Economic Impact of Methanol Economy
A Look at Potential Benefits of the Open Fuel Standard Act
The Open Fuel Standard Act
The Open Fuel Standard Act is an innovative bill that will dramatically reduce the strategic importance of gasoline and oil to our economy while greatly accelerating the development and deployment of alternative fuels and technologies for transportation. The legislation would require that most new cars enable fuel competition, specifically by being capable of operating on another fuel in addition to, or instead of, gasoline – whether natural gas, electricity, bio-diesel, alcohol fuel, hydrogen or something else. An OFS creates a marketplace where these energy technologies can compete and breaks the virtual transportation fuel monopoly of oil; a fuel we know harms both our national security and our nation’s health, with inflated costs that are a detriment to our economic growth. Widespread deployment of fuel competitive vehicles will increase the resilience and flexibility of our economy by enabling consumers to make an on the fly choice to switch fuels based on comparative economics at the pump, instead of policy that attempts to pick any one winner in lieu of letting the marketplace drive innovation. Put simply, the Open Fuel Standard Act is an ‘all of the above’ energy policy that is a solution to both the unaffordable cost of gasoline and the unsustainable hold that oil has on our economy. It is a pathway to a clean energy future, which starts with employing proven domestic resources and technologies and creating greater domestic security. The OFS will enable an economy fueled by innovation in the marketplace by making vehicles a platform where fuels can compete, which will continue the advancement of sustainable fuels by creating demand and a market that can support infrastructure deployment. As an example of the economic benefits of the OFS, we have put together this scenario of the economic impact of widespread adoption of alcohol flexible fuel vehicles from replacing just a portion of our current dependence on gasoline with clean burning methanol, one facet of this multi-platform legislation.
Alcohol Fuel’s Impact with the OFS
Alcohol fuels, such as methanol - made from natural gas, biomass, agricultural waste, coal and, perhaps in the future, recycled CO2 - and ethanol are cleaner-burning replacements that require only slight modifications to current engines to power our vehicles, and they do not require large investment in new infrastructure due to their similarities with gasoline. For around $100 per car – less than half of one percent the cost of the average car - automakers can manufacturer a vehicle where liquid fuels can compete on a single platform. A flexible fuel vehicle can operate on gasoline, and blends of ethanol and methanol up to 85%, which forces each fuel to compete for a consumer’s dollars based on convenience, environmental benefit, and most importantly, cost. The deployment of these vehicles means consumer demand for alternative fuels will continue to grow as millions more vehicles will be able to operate on them, and the market will be able to economically invest in infrastructure to meet this demand without massive expenditures by the government. The methanol fueling infrastructure in particular will grow quickly as costs for the clean fuel are very low, the industry has large production capacity to meet demand and the installation cost for a methanol fueling pump is minor compared to other technologies, with the average pump only about $60,0001. FFV drivers will immediately be able to make use of methanol, which at wholesale currently sells for $1.04 a gallon–without any subsidies. Accounting for state and federal taxes, distribution, and retail mark up, M85 would retail for $1.83 a gallon. As methanol has less BTUs per gallon than gasoline, a consumer would use $3.19 of M-85 to travel the same distance – well below the current national average of $3.95 for regular unleaded2.
‘Methanol Refueling Station Costs’ by EA Engineering, Science and Technology February 1, 1999. AAA Daily Fuel Gauge (May 1, 2011) - http://fuelgaugereport.aaa.com/?redirectto=http://fuelgaugereport.opisnet.com/index.asp
Methanol Savings vs. Gasoline
For every 10% of the gasoline that we currently use that is replaced by methanol, just over 75 million gallons of methanol would be consumed each day at a cost of $110.6 million to drivers – compared to the $149.3 million for the same amount of gasoline at current retail prices. This would create an average savings of $38.7 million a day for consumers, and over $14.1 billion a year. Each household would be benefited by over $1,000 average cost savings every year if they filled up with M-85 every day. Methanol’s price advantage over gasoline is apparent in the above graph of historic prices. The most common feedstock for making methanol today is natural gas, requiring only 100 cubic feet of natural gas to produce one gallon of methanol. Methanol is also the most effective and immediate way to take advantage of the price difference between natural gas and crude oil prices. In fact, researchers from Massachusetts Institute of Technology completed a study entitled “The Future of Natural Gas” in which they determined that methanol was “the liquid fuel that is most efficiently and inexpensively produced from natural gas,” due its mature production technology and the affordability of deploying FFVs capable of running on all alcohol fuels. To replace 10% of our current gasoline demand we would use about 2.6 trillion cubic feet of natural gas each year. At a current cost of $4.50 per thousand cubic feet for natural gas, that would mean over $11 billion worth of natural gas would be consumed. This represents a mere 10% of our current annual production of natural gas in the U.S. – which is expanding with new discoveries and technologies - and allows us to conserve consumer money, tap into domestic resources, and reduce harmful engine emissions like particulate matter, cancer causing agents and smog that come from gasoline. Methanol also benefits from polygeneration – in that anything that is, or ever was, a plant can be used to produce this biodegradable fuel. Natural gas, coal, biomass, agricultural waste, landfill gas, industrial waste and even CO2 itself can all be used for methanol production based on existing mature technologies, as well as cutting edge science. The U.S. has abundant supplies of all of these resources available to meet our transportation needs, and methanol serves as a gateway technology to advanced biofuels adoption. Renewable methanol fuel – and derivative fuels such as bio-diesel and bio-dimethyl ether (DME) – can also help efficiently and economically achieve the U.S. Renewable Fuel Standard targets.
