain uncertain, although advocates in the sector see steady growth.
David Cox, operations director and general counsel for the Sacramento-based RNG Coalition, said there are 46 RNG production locations scattered in 20 states, and 30 spots that are pending registration under construction and scheduled to come online in 2018. Eventually, 21 states will have RNG production facilities.
“We’re ramping up production pretty significantly,” Cox said. “With RNG, you have a feedstock to create it anywhere that you have waste. There is no geographic limitation. You don’t have to have a shale field or oilfield underneath you.”
What the industry players want is the capital underpinning, incentives for fleet operators, and ultimately the infrastructure in place to grow. The latter is where energy builders are taking note. Advocates like Cox think the U.S. pipeline infrastructure is basically in place to expand NGVs and RNG. Stations are where the buildout and investment can concentrate, along with putting more of the vehicles on the road.
In 2017-18, California is the focus of increased development of new RNG production facilities as exemplified by AMP Americas business expansion in the state. As AMP’s COO Martin Gilkes searched for regional office space in the nation’s most populous state, the company’s CNG fueling station business unit was developing multiple new stations, and multiple farm projects were underway to create more dairy RNG production.
With a major dairy RNG-producing project well-established in Indiana, an AMP spokesperson explained that another one was on the drawing board for 2018 in the Midwest. A groundbreaking was expected before the end of 2017 with others likely to follow. “We ship RNG the same way as CNG – we hook into the existing gas pipelines,” the spokesperson explained.
For AMP, dairies are the primary sources for its RNG production, although company officials indicate they would consider other sources of biomethane. “This is less likely, but possible,” the spokesperson said. “Our focus is on turning dairy waste into transportation fuel.”
At the same time this fall, California stakeholders gathered at a conference in Sacramento examining “The Power of Waste: RNG for California.” The focus was on identifying how the sector was going to grow. The participants see the sector’s growth as an extension of the state’s aggressive climate change goals.
“Arguably one of the greatest steps the state could take to reduce methane emissions from the air sector, as well as from landfills and wastewater treatment facilities, is to provide incentives or otherwise enable the development of RNG production facilities at each site,” said Johannes Escudero, CEO of the RNG Coalition. He said the RNG projects capture and put to good use fugitive methane by converting it to renewable electricity or ultra-low carbon transportation fuel.
At the Sacramento conference, a national energy nonprofit, Energy Vision, and a University of California, Davis, study underscored California’s leading potential for developing added RNG production.
“The more RNG gets made and used, the more it can reduce overall carbon emissions,” said Joanna Underwood, Energy Vision’s chair. “We estimate that California could produce enough RNG to replace 75% of its diesel road fuel consumption,” she said, noting that the meeting in the state capital examined “practical ways to get there.”
Dairy-produced RNG did not have a product that won California Air Resources Board (CARB) certification until AMP did it this past fall. RNG from the Indiana-based Fair Oaks Farms received the first dairy-waste-to-vehicle fuel pathway to get a CARB certificate. The AMP RNG was assigned the lowest carbon-intensity score that CARB has ever designated. Rounded, the score is “negative-255,” compared to diesel at +98; natural gas at +79; and electric vehicles at +35.
Carbon intensity is expressed in grams of carbon dioxide (CO-2) equivalent per megajoule (MJ), an international energy unit, and is part of a broad effort to take into account all well-to-wheel factors involved in producing fuel and bringing it to market, according to AMP engineers. AMP began its RNG production at Fair Oaks Farms in 2011, and it now produces in excess of 1.5 million gallons of 100% RNG annually. Gilkes described his company as the most experienced RNG provider, and he rates its network of fueling station’s as the best of its kind.
“Gallon for gallon, or Btu for Btu, there is no cleaner commercially available fuel today than RNG,” NGVAmerica’s Clarke told EPA in a filing in late 2017. “While lifecycle emissions can vary significantly depending on the pathway for RNG production, according to the most recent values for the California Low Carbon Fuel Standard, it can yield emission cuts of between 70% and 130% – deeper than any other fuel.”
Assuming the RNG Coalition and Cox are correct in their assessment of infrastructure being in place to handle larger volumes, skeptics still question whether the United States can ever ramp up its RNG production levels to commercial scale. There are also questions about the quality and heating value of the product, given that ever-larger quantities could be mixed with traditional gas supplies.
Cox claimed the critics who contend there is not a sufficient national market for RNG are “just plain wrong,” noting the sector has “commercial-scale projects being built by proven producers, and our feedstock is abundant. This is trash turned into fuel; the sources are enormous so we’re just getting started,” he said.
The biggest challenges are regulatory and political, not commercial and technological, Cox insisted, specifically stability in the renewable fuel standard (RFS). “It’s been a great program and we’re a success story of the RFS,” he said. “We want to see long-term stability in that program and as long as it holds, we will build.”
