WSJ: How to Switch America’s Cars From Gasoline to Natural Gas

America has a wealth of natural gas in the ground. So, how do we get it into our cars?

The recent deluge of low-cost shale gas is already changing the way the country runs. Electric utilities are turning to gas to power their turbines, and chemical companies that rely on the fuel are coming back to the U.S. after years of investing overseas.

But the holy grail is transportation.

Every day, we consume 70% of our oil getting from place to place—and produce more than 30% of our greenhouse gases along the way. If we could run our vehicles on natural gas, it could kill two birds with one stone: Not only is natural gas a lot cheaper than oil right now, but its emissions are much cleaner than gasoline or diesel.

“This abundance of natural gas is something we weren’t expecting as a country, but it’s here now, and it’s a gift we should take advantage of,” says Steven Mueller, chief executive of Houston-based natural-gas producer Southwestern Energy Co. “There’s huge savings here and a way to help to environment.”

Natural gas is already making big inroads in the commercial-truck market. Delivery companies, trash haulers and other firms that operate big fleets are switching to natural-gas vehicles to save on fuel costs. But the really big leap—and the much more daunting task—will be getting passenger cars running on natural gas.

Cost is a big part of the problem: Natural-gas cars are more expensive upfront, thousands of dollars more than regular models. That’s a tough sell anytime, never mind in this economy.

Public refueling stations, meanwhile, are few and far between. And there’s the question of consumer psychology: How do you convince drivers that it’s wise or even safe to put natural gas in their cars?

The barriers are significant, but pursuing natural-gas transportation is still worth the effort, according to a paper by Christopher Knittel, a professor of energy and economics at the Massachusetts Institute of Technology.

With the right policy incentives, he writes, natural-gas vehicles could “increase the nation’s energy security, decrease the susceptibility of the U.S. economy to recessions caused by oil-price shocks, and reduce greenhouse-gas emissions and other pollutants.”

Here’s a closer look at some of the challenges and how they could be surmounted.

Reinventing the Car

The big issue with building natural-gas vehicles is the fuel tank. Gasoline and natural-gas engines are relatively similar. But natural gas must be stored under high pressure—so the tanks must be stronger, heavier and larger. And that drives up the price. The only natural-gas passenger car sold in the U.S., the Honda Civic GX, costs about $5,200 more than a comparable gasoline vehicle and $3,600 more than the gasoline/electric hybrid Civic.

In other parts of the world, governments have mandated a switch to natural-gas vehicles, regardless of the higher cost of vehicles. In Pakistan and Iran, for instance, the governments made the change because the countries lack sufficient gasoline-refining capacity. Now the two countries have about 2.7 million and 1.9 million natural-gas vehicles, respectively.

That kind of mandate is all but unthinkable in the U.S. But there are efforts afoot to work around the fuel-tank issues to bring down the cost. 3M Corp. said earlier this year it is joining with Chesapeake Energy Corp. to develop natural-gas fuel tanks that use plastic linings wrapped in carbon-composite materials. The tanks could be 10% to 20% lighter with 10% to 20% more capacity than current natural-gas tanks, the companies said.

Meanwhile, researchers at the University of Missouri have developed a smaller tank that allows natural gas to be stored at a much lower pressure by keeping it in a material essentially made out of corncobs turned into charcoal briquettes. Early tests of the tank on a natural-gas pickup truck have worked well, according to researchers.

Another approach to the problem is economies of scale: If more natural-gas vehicles were sold, it’s likely that the costs would come down.

There aren’t any large-scale efforts under way to ramp up sales volume of passenger cars. But some natural-gas exploration and production companies have agreed to replace thousands of their existing pickup trucks used in the field with vehicles running on compressed natural gas, a form of the fuel popular in smaller vehicles.

Following discussions with the American Natural Gas Association, an industry group, Chrysler Group LLC said this year it will build at least 2,000 heavy-duty Ram pickup trucks that run on both CNG and gasoline. General Motors Co. said it would offer similar vehicles in its GMC Sierra and Silverado lines.

Proponents also think a big part of the upfront-cost problem is perception: People, they argue, don’t realize how much natural gas can save them over the life of the vehicle. With a gallon of gasoline hovering around $4 in many parts of the country, the comparable amount of natural gas can cost about half as much at current prices.

Still, you may need to drive quite a while to make it pay off. Consider this analysis by Prof. Knittel of MIT: Assume a CNG-fueled car costs $5,500 more than its gasoline counterpart, and assume a $1.40-per-gallon price advantage for CNG. Given that, he says, it could take more than nine years before the car owner broke even.

That’s hard for the average car buyer to swallow. “The average person discounts any fuel savings beyond three years,” says Kathryn Clay, executive director of the Drive Natural Gas Initiative, a program funded by natural-gas producers and gas utilities.

Reinventing the Pump

Regardless of how big and bulky the fuel tank, if you can’t find a CNG station in your neighborhood, you’re not going anywhere. Of the 1,500 stations available in the U.S., only about half are accessible to the public; the rest are reserved for fleet vehicles. That’s a tiny fraction of the 118,000 public gasoline stations spread coast to coast.

