LCNG-A Bridge Solution

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    LCNG A Bridge Solution to

    Lower Energy Prices in Rural Alaska

    Michael Moora

    PDC Harris Group LLC

    [email protected]

    December 2009

    LCNG storage & fueling unit, Norway

    LNG for marine delivery, Europe

    There is an apparentopportunity to deliver asubstantially lessexpensive substitute fuelto remote Alaskancommunities in the formof LCNG.

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    INTRODUCTION

    This paper presents the technical and economic concepts for substituting a less-expensive, loweremissions fuel in existing furnaces, boilers and electric generators in Alaskas rural communities. Use ofliquefied and compressed natural gas (LCNG) as an economical fuel substitute to petroleum distillates isgrowing in Europe, Asia and in numerous metropolitan areas of the lower 48 states. As summarized inthe following discussion, a pilot program in an Alaskan community, aimed at demonstrating the

    advantages LCNG over diesel and fuel oil has been proposed, and awaits funding.ECONOMIC DRIVER

    The lower 48 states, and the remainder of the world, are currently enjoying a substantial surplus ofnatural gas. With the recent developments of enabling production technologies for tight shale, the bookedreserves of US natural gas have spiked, and should continue to climb for decades.

    Diesel fuel and other petroleum-derived distillates do not have the surplus status of natural gas. Whilesupply pressure is currently weak due to world-wide economic factors, petroleum economists generallyagree that significant increases in crude oil and its distillate products is only a matter of economicrecovery.

    LCNG is a commercially available form of natural gas increasingly used in Europe, Asia and SouthAmerica for numerous fueling applications, including those where diesel fuel and heating oil are currentlyused in rural Alaska, e.g. space heating, transportation and power generation.

    The chart above illustrates several key points regarding petroleum-derived products such as diesel fuel,relative to natural gas derived liquefied natural gas (LNG):

    A very significant pricing differential exists between diesel/fuel oil and LNG (natural gas). This gapis expected to widen over the next decade as more unconventional sources of natural gas comeon-line.

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    CostofFuel,USDollarsperMillionBTUofHeatingVa

    lue(HHV)

    Comparison of Delivered Fuel Price*, $/Million BTU

    AK LNG Delivered to Japan, $/million BTU

    Diesel Delivered to Bethel AK, $/Million BTU

    AK Wholesale Diesel FuelPricing ,

    including adjustment for shipping

    to Bethel

    * data from Energy Information Administration monthlyreports

    Alaska LNG Landed in Japan

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    LNG historically has demonstrated more pricing stability than petroleum-derived distillates.

    For the lower 48 states, LNG) is more closely tied to the price of domestic natural gas, LNG is currentlypriced1

    WHAT ARE LNG, CNG AND LCNG?

    at approximately 26% of diesel and heating oil fuel, on an energy content basis. This comparisondoes not represent the full supply chain costs to deliver either LNG or diesel fuel to remote Alaskancommunities. It nonetheless emphasizes the striking cost differential between natural gas based fuel, andpetroleum derivatives.

    Liquefied natural gas (LNG) is derived from dry and specially conditioned natural gas by chilling to theliquid state, at a temperature of approximately -260F (at atmospheric pressure). A volume of LNGweighs about 45% what an identical volume of water does. It is odorless, colorless and when vaporizedback to its gaseous state it burns only when mixed with air at a concentration of 5% to 15% by volume.

    LNG is always stored in double walled containers with highly efficient insulation between the walls. Largervolumes are generally stored at near atmospheric pressure, but smaller volumes (less than 70,000gallons) may be stored at pressures up to 250 psig. The temperature of the stored liquid varies between -260F at atmospheric pressure, and -117F at the elevated storage pressure. These storagetemperatures are maintained by allowing controlled boil-off of a small fraction of the inventory. Thisvaporized stream may be condensed back to the liquid state, or used for fuel in associated systems orbuildings.

