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PROPOSAL:

Execute Contract to Cost Share Request For Proposals for Demonstration of Small-Scale Natural Gas Liquefaction Plant

SYNOPSIS:

A small-scale natural gas liquefaction plant using innovative technology may significantly reduce the cost and increase availability of LNG to the end user. The CEC intends to release a RFP for development and demonstration of a small-scale liquefaction plant. The goal of this project is to develop up to two in-state liquefaction plants with a minimum production capability of 5,000 gallons per day of liquefied natural gas at a sustainable fuel cost of $0.30 per gallon of LNG. The AQMD cost share portion shall not exceed $200,000.

COMMITTEE:

Technology, February 26, 1999, Recommended for Approval

RECOMMENDED ACTION:

Authorize the Chairman to execute a contract with the California Energy Commission to cost share an RFP for the demonstration of two small-scale natural gas liquefaction plants, for an amount not to exceed $200,000, to be passed through to the selected proposer.

Barry Wallerstein, D.Env.
Executive Officer

Background

The successful introduction of liquefied natural gas (LNG) in heavy-duty transportation applications hinges, in part, upon how price competitive LNG can be with diesel fuel at the pump, on an equivalent energy basis per gallon. At present, LNG has been unable to compete with diesel fuels on an equivalent cost basis because LNG is not produced in California. Instead, LNG is produced in the Midwest and transported to California. For example, LNG is currently $0.50 per gallon. To compete with diesel fuel, the cost would have to be approximately $0.30 per gallon on an equivalent energy basis. Achieving the $0.30 per gallon cost is more likely if LNG were produced in California, as the cost of transporting LNG from production facilities in the Midwest increases the fuel cost up to 20 cents per gallon.

The capital cost required to construct a large-scale liquefaction facility similar to those in Wyoming and Texas is significant. Recent advances in liquefaction technologies suggest that a small-scale liquefaction plant could be built in California and produce LNG at a price competitive with diesel. Market conditions are favorable for a clean heavy-duty vehicle fuel. Several factors, including clean air and energy legislation, and the identification of diesel exhaust particulates as toxic compounds by the Air Resources Board, are creating a demand for such fuels. However, the fueling infrastructure needed to stimulate consumer demand for natural gas vehicles is currently lacking in some regards.

Request For Proposals

The purpose of this RFP project will be to solicit technical proposals for the demonstration of an economically and technically viable small-scale liquefaction plant to aid in the successful commercialization of LNG as a transportation fuel. The primary goal of this project is to develop up to two in-state liquefaction plants and fueling stations, each with a minimum production capability of 5,000 gallons per day that will produce LNG at a sustainable $0.30 per gallon or less. A secondary goal is to have the facility constructed and make fuel available by December 31, 2000.

Two fueling facilities are envisioned, one in Northern California and one in the Basin. The Sacramento AQMD will be co-funding this RFP as it is important to be able to site an LNG facility in order to support the Interstate Clean Transportation Corridor (ICTC); the ICTC is intended to accelerate the use of alternative fuels in interstate highways, and thus reduce emissions. The CEC will be responsible for overall project administration and act as contract manager for both facilities. The facility operation contract will be for a term of 10 years (proposed for August 1999 through August 2009).

Benefits to AQMD

The proposed project is included in the September 1997 update of the Technology Advancement Plan under Projects 98M4-2 "Infrastructure Development to Support Clean Fuel Vehicles." The AQMP relies on the expedited implementation of advanced technologies and zero-emission vehicles in Southern California to achieve air quality standards. Communities must have the most current and convenient access to available clean technologies if they are to integrate these technologies into their day-

to-day operations. Public access through these types of demonstration programs can help increase consumer confidence and acceptability of LNG vehicles, and expand the market share of low-emitting vehicles.

In addition, the proposed project will help California develop a market and fueling infrastructure for clean alternative to diesel, i.e. LNG. LNG is presently the preferred alternative fuel of the American Trucking Association because it is an abundant domestic fuel and provides twice the energy per unit volume as CNG. It therefore better satisfies their constituents’ mission requirements, such as longer driving range, and lower-weight vehicle fuel storage. Most importantly, LNG offers similar benefits as other clean alternative fuels.

Resource Impacts

The total amount of AQMD funding for these contracts will not exceed $200,000. CEC will co-fund the project with $250,000 and the Sacramento Metropolitan Air Quality Management District will co-fund up to $40,000. Sufficient funds are available in the FY 1998-99 Budget from revenues received from the state-mandated Clean Fuels Program. The Clean Fuels Program, under Health and Safety Code 40448.5 and 40512 and Vehicle Code 9250.11, establishes mechanisms to collect revenues from mobile and stationary sources to support projects to increase the utilization of clean fuels in both sectors, including the development of the necessary advanced enabling technologies. Funds collected from motor vehicles are restricted, by statute, to be used for projects and program activities related to mobile sources that support the objectives of the Clean Fuels Program.

Bid Evaluation

A panel of technically qualified individuals will evaluate the proposals received, comprised of CEC, SCAQMD and SMAQMD staff.

BD17:3-99A

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