Cox is encouraged by what Rep. John Shimkus (R-IL), chair of the environment subcommittee in the Energy and Commerce Committee, has done for the RFS, and the coalition, in the latter weeks of 2017, was hoping to see a subcommittee proposal that would be good for RNG. He is anxious to see the proposal, but remained unsure last fall when Congress would be ready to move on a bill that would be signed by Trump.
“The bottom line is that the program [RFS] is working and it’s here to stay,” Cox said. “That is what we need to see for our industry to keep growing.”
The case for a more aggressive approach to RNG development was made earlier in 2017 in a report from the global management consulting firm ICF examining “Economic Impacts of Deploying Low NOx Trucks Fueled by RNG.” The study looked at California and concluded that it overlapping climate change and alternative transportation goals required “more aggressive strategies.” It focused on the future upswing coming from heavy-duty trucks outfitted with low-NOx engines.
ICF’s economic engine for the heavy-duty truck sector on a statewide basis in California to lesser degrees could be replicated in the other states. “The economic modeling results provide quantitative insight into the potential for low-NOx trucks powered by RNG produced in California,” the consulting firm’s report said. “It is important to understand how this opportunity fits into a broader context related to economic growth and alternative transportation fuel production/consumption.”
Under the ICF scenario, between 172,000-516,000 low-NOx NGV trucks would be deployed in California over the next 12 years, consuming over 500 million diesel gallon equivalent (DGE) of RNG fuel. To deploy this many trucks and the needed infrastructure in turn will create the need for 81,000-134,000 jobs over the period of 2018-30, ICF’s study noted.
For energy service companies this means for every job created to produce the trucks, fueling infrastructure and fuel, two other jobs will need to be “created in supporting industries [indirect] and via spending by employees that are directly or indirectly supported by these industries,” the ICF study authors added.
California alone has the potential to produce enough RNG to displace up to 1 billion DGEs annually. “This is the type of aggressive strategy that will help California meet the challenge of reducing air quality pollutants, greenhouse gas emissions, and consumption of petroleum-based fuels, while making significant contribution to a growing economy,” the ICF study said.
Earlier in 2017, the Los Angeles-based Sempra Energy utility outlined its plans to accelerate the process for more in-state interconnections between RNG producers and its gas utility distribution network, the nation’s largest. The move by SoCalGas was expected to encourage more RNG production facilities in California, which now has only two.
A centerpiece is an internet-based downloadable toolkit the utility has developed to assist RNG producers and developers interested in connecting their projects to the SoCalGas system.
The Los Angeles and Long Beach Port governing boards have embraced the use of RNG, a move encouraged by SoCalGas, whose spokesperson emphasizes that like electricity, natural gas can be made from renewable sources.
“We are seeing prices come down on technology, and a lot of companies deliver better products,” said Cox, drawing on his experience at the RNG Coalition. “We’re also seeing a lot of interest from European companies that have been treating gas for a long time. There is a lot of new interest in the United States.
Some of that interest from across the Pond is embodied in two firms – Viessmann Group and DMT Clear Gas Solutions, both mature Europe-based businesses. German-based Viessmann, founded a century ago, is billed as a leading international manufacturer of heating, industrial and refrigeration systems. It is a quintessential family business that maintains a staff of approximately 12,000 employees and generates 2.25 billion euros of revenue annually, operating 23 production divisions in 12 countries, along with subsidiaries and representatives in 74 countries and 120 sales offices around the world.
Viessmann is globally focused with 54% of its sales generated abroad. Viessmann Manufacturing Company (U.S.) Inc. is headquartered in Rhode Island, and it has a unit called BIOferm Energy Systems that has set up operations in Wisconsin as a provider of turnkey anaerobic digestion and gas upgrading systems as well as project development and consulting engineering services to the North American biogas sector.
The second European firm is Oregon-based DMT Clear Gas Solutions, which bills itself as the fastest growing biogas technology firm in the world. DMT specializes in delivering world-class solutions so companies may contribute to building a cleaner environment, in a sustainable way, a company spokesperson said.
“While the technologies we develop and implement solve critical environmental issues, DMT’s solutions also provide you with a financial means of return (ROI) for profitability. Our reputation precedes us.” DMT has offices strategically located in the United States, Canada, Europe and Asia, seeking to position itself to be able to help customers literally “anywhere and at any time.”
DMT has invested almost 30 years in the field of biogas upgrading and desulfurization services. It maintains experienced teams of scientists, engineers and “highly motivated” employees.
These and other foreign-based firms are developing their own RNG projects, according to Cox, who stressed that the technology involved is proven. “There are a handful of ways to treat gas and those technologies are consistently proven, and we have new technologies coming onto the market as an offset of this. That drives the cost down. We’re not doing science experiments here; this is pretty proven stuff, but there is still room for improvement.”
The question still remains whether the market forces and government incentives will be enough to turn potential into profits. Some critical answers should be forthcoming in 2018, if the alternative fuel sector turns the corner with a parade of heavy-duty NGV fleets leading the way.
Richard Nemec is P&GJ’s Los Angeles-based correspondent. He can be reached at: rnemec@ca.rr.com.
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