Methanol Production in the U.S. and Jobs Impact
The number of permanent jobs in present-day large scale methanol from natural gas production plants is about 120 jobs per facility, producing 1.7 million gallons of methanol per day. Thus, displacing 10% of the gasoline market with domestically-made methanol would create between 5,000-7,000 highly-skilled, high-paying jobs in engineering, chemistry and advanced sciences. Using the EIA’s jobs multiplier for indirect jobs in the communities of these facilities, it is estimated that another 70,000–90,000 jobs would be created as well as tens of thousands more in the natural gas supply sector. For methanol manufacturing plants that use biomass, researchers at MIT average that there are 50 permanent jobs per biomass-to-methanol plant - due to their generally smaller scale of about 160,000 gallons a day. Additionally, to satisfy the biomass collection requirements for these facilities if 10% of gas were replaced, researchers at MIT cited that over 300,000 jobs would be created around the country. As with most biofuels, these are primarily rural jobs that can help bring vitality back into small and rural towns decimated by the economic downturn and aid in development of biomass in the heartland and timber regions of America. With the demand created by the Open Fuel Standard Act, during the initial construction phase for these facilities, a large economic benefit would be immediately realized by communities. About 40% of the cost of a new methanol plant is labor for installation, with some of the largest new plants costing upwards of $1.2 billion each. With more than 40 of these plants needed to offset gasoline consumption by 10% with all domestically produced fuel, there would be up to $20-22 billion of short-term, immediate investment and then over $7 million in payroll at each facility each year. This would also be distributed production of fuel where regions could tap into the resources that are most abundant in their area – natural gas in Texas, Louisiana, and Colorado; timber in the Northwest, agricultural waste in the Heartland, and landfill gas by our major cities. And with our transportation fuel being produced in multiple regions, our economy would be more resistant to price spikes and displacement caused by production shut downs in any one area – like currently when hurricanes impact the Gulf Coast.
The OFS Big Picture
The Open Fuel Standard Act of 2011 offers a way to not only reduce our dependence on foreign oil, but also jumpstart our own domestic energy economy while reducing harmful emissions and keeping more of our money in the U.S. The accelerated deployment of alternative fueling vehicles will spur innovation in the transportation sector. And instead of ‘picking winners and losers’ like other energy strategies, the OFS is a no-cost piece of legislation that will only pick one loser, our dependence on gasoline, and let marketplace and consumer demand drive the selection of technologies and fuels that will succeed in the long-term. This bill is truly an ‘’All-of-the-Above’ energy strategy that will help put Americans back to work creating the energy that drives our economic growth. The technologies included in this legislation represent the full spectrum of alternative fuels and vehicle technologies, promoting all vehicles that can run on something other than gasoline. The above forecasts for job creation and economic impact from methanol represent only one piece of the larger puzzle – and tens of thousands of more jobs and billions more in economic benefit can be realized by implementation of this legislation, all while increasing our energy security and strengthening our technology and innovation sectors. The economy and American consumers are calling out to lawmakers to take action that addresses the rapidly increasing cost of transportation and the harmful health effects we are exposed to by gasoline additives and emissions. The Open Fuel Standard Act will force gasoline to compete at the pump with other technologies which are cleaner and more affordable, and decrease the strategic importance of oil and its numerous harmful effects on our economy and domestic security.