Renewable gas: the hot new fuel from animal waste?

UPS

Renewable natural gas is an increasingly popular fuel for transportation companies, thanks to valuable renewable energy credits that can be sold separately, and gas prices that have stayed well below those of diesel.

UPS said it has signed agreements buy 11.5 million gallons a year of renewable natural gas (RNG) through 2024, from Big Ox Energy and AMP Energy. The fuel, shipped in gas form through ordinary natural gas pipelines, will be used to fuel UPS trucks that travel the longest distances, 600 miles per route or longer, and that already are equipped with engines that run on compressed natural gas (CNG).

UPS will use the RNG to fuel natural gas-fueled trucks at its own service stations in Louisville and Lexington, Kentucky; New Stanton and Horsham, Pennsylvania; Richmond and Roanoke, Virginia; West Columbia, South Carolina; and Doraville, Georgia.

The company was an early adopter of natural gas fueled trucks, since the 1980s. But scaling up its use of natural gas to replace diesel in trucks did not make economic sense until 2012, when oil prices rose, and diesel prices averaged nearly $4 a gallon. That same year, natural gas fetched an average price of $2.75 a million British thermal units, equivalent to about 39 cents a gallon of diesel.

"We started looking into how to take advantage of that gap," Mike Casteel, UPS’ director of fleet procurement, said. "We started buying liquefied natural gas Class 8 trucks, which run 120,000 to 140,000 miles a year. We use our natural gas trucks on the longer routes because it’s all about displacing fuel. The more miles you run, the more diesel fuel you displace, the more money you save."

In addition to saving money on fuel, UPS is also reducing its emissions. Burning RNG instead of conventional diesel reduces lifecycle greenhouse-gas emissions by 90 percent, according to the company.

RNG, also known as biomethane, is produced from landfills and digesters at livestock farms and dairies, wastewater treatment plants and food waste repositories. The biogases are removed and processed so that they are indistinguishable from pipeline-quality natural gas.

Suppliers of renewable natural gas, or RNG, can earn quite a bit more for their gas than just the market price for the commodity. They can sell the clean-energy attributes of the fuel to refiners and other fuel marketers who need the credits to comply with clean-fuel requirements under the federal Renewable Fuel Standard, or California’s Low-Carbon Fuel Standard, which aim to reduce greenhouse gas emissions to fight global warming. 

The RNG revenue stream is relatively recent. The Renewable Fuel Standard was established by an act of Congress in 2005, and expanded in 2007, but for years it was primarily limited to corn and soy ethanol and some cellulosic, or next-generation, biofuels. In 2014, the Environmental Protection Agency added RNG to the list of biofuels that qualify for clean-fuel credits that refiners can buy and sell to offset the carbon footprint of the petroleum fuel they sell each year.

Since 2014, RNG has taken off. United States production of RNG for vehicles reached 189 million gallons in 2016, nearly six times the volume produced in 2014, according to the EPA and the Energy Department. In 2016, RNG was used to supply 82 percent of the federal government’s cellulosic biofuel target. 

To be sure, new RNG plants often face opposition from residents over concerns about the safety of anaerobic digesters, increased traffic from trucks, odors and noise.

For example, local opposition to a planned biogas plant in a rural area near Boise, Idaho, prompted the Canyon County Planning and Zoning Commission to reject the project. But the developer, Treasure Valley Renewables, appealed that decision and the county Commission approved the plant this past June. The plant will convert sorghum waste, manure and other agricultural byproducts into biofuel.

The EPA expects RNG production to grow 17 percent, to 221 million gallons in 2018, when it likely will supply 92 percent of the federal government's cellulosic biofuel target. 

The money that suppliers earn from selling renewable fuel credits is important for driving the market, because it covers the higher cost of making gas out of the landfill or digester compared to pulling gas out of the ground.

Natural gas has averaged slightly below $3 a million British thermal units at the benchmark Henry Hub this year through Nov. 22, up 25 percent from the same period in 2016, according to market data compiled by the Energy Department. That is equivalent to about 44 cents per diesel gallon.

Diesel has averaged about $2.63 a gallon this year through November, up 14 percent from last year, according to the Energy Department.

Meanwhile, renewable fuel credits that fuel marketers use to comply with federal rules, called Renewable Identification Numbers (RINs), recently were trading between roughly $1 and $3 a gallon, for different biofuel types, according to Progressive Fuels Limited.

The revenue from selling RINS or Low Carbon Fuel Standard credits helped convince the Los Angeles Metropolitan Transportation Authority decided to try out RNG on its existing natural gas-fueled buses, to take advantage of low prices for RNG compared to conventional natural gas.

"Due to state and federal clean fuels programs, RNG is delivered to Metro at a slight discount compared to traditional natural gas," agency spokesman Rick Jager said.

The public transit agency is buying RNG from Clean Energy Fuels Corp. to fuel 10 percent of its fleet, about 200 buses, for a year, through August. If all goes well, the agency may decide to extend the program for four more years and use RNG for all 2,200 of its buses that run on gas.

The transit agency plans to eventually phase out all its fossil fueled buses and switch to a fully electric fleet by 2030, as part of its climate action plan.

Editor's note: This story has been updated at 10:50am Pacific.

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