    Is LNG safe? First, one must remember that LNG is a form of energy and must be respected as such2

    LNG has been in commercial use since the 1960s, serving as a means for monetizing stranded naturalgas in producing basins not linked to markets by gas transmission pipelines. The industry has undergonetremendous growth in the last 10 years, and several world-scale import (re-gasification terminals) plantshave been permitted and constructed in the lower 48 to accommodate anticipated imports. Thesefacilities are unlikely to see significant import traffic for the short-term, based on the surplus of natural gasin the US. There are approximately 225 LNG transport ships world-wide, and 24 export terminals, as ofearly 2007. One of these is the Kenai LNG plant, the only export facility in the U.S.

    .

    Today LNG is transported and stored as safely as any other liquid fuel. Before the storage of cryogenicliquids was fully understood, however, there was a serious incident involving LNG in Cleveland, Ohio in1944. This incident virtually stopped all development of the LNG industry for 20 years. The race to theMoon led to a much better understanding of cryogenics and cryogenic storage with the expanded use ofliquid hydrogen (-423F) and liquid oxygen (-296F). LNG technology grew from NASA's advancement.

    Compressed natural gas3

    The liquefied and compressed forms of natural gas are of interest to producers, gas suppliers and utilitiesbecause they represent increased energy density

    (CNG) is natural gas pressurized and stored in welding bottle-like tanks atpressures up to 3,600 psig. Typically, it is same composition of the local "pipeline" gas, with some of thewater removed. CNG and LNG are both delivered to the engines as low pressure vapor (ounces to 300psig). CNG is often misrepresented as the only form natural gas can be used as vehicle fuel. LNG can beused to make CNG. This process requires much less capital intensive equipment and about 15% of theoperating and maintenance costs.

    4

    1August 2009 pricing: Wholesale price of diesel fuel, national average = $2.04/gal or $15.22/million BTU, Imported

    LNG pricing @ $3.94/million BTU. AK LNG landed in Japan @ $8.24/million BTU or 46% of wholesale Diesel FobAnchorage @ $17.87/million BTU.

    relative to the diluted gaseous form, i.e. natural gas.LNG enables large-scale transportation of natural gas stranded from commercial markets. CNG, whileless dense than LNG, represents a convenient storage alternative for smaller users, where operating andmaintaining a cryogenic storage system may be unattractive. Henceforth in this paper we will use theindustrial acronym of LCNG to represent liquefied compressed natural gas, or more technically

    2LNG Fact Sheet, Federal Energy Regulatory Commission.

    3For introductory information on the commercial status of CNG in Europe, Asia and S.America, refer to

    http://en.wikipedia.org/wiki/Compressed_natural_gas.4

    Relative to natural gas, LNG is approximately 600 times denser. Relative to diesel or fuel oil, LNG has an energydensity of approximately 60%, meaning a volume of approximately 167% the volume of diesel/fuel oil has the sameenergy content in heating value (British Thermal Unit, BTU).

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    appropriate liquefied to compressed natural gas technology. CNG is produced from LNG moreefficiently than it is from pipeline natural gas. LNG is more efficiently transported in commercial volumesthan is CNG.

    RURAL ALASKA THE PROBLEM

    As Alaskas economy began its remarkable expansion following World War II, statehood, and thediscovery of the massive oil reserves on the North Slope, its remote village cultures were graduallypropelled from a subsistence existence, to a more urban-like culture, with dependencies upon various

    imported commodities. These included motorized vehicles, processed foods, consumer electronics,indoor plumbing, and electrified kitchen appliances. Reliance on these modern conveniences hasfostered a dependency within the villages on a supply of imported energy.

    This rural dependency upon imported energy has been subtle, as the BTU-rich liquid fuels derived frompetroleum were relatively inexpensive initially, especially when compared with the first costs of snow-machines, four-wheelers, boilers, home furnaces and generators that consume these liquids. This culturalmetamorphosis from subsistence to dependency continued nearly unabated in Alaskas remotecommunities; occasionally deterred by spikes in fuel prices briefly in the early 70s and again in 80s.Generally though, the combination of a marketplace flooded with inexpensive oil, and nearly non-existentfuel taxes in AK, alleviated most of the pain associated with purchasing fuel by rural Alaskans, even onmeager fixed incomes until the recent oil price run-up and instability began in 2003-2004.

