2 Studies See Higher Cost for Methanol

Methanol, which has been widely viewed as a clean-burning alternative to gasoline, will be more expensive than previously estimated and its widespread use would not likely reduce U.S. dependence on foreign energy suppliers, separate studies by the California Energy Commission and the oil industry have concluded.

The Western Oil & Gas Assn., which represents major oil companies and related industries, said its methanol cost estimates are as much as 45% higher than those developed in May, 1986, in a joint study by the California Air Resources Board, the California Energy Commission and the South Coast Air Quality Management District, which called methanol “the fuel of the future.”

At the same time, it was learned that the California Energy Commission on Friday will upwardly revise its 1986 cost estimates, although the estimates will not match those of the oil industry.

During the five-year period between 1991 and 1996, the industry study said, methanol can be expected to cost between $1.42 to $2.25 a gallon in 1987 dollars. The new California Energy Commission figures put the range at between $1.24 and $1.31 a gallon.

State and federal agencies have been pressing for auto makers to produce cars capable of running on both methanol and gasoline and have urged oil companies to make methanol more widely available. Methanol is a high-octane fuel that produces fewer air pollutants, principally soot and hydrocarbons and oxides of nitrogen, which combine to form ozone in the lower atmosphere. It has been estimated that a complete changeover to methanol vehicles in the four-county South Coast Air Basin would reduce peak ozone levels by as much as 50%.

Price Competitiveness

But it has long been agreed that methanol must be competitive in price with gasoline if it is to win widespread acceptance.

Although the Western Oil & Gas Assn. study did not include estimates of gasoline prices for the same period, the state estimates that premium unleaded gasoline would cost between $1.09 to $1.26 a gallon during the 1991-1996 period.

Economist Richard P. O’Toole, who participated in the industry study, said Monday, “If the