Texas sees surge in tax revenue from natural gas motor fuels

As more consumers embrace natural gas vehicles, Texas is seeing a surge in sales tax revenue, more than double what the state was expecting to collect by mid-year.

The state raked in nearly $2.2 million in tax revenue from the sales of compressed natural gas and liquefied natural gas in the first half of 2014, according to the Texas comptroller. That’s more than twice the $992,000 state forecasters projected to get during the period.

“Natural gas vehicles are becoming mainstream faster than expected,” Texas Railroad Commissioner David Porter said in a statement. “And there’s plenty of room for growth.”

Cheap and abundant supplies of natural gas unlocked in the U.S. shale boom have helped make natural gas a more attractive motor fuel, especially for fleet operators that can refuel at central locations.

Compressed natural gas sold for $2.15 per gasoline gallon equivalent in April, according to the most recent numbers from from the U.S. Department of Energy’s Alternative Fuels Data Center. That’s $1.50 per gallon cheaper than the price of gasoline at the same time.

The lure of a cheap, cleaner-burning alternative to diesel and gasoline is driving a fuel sales surge in Texas, where 14.5 million gallon equivalents of natural gas motor fuels were sold in the first half of 2014, blowing past forecasters’ projections of 6.6 million, according to the Texas Railroad Commission.

“These excellent sales figures represent only a fraction of the potential sales, as more and more fleet operators take advantage of the cost savings, lower emissions and energy-security benefits of Texas natural gas,” Porter said in a statement.

The rapid expansion of natural gas in transportation, particularly as a substitute for diesel in heavy-duty vehicles, led the state last year to change the way such fuels are taxed.

For years, Texas taxed natural gas motor fuel separately than other motor fuels, but the legislature changed the law last fall to make the taxing structure more equitable and to further encourage the use of the fuel, according to legislative reports.

Instead of requiring vehicle operators to  prepay the 15 cents per gallon equivalent state fuel tax annually, the new law requires licensed dealers to collect the tax when selling and delivering natural gas fuel to cars and to remit the money monthly to the state.

While Texas continues to push for natural gas as a transportation fuel, some operators have reported roadblocks in trying to make it an economically viable alternative. At a natural gas vehicles conference in Houston in June, a New-Jersey based logistics company said it had yet to realize any savings after converting some of its fleet to natural gas.

Story: The road ahead still isn’t clear for natural gas trucks

Trucks fueled by natural gas have a higher price tag, fueling stations are more expensive to build and publicly available stations are sparse. There are 51 public compressed natural gas fueling stations in Texas, most of them clustered in Houston and Dallas, according to data center reports.