    From the lean days of 2002, when a barrel of oil averaged approximately $22, to the maximum of nearly$145 per barrel observed during the summer of 2008, fuel pricing in remote Alaskan communitiesincreased as dramatically, causing near universal fear, anger and frustration among village dwellers. Inthe summer of 2008 fuel barge deliveries to interior Alaskan villages brought unheard of prices, up $3 to$4 per gallon since the last years delivery, to $7.50 to $8.00 per gallon

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    THE LCNG CONCEPT

    . A double-whammy of high-priced fuel delivered by fuel burning transport ships or air tankers has resulted in astounding increases inhome heating and electrical costs to rural villagers. During 2008 single family fuel costs, for spaceheating and cooking range from $300 to $900 per month, representing an average of 40% of a typicalfamilys income. This particularly grim situation for Alaskas rural communities is not sustainable, and islikely to increase in severity as crude oil prices rise with global economic recovery.

    The LCNG technology described here is commercially-proven, robust and expanding at a rapid paceoutside of Alaska. It requires little developmental risk to bring it to Alaskas remote communities. Itseconomic viability needs to be demonstrated in a pilot program, where actual supply chain constraintsand costs are applicable.

    Our concept addresses the largest contributor to sky-rocketing fuel costs in remote Alaskan communities petroleum derived diesel fuel and fuel oil by substituting lower priced and more environmentallyacceptable natural gas. We envision this fuel substitution concept as a bridge to longer-term renewablesolutions for remote Alaska communities. Since renewable sources of energy such as a wind generationpotentially can replace only a portion of the energy that a remote village or city must have over anextended period, the dependency on expensive diesel and heating oils doesnt end with the installation ofexpensive wind turbines. To have a significant impact on rural energy costs in Alaska requires breakingthe dependency on petroleum-based fuels.

    LCNG technology represents a clean fuel alternative that may serve as the basis for hybrid combinationswith wind-powered electric generation, a technology that is handicapped by the requirement for reliablefuel-derived electrical generation to support it. This need for back-up generation for wind generated

    electricity is precisely why such renewable projects have are often paired as Wind-Diesel Generationprojects; a combination that is not economically optimized, owing to the stratospheric cost of diesel inremote Alaskan communities.

    Based upon the very significant disparity in pricing between natural gas and petroleum-derived distillatefuel, the substitution of natural gas for diesel and fuel oil will result in price savings per unit of energy(Refer to the analysis presented later in the paper). Eroding natural gas pricing, initiated prior to the

    5Anchorage Daily News, June 4, 2008.

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    recent economic downturn, is indicative of an increasing surplus of natural gas in the lower 48, which willlikely increase the disparity in $ per BTU between these commodities for many years.

    We have proposed6

    LCNG THE BRIDGE SOLUTION FOR RURAL ALASKA

    conducting Reconnaissance and Feasibility level analysis in Bethel to test theeconomic and technical feasibility of transporting Liquefied Natural Gas (LNG) to a remote community,storing the fuel as Compressed Natural Gas (CNG) in commercially available pressure vessels on-site,and distributing the gas for use in existing space heating furnaces, boilers and an engine-electricgenerator set via low pressure distribution piping, much like that used throughout the Anchorage area,and in the lower 48 states.

    Omnitrans LCNG fueling station, Montclair, CA, 2002 (Compliments of North Star)

    The investment capital requirements for modifying a community energy infrastructure are minimized usingthis approach, as existing oil fired-equipment and diesel-driven electric generation can be converted torun on natural gas, and do not require wholesale replacement. For this reason, and the commercialavailability of the hardware associated with the conversion to LNG and CNG, the time to implement thissolution is short. Unlike renewable solutions, which generally require major changes to a communitysinfrastructure system to accommodate a new source of thermal or electrical energy, this solution relies on:

    Maximizing the efficiencies and operational economics of LCNGtechnology andstorage

    components, and transport know-how of this commercially successful technology Maximizing the reuse of existing energy conversion systems installed in village homes, schools,

    community buildings, and power generation utilities through the use of compatible, clean burningnatural gas

    Minimizing the installation of capital intensive conversion systems which are often inefficient orrequire significant real estate to capture or convert a dilute renewable energy source

    POTENTIAL STATE-WIDE SOLUTION

    Because of the general applicability of this project to nearly any Alaska community with barge access, fordelivery of bulk LCNG, the results of this pilot scale initiative are potentially beneficial to many moreAlaskans than just the village program outlined here. In our opinion implementing LCNG conversion is abridge solution; offering a short term solution to high energy prices before long-term alternative solutionscan be placed on-line.

