Service stations across the country are gearing up to sell compressed natural gas at the rate of about four stations a week, industry watchers say. According to the American Gas Association, the number of stations selling natural gas is about 700 now, up from 200 two years ago.

That number is expected to rise rapidly as more motor fleets turn to natural gas. Carl Ericson, an AGA press aide, estimates the number of natural gas retail outlets could jump to 1,000 by the end of next year.The move by retailers is being driven by a variety of factors, but mainly by federal clean air laws, the trade association said. And engine manufacturers are jumping in with new technology to push the move.

Legislation includes the Clean Air Act 1990 amendments, which established clean air programs in 22 major urban areas designated as "non-attainment areas" for pollution purposes, and the Energy Policy Act of 1992, which expanded the provisions of that act for fleet vehicles. In addition, a Clinton executive order requires federal fleets to phase in natural gas fueling capability.

"There's been a whole market created by the clean air legislation," said Bob Mahony, a spokesman for Brooklyn Union Gas Co., a major supplier of natural gas in the New York metropolitan region.

The company supplies natural gas to 10 New York area stations, and expects to have 15 contracts by the end of 1993, said Mr. Mahony.

While use of this technology now is limited to major fleets, such as the U.S. Postal Service, United Parcel Service Inc. and certain local bus companies, Mr. Mahony said the day is not far off when commuters will be using natural gas-powered vehicles. In fact, major engine manufacturers are working overtime to develop and market new kinds of engines.

Natural gas suppliers, many of which are owned by major oil companies, are buoyed by the trend. "It seems now we have the impetus to succeed," said Mr. Mahony.

Growth in the number of filling stations comes despite some major obstacles.

For one thing, said Gil Sperling, general counsel for the Natural Gas Vehicle Coalition, a trade group funded by gas companies, engine manufacturers and other commercial interests, "There are still some significant issues that are unresolved, such as how it is measured," he said. Varying state laws mandate natural gas be measured by cubic feet or weight, and various other methods, which can cause confusion at the pump, he said.

While federal agencies work to standardize the measurement, the lack of specifications has not delayed the installation of new retail outlets for the product, he said.

"The number of stations exceeds our projections five years ago. We've been extremely pleased that the pace is progressing more rapidly than we thought (it would)," said Mr. Sperling.

The second obstacle is the cost of converting conventional engines, which likely will delay widespread expansion into the residential vehicle market.

For the next several years, the use of natural gas is likely to be limited to fleet vehicles, experts say. On the forefront of such technology is United Parcel Service Inc., which now has 200 such vehicles in its fleet of 70,000 delivery vans. All were converted to burn natural gas rather than gasoline.