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The (Possible) Problem With Methanol

by Michael Levi
January 2, 2013

People looking for a way that natural gas could break oil’s stranglehold on the U.S. transport system typically run into forbidding limits. Gas could be used to run power plants that would charge electric cars, but those cars are currently too expensive for most drivers. Gas could be compressed and used directly in automobiles, but limited range and fueling infrastructure are big barriers. Natural gas could also be converted into gasoline or diesel, but the costs and risks of building plants can scare investors.

A dedicated band of analysts, advocates, and former policymakers has been pushing another solution: methanol. Methanol is a liquid fuel can be produced from natural gas using technology that is already widely utilized in the chemicals industry. Its advocates claim that it costs a mere $100 to alter a car so that it can use the fuel. And, using current cost estimates, advocates argue that methanol could be produced at a price that would make it a highly cost-effective competitor for gasoline and diesel.

Advocates acknowledge, though, that methanol isn’t going anywhere with the current transport system. They argue that legislators should require that all cars be built to take methanol as a fuel – a so-called tri-fuel mandate. That, they claim, would allow methanol to compete on a level playing field, and potentially help replace oil.

It’s an intriguing idea, but it needs more flesh on the bones. Introducing a tri-fuel mandate would be politically challenging. Current fuel economy regulations give automakers special credit against their fuel economy obligations when they sell flex-fuel vehicles. If a new tri-fuel mandate replaced this approach, automakers would be forced to take other steps to boost fuel economy instead, possibly threatening margins, and prompting political opposition. At the same time, creating a new market for methanol (the transport sector) would raise the price of methanol and hurt chemicals producers who already use it as a feedstock. They would be reliable opponents of any tri-fuel mandate.

Policymakers faced with these sorts of obstacles aren’t going to be swayed by the simple claim that a tri-fuel mandate would “increase competition” and possibly help displace oil. They’re going to want some stronger analysis that persuades them that the energy payoff would be worth the political price.

Doing that requires three pieces of analysis that I haven’t seen:

  1. What would the all-in cost of marginal methanol supplies be in a world that featured rapidly growing U.S. methanol production for transportation? That cost estimate would need to include not only production costs for new facilities, but also new distribution and storage infrastructure. Simply pointing to the current market price of methanol doesn’t answer that question – that price does not necessarily reflect the cost of new capital investments.
  2. How much risk would investors in methanol production face – and what would that mean for likely investment and production? It’s all well and good to claim that, at current natural gas and oil prices, methanol production looks like a good bet. A real-world investor will need to consider the potential risks of lower oil prices and higher natural gas prices. Is it reasonable to expect large investments once one considers how real investors will behave? If not, a tri-fuel standard would probably do little, and policymakers are unlikely to want to pursue one.
  3. What would the national benefits of an oil-to-methanol shift be? Or, put a different way, is a shift to methanol similar to increasing oil production, or to cutting oil use? Increasing U.S. production lowers world prices by increasing supply relative to demand, but doesn’t protect the country from volatile oil prices (or reduce greenhouse gas emissions). Reducing U.S. oil demand generally does all of these. My instinct is that, at least for modest volumes, methanol prices are likely to follow gasoline and diesel prices, failing to insulate the U.S. economy from oil price volatility. For larger volumes, I’m less certain. Moreover, different fuel options can have different consequences for vulnerability to short- and long-run price increases. My sense is that methanol would do more to address long-run price increases, but those happens to be a smaller economic vulnerability in the first place. The answers to these questions are particularly important if there’s a chance that a focus on boosting methanol production might substitute for other measures to reduce oil dependence.

With advocacy for methanol on the rise, it’s all the more important that these questions be answered. If methanol really is as promising as its supporters claim, then solid answers here might prompt some policy progress. Absent that, I’m skeptical that we’ll see much action on this front.

Post a Comment 6 Comments

  • Posted by David B. Benson

    I am under the impression that butanol is a better transportation fuel than methanol.

  • Posted by Ingo Gunther

    A look to Brazil may inspire some answers.
    Even though growing fuel for transportation at the expense of food opens another can of worms.

  • Posted by Jack Riggs

    If we’re going to exert the political effort necessary to encourage or force a shift away from oil as a transportation fuel, shouldn’t the alternative fuel(s) help with climate change as well as oil dependence?

    [ML: Totally reasonable question. To me the answer depends on how much the alternative fuel helps (or doesn't) with other issues.]

  • Posted by thomas slabe

    Read “Beyond Oil and Gas: The Methanol Economy” by George Olah, Alain Goeppert, and C. K. Surya Prakash if you wish to learn about methanol. In the future we will convert to methanol, despite any opposition from fossil fuel interests and those concerns put forth above. The science points to methanol because it is the easiest compound to create using all forms of renewable, nuclear, and fossil fuel sources of energy (also using carbon dioxide from the atmosphere) and is easy to store, transport, and use with existing infrastructure. Any resistance only delays the eventual adoption of methanol. People and the earth will be pleased with the transition away from fossil fuels. The biggest obstacle is getting past the fossil fuel interests, which know the threat that methanol presents to them (think of it like the tobacco industry). I had this discussion on Liinkedin and so I am re-reading Olah et al book and it remains the most practical approach to our energy future that I’ve seen. Please read it and support methanol. If you’re serious about the topic, also read “Energy Victory” by Robert Zubrin as well.

  • Posted by Larry Plon

    If the political climate is allowed to change (removing the roadblocks from the fossil fuel interests) and cars altered to burn multiple alternative fuels , the natural forces of investment will determine the future of methanol. What seems to be in place now is a policy which restricts the opportunity for development of this less expensive and potentially beneficial (in multiple domains) source of fuel. Level the playing field and see what happens.

  • Posted by Thomas Slabe

    There presently is no better fuel than methanol. Energetically it is the easiest fuel to produce. It is not necessarily produced from natural gas – methane – but can be produced from garbage and agricultural residue. Full production of methanol would mean the end of landfills and probably the end of paying to have your garbage picked up, because your garbage would suddenly become a valuable class of material. Re. all the other questions, like the question about greenhouse gasses, methanol made from coal has a large net carbon footprint and methanol made from an fuel crop such as switch grass has a nearly zero carbon footprint. Of course one could easily write a book on the subject (and I would suggest the author do that, and I recommend “Beyond Oil and Gas: The Methanol Economy” by George Olah, A. Goeppert, and S. Prakash. What in most certainly the case is that fossil fuels are obsolete and must be eliminated in order to lower the risk to future generations, which will be subjected to potentially catastrophic climate change and sea level rise It is our obligation to do all we can to help protect future generations from the consequences of the misguided behaviors their predecessors (us) are engaging in at present with regard to liquidating earth’s resources and causing dangerous rises in atmospheric carbon dioxide and increasing the acidity of the oceans. We shouldn’t be leaving this legacy for future generations. We MUST transition away from gasoline and other fossil fuels and methanol and the higher mixed alcohols are the most practical fuels available to transition to.

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