    Furthermore, the results from this project are scalable. The economic and technical findings are directlyapplicable to larger or smaller applications. Hardware components that are commercially available for thisPilot Scale Bethel system,are applicable for a Semi-Commercial scale for the surrounding regionalcommunities, and then to Full-Scale service to remote villages throughout Alaska.

    6Orutsararmiut Native Council & PDC Harris Group, Liquefied & Compressed Natural Gas (LCNG) as a BridgeSolution to High Energy Prices in Rural Alaska, application to Renewable Energy Grant Program, Alaska EnergyAuthority, Fall 2008.

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    PILOT PROJECT DESCRIPTION

    Natural gas, delivered and stored as LNG, and CNG, respectively, will be used to substitute for diesel/fueloil used as follows.

    Four (4) boilers for space heating in ONC7

    Converting a diesel engine electric-generator from 100% diesel operation to dual fuel operation.This conversion, using commercially available hardware and control software, will allowreplacement of a nominal 80% of the diesel fuel requirements at full-load operation with CNG-derived natural gas.

    owned buildings.

    LCNG Availability

    LNG is currently available8

    from two sources within the state: the Kenai LNG Plant owned byConocoPhillips Alaska Inc (CPAI) and Marathon Oil Co., and a smaller LNG liquefaction plant owned byFairbanks Natural Gas

    9

    In the future, LNG associated with the Alaska North Slope Gas Pipeline is the ideal source, potentiallyoffering the lowest pricing for larger volumes, should this concept prove feasible for larger scale use.

    (FNG) at Point McKenzie. Also, LNG is a world-wide commodity, and is thereforeavailable from sources outside the state.

    7Orutsaramiut Native Council, the non-profit tribal organization representing Native Alaskans and American Indians

    in Bethel.8

    Acquiring LNG from these sources will need to be negotiated during the project reconnaissance stage.9

    FNG has announced plans to build another LNG plant on the North Slope, and has an agreement to purchase gasfrom ExxonMobil. However, construction of this plant appears to be delayed.

    Phoenixs Valley Metro LCNG fueling facility, May 2008 (Compliments of North Star)

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    Delivery of LCNG to Bethel

    As noted, delivery of natural gas will be accomplished most efficiently, in terms of transportation cost, inits most dense form, which is LNG. Stored at atmospheric pressure, liquefied natural gas has atemperature of -256F, requiring cryogenic double-walled insulated storage tanks, to minimize boil-offloss. These conditions represent a technological challenge to a remote community, and storage as CNGrepresents a simpler approach.

    System components (tanks, pumps and heat exchangers) for storage and transport are readily available

    from numerous suppliers. Our preliminary plan is to design a suitable storage and transfer system for astandard delivery barge, similar to those currently used by Crowley Marine. Fabrication will involveoutfitting a new or surplus barge with cryogenic storage tanks, fill system piping, off-loading piping, pumpsand heat transfer equipment sufficient to transfer and convert the LNG to CNG for storage in apressurized cylinder at the village site. Commercially available pre-fabricated barges for river delivery ofLCNG are available from Europe, and will be investigated as well.

    To convert LNG to CNG requires raising the cryogenic liquid pressure from approximately atmosphericpressure (in the LNG transport tanks) to 3600 PSIG (standard storage tank pressure for CNG). This isaccomplished using commercially-available pumps designed for cryogenic service. Followingpressurization, the dense-phase fluid must be heated to near ambient temperature for compatibility withthe CNG storage vessel materials. This can be accomplished using an air to LNG heat exchanger, wherefans direct ambient air across tube bundles; also commercially available technology. LNG can also bevaporized using low temperature water (saline or fresh) as the heat sink. Such heat rejection would berequired only when LNG is delivered to village storage tanks, where it would be pumped to CNG pressureusing on-board pumps and vaporization equipment.

