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News from the APGA: 1 August 2014

Hydrocarbon Engineering,

LNG equalisation amendment

On 28 July, APGA sent a letter of support to Senators Wyden and Hatch for their bipartisan amendment No. 3582 to the Highway and Transportation Funding Act (HR 5021). The amendment would equalise the tax treatment of LNG with diesel.

HR 5021 is legislation that would provide temporary funding to states for road and bridge repairs. This legislation is necessary due to the fact that the Highway Trust Fund is scheduled to run out of money by August because the taxes on gasoline and diesel, which sustain the fund, have not increased since they were imposed. This issue, combined with more efficient vehicles, and changing driving habits, has lead to a shortfall in funding.

Both LNG and diesel are taxed at 24.4 cents /gal. However, because the tax is levied on a volumetric basis, LNG ends up being taxed significantly more than diesel to accomplish the same work. This is due to the fact that it takes 1.7 gal. of LNG to equal the energy content of 1 gal. of diesel, meaning that LNG pays more in federal excise than diesel vehicles. This inequity in tax policy serves as a significant disincentive for fleet owners to switch to LNG powered vehicles. LNG trucks already face challenges due to a higher upfront cost, limited refuelling infrastructure, and other issues, and the higher federal excise taxes on LNG effectively chips away at the fuel cost savings that LNG can provide over diesel. This in turn can lengthen payback periods for the truck, potentially making them too long as to be uneconomical.

APGA supports the amendment from Senators Wyden and Hatch because it equalises the tax treatment of LNG and diesel by changing the way the excise tax is levied from a volumetric calculation to an energy content calculation to an energy content calculation. The energy content method of taxation is already in use for sales of compressed natural gas (CNG) in motor vehicles and has successfully levelled the tax playing field between CNG and gasoline.

Excise tax fix

On 29 July, the Senate passed the Highway and Transportation Funding Act (HR 5021) on a 71 – 21 vote which included the fix supported by APGA to the inequitable tax treatment of LNG. Senators Wyden and Hatch successfully passed on a 71 – 26 vote, an APGA supported bipartisan amendment, NO. 3582 to HR 5021 which would equalise the tax treatment of LNG with diesel. Moving forward, it is unclear if the House will take up the Senate amended version of HR 5021. House leadership has publicly vowed not to take up a Senate amended bill and it appears the highway trust fund bill and LNG Excise Tax fix will be subject to a game of Congressional ‘chicken’. APGA will keep members appraised of any developments with this legislation.

LNG export applications

On 21 July, the APGA filed comments in response to a proposal by the US Department of Energy (DoE) to change its procedures for considering LNG export applications. Specifically, DoE is proposing to make final interest determinations on an LNG export application only after completion of the review required by environmental laws and regulations that are included in the National Environmental Policy Act (NEPA). Comments on this proposed change in procedures are due July 21, 2014. DoE has also announced plans to undertake an economic study in order to gain a better understanding of how potential LNG exports between 12 and 20 billion ft3/d could affect the public interest. They have also communicated that the study will use more recent data from sources including the Annual Energy Outlook 2014. The previous study conducted by the Energy Information Administration (EIA) only looked at export casts of 6 and 12 billion ft3/d.

In its comments, the APGA expresses general support for the DoE’s proposal. However, APGA does express concern that under the proposal, DOE would proceed under a business as usual basis pending the outcome of this proposal and the economic studies that have been proposed on enhanced export casts. APGA’s comments argue that no further approvals should be granted until a new study is completed given DoE’s tacit acknowledgement that the data it is relying upon to grant approvals to export applications is ‘both stale and not relevant given the magnitude in the aggregate of the LNG export quantities for which approval is being sought.’

Adapted by Claira Lloyd

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