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, M-
85 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.

1
‘Methanol Refueling Station Costs’ by EA Engineering, Science and Technology February 1, 1999.
2
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.