A number of companies are currently setting up new fueling stations. These are on a very limited scale and serve mostly fleet vehicles, but some stations are in prominent public places, and advocates hope they’ll spark consumer interest in the vehicles. Apache Corp., for instance, built a CNG refueling station at Houston’s Bush Intercontinental Airport to service a small fleet of CNG parking shuttles that the City of Houston operates.

The big barrier to setting up stations on a broad scale is cost. The average cost for building a gasoline station and convenience store in the U.S. was about $2.3 million in 2010, according to data compiled by the National Association of Convenience Stores. Adding the compressor and storage tanks needed for a CNG station can drive up the price by as much as $500,000—assuming the station can even hook into a natural-gas distribution pipeline. That’s a big investment when few people are filling up their tanks with natural gas.

CNG vehicle owners also have an in-home fueling option—an appliance called the Phill. About the size of a large upright vacuum cleaner, the Phill can be installed on the wall of a garage with access to a 240-volt, 15-amp electrical circuit and a natural-gas line. A flexible hose plugs into the car and fills it up over the course of about six hours.

So far, there hasn’t been a lot of consumer interest, largely because of the steep price tag: about $4,000, not including installation charges. (Why the price disparity between the in-home gadget and the one used at filling stations? The Phill is significantly slower and can’t handle multiple vehicles at once.)

Ms. Clay, of the Drive Natural Gas Initiative, says her group has surveyed some 40 companies to see if they’d be interested in developing a lower-cost in-home system. About a dozen expressed interest. “It we can get the units down to $1,000 to $1,500 and reliability over four to five years, it would probably be a game changer for the consumer market,” Ms. Clay says.

Pietro Bersani, chief financial officer of Fuel Systems Solutions Inc., manufacturer of the Phill, says the company has been able to drive down the cost of the units by about 30% in recent years, but it will take more orders to help prices fall further.

That’s why the company will look to launch more programs like the one it just started with utility Atlanta Gas Light Co.: Natural-gas-vehicle owners can have a Phill installed in their garage free by agreeing to a five-year lease at $60 per month.

Reinventing the Fuel

Some in the industry are tackling the natural-gas transportation challenge another way—by turning natural gas into a fuel that could be used in cars with conventional engines and pumped at regular filling stations. The trouble, once again, is cost. The technology to turn natural gas into a low-sulfur diesel fuel was developed long ago in Nazi Germany, but it continues to be an expensive process that has limited its success.

Last year, Royal Dutch Shell PLC opened its massive Pearl Gas-to-Liquids project in Qatar. The nation has substantial natural-gas resources—much more than its utilities need—so the government wanted to find a use for the excess fuel. The project now produces enough diesel from natural gas per day to fuel 160,000 cars as well as additives for jet fuel and feedstocks for a wide range of other products. But the project wasn’t cheap, at $18 billion.

Shell is considering a similar plant in Louisiana, where it hopes to draw upon the abundance of U.S. natural gas and take advantage of the full range of other Shell businesses in the region that might benefit from the plant’s output. That project could cost up to $10 billion, but the company hopes lessons learned from building Pearl will help keep those costs down.

Dallas-based chemical firm Celanese Corp. has started to produce fuel-grade ethanol as a substitute for the corn-based ethanol from a plant in Clear Lake, Texas. But the company doesn’t expect commercial-scale production in the near future.

In Silicon Valley, Siluria Technologies Inc. has figured out how to turn natural gas into ethylene, a feedstock that can be used to make a wide range of fuels and other products. The technique involves a genetically engineered virus that coats itself with a metal that serves as a catalyst.

Siluria President Alex Tkachenko says it remains a laboratory-scale process for now, however, and won’t be commercial anytime soon.

Reinventing the Driver

Beyond the chemical, mechanical and economic challenges of getting natural gas into the vehicle fleet, there are psychological barriers. The average person doesn’t think about natural gas when thinking of alternative vehicles, says Mike Omotoso, senior manager for LMC Automotive U.S., a research firm. “They might think of diesels, but they mainly think of gas-electric hybrids or plug-in electrics. They just aren’t aware of natural gas.”

Much of how the public will react is unknown. Will there be safety fears? Will people be willing to use the same fuel that heats their houses to run their cars? There’s no wide-scale effort to answer those questions.

The arguments that will win over buyers aren’t clear either. Honda used the cleaner-emissions pitch when its Civic GX came on the U.S. market in 1998, says Brad Johnson, corporate fleet director with Pacific Honda in San Diego. Now, he says, buyers seem more interested in saving at the pump and using a fuel produced in the U.S. Honda is also promoting the fact that CNG vehicles can drive in high-occupancy-vehicle lanes on California freeways.

Even though consumers are slow to adopt natural-gas passenger vehicles, at least a few gas retailers are optimistic that if they build it, drivers will come.

Love’s Travel Stops & Country Stores, of Oklahoma City, plans to open 10 retail outlets with CNG pumps this summer, thanks to a partnership with Chesapeake Energy.

And Kwik Trip Inc., an operator of gas stations and convenience stores, opened its first CNG station aimed at passenger-car drivers in La Crosse, Wis., this spring, with plans for several more.

“It’s attractive to customers because it’s a domestic product, there’s a steady supply, and the price is right,” says John McHugh, Kwik Trip’s communications manager. “If we can offer the consumer a value, we know people will jump on the bandwagon.”

WSJ