    In the future, should LCNG be used regionally or state-wide, conversion of the diesel drives on-board themarine vessels used to haul the barges is also a possibility. Like the conversion from diesel in thecommunities, such conversions would yield benefits in terms of operating expense, and the emissions of

    CO2.On-Site Storage of LCNG

    As stated in the prior section, natural gas delivered to the village as LNG will be converted to CNG usingbarge-mounted pump system and heat transfer equipment. Storage of natural gas as CNG may be moreattractive for remote communities because:

    Cryogenic temperatures and specialized vessel alloys are not involved

    The wall thickness of the CNG vessel is sufficiently heavy to prevent punctures from vehicles orfirearms

    Omnitrans LCNG fueling station, Montclair, CA, 2002 (Compliments of North Star)

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    Since the CNG storage vessel is closed and pressurized, boil-off loses are zero

    Conversion of LNG to CNG is accomplished with a pump and simple heat exchanger, andrequires minor electrical power.

    Conceptual Diagram

    LCNG Transport, Storage &

    Dispensing

    27 October 08 13

    LNG

    CNG Bullet

    LNG to CNGHeater

    LNG Barge

    to Gas Users

    pump

    Economics - LCNG vs. Diesel/Fuel Oil

    Presently Bethel is supplied energy in the form of No. 1 fuel oil, by periodic barge shipments handled byCrowley Marine. Pricing of fuel oil for Bethel and surrounding communities has been volatile lately,owing to the instability in world financial markets, and a general economic recession. Quoted pricesreported for June 2008 indicate a delivered price for No. 1 heating oil of $6.33 per gallon, of whichapproximately $1.30 to $1.50 per gallon can be attributed to transportation cost to Bethel.

    Monthly pricing trends for diesel/fuel oil delivered to Bethel between Spring 2003 and Fall 2009 areplotted in Figure 1, following. Note that the data points in Figure 1in $ per million BTU, were derivedfrom federal Energy Information Administration (EIA) reports for Alaskan wholesale diesel fuel, andadjusted to reflect the cost of shipment to Bethel. The differential cost of shipment was calculated usingas-delivered fuel pricing reported periodically by the Alaska Department of Commerce, Community andEconomic Development (DCCED).

    Also shown in Figure 1is the price trend for Alaskan LNG, landed in Japan, during the same period.

    These data were acquired from EIA, in a format of $ per 1000 standard cubic of natural gas equivalent,and were converted to the units of $ per million BTU, based on the higher heating value of Kenai LNG.

    Certainly the landed Japanese pricing for LNG does not represent the actual price of LNG shipped toBethel on smaller, less efficient vessels, but the potential is nonetheless obvious; there is a massivepricing disparity between the two, sufficient to warrant additional investigation. It is precisely thisdifference that drives the need to conduct the investigations described in this application.

    There is an apparent opportunity to deliver a substantially less expensive substitute fuel to remoteAlaskan communities in the form of LCNG. Quantifying the real project economics, determining a pricerange to provide a reasonable return on investment, and identifying supply options are the primaryobjectives of this project.

    Attachments:

    1) Paper 1st LCNG Station in Bergen, Norway2) Brochure Vanzetti, Commercial LCNG Systems

    # # #

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    Figure 1Trended Fuel Prices, Diesel/Fuel

    Oil and AK Export LNG

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    stofFuel,USDollarsperMillionBTUofHeatingValue(HHV)

    Comparison of Delivered Fuel Price*, $/Million BTU

    AK LNG Delivered to Japan, $/million BTU

    Diesel Purchased in ANC,all outlets, $/Million BTU

    Imported LNG delivered to US, $/Million BTU

    AK Diesel delivered to Bethel

    AK Diesel Fuel FOB ANC ,

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    shipping to Bethel

    ImportedLNG Landed US

    * data from Energy Information Administration monthlyreports

    AK LNG Landed Japan

    AK Diesel FOB ANC

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    First LCNG station in Bergen, Norway

    By Terje Simmenes,Gasnor Project Manager Mannsverk

    December 12. 2005 is a milestone for Gasnor. On this day the new LCNG station inBergen was filled with LNG for the first time. The following weeks the station will berunning in test modus and serve a small number of buses. In February 2006 the stationwill be fully operative and serve 22 buses on a regular basis.

    The Bergen ProgrammeThis station is the last of three filling stations for buses in the "Bergen Programme". Thisis a programme supported by Bergen Municipality and Hordaland County initiallylaunched in 1999. The programme has 2 main objectives: Reduce emissions of NOx, SO2 and particles in the Bergen area; Contribute to more domestic utilisation of natural gas which is landed at the

    Kollsnes Terminal 40km outside Bergen.

    Both objectives are reached as 59 buses in Bergen have converted from diesel tonatural gas. When the LCNG station is fully operative in February 2006, the total numberwill be 80 buses. In addition the programme lead to the commercialisation of domesticnatural gas distribution from Kollsnes. Further this lead to the construction of a 40 000t/y LNG plant at Kollsnes in 2003, which again opened up for this LCNG station.

    Challenges related to infrastructureTo understand why Gasnor decided to build this LCNG plant, it is important tounderstand the challenges in distribution of natural gas in Norway. Our country is more

    known for its beautiful fiords than for densely populated cities. And there is a reason forthat. Norwegians live scattered around the coast. In addition the topography, especiallyalong the West Coast where the gas resources are available, is not suited for pipelinedistribution of natural gas. Local grids around gas terminals occurs, but interconnectionsbetween such gas islands is not economic feasible. The first two filling stations in theBergen Programme were supplied by CNG compressed at Kollsnes and transported bysemi-trailers to the filling stations. At the filling station the CNG was recompressed andfilled on buses. The intention at that time was to let CNG distribution be a vanguard of afuture pipeline from Kollsnes to Bergen. However, this pipeline is still not economicfeasible, and CNG is not fit for distribution over longer distances. Something had to bedone to establish a future oriented and robust distribution system. The solution was the

    construction of a 40.000 t/y LNG plant which was ready in 2003. (Gasnor is now about toextend the plant to 120 000 t/y.) By doing this Gasnor was able to supply the wholeNorwegian bulk marked with LNG, thus creating several LNG islands along the coast. In2004 Gasnor decided to build the last of the three filling stations as an LCNG station.The stations could have been built as a CNG station. However Gasnor supposes afuture natural gas to vehicles market in Norway will have a number of LCNG stationsdue to the LNG islands along the coast. Gasnor has also experienced CNG distributionas challenging. An LNG trailer is transporting six times as much energy as a CNG trailer.

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    Energy consumption is about 4 times as high in the compressor stations compared tothe high pressure pumps in the LCNG station. In addition LCNG stations require lessspace and the LNG chain is more reliable than the CNG chain. LNG is also cleaner thanCNG because there always is some leakage of seal oil from compressors, somethingyou avoid in LCNG stations. Therefore the transition to LCNG is appreciated by the bus

    companies.

    Technical details and suppliersThe station at Mannsverk consists of a 54m3 cryogenic tank. Two high pressure pumpsat 15 l/m capacity each can supply up to 1000 Sm3/h through air fanned high pressurevaporizers. There is a storage tank of 6,4m3 water volume, which allows 3 buses to befilled without starting the pumps. There are 22 slow-fill masts which allow the buses tobe refilled during the night. In addition there are 3 fast-fill masts which will be used ondaytime when occasional filling is needed. As limited space was a challenging issuein this case, the plant was built very compact. Pumps, valves and vaporizers are alldelivered in a 40 feet iso skid. The tank is placed vertically on top of this. The LNG partis delivered by Chart Industries. This company has wide experience in building LCNGstations in the US. However, this is their first European station. Therefore their Europeanbranch, Chart-Ferox from Czech Republic, assisted in the project thus ensuring thetransition to European norms, measurements and other requirements were fulfilled. TheCNG part of the station, including filling masts, was contracted to Bergen Engineering.This is a local company which also has participated in building the other two fillingstations in Bergen.

    FutureBy fulfilling the Bergen Programme, Gasnor hopes the remaining 300 city buses inBergen gradually will be converted to natural gas, and that this project shows thatnatural gas can be used in vehicles any place in Norway - regardless if a grid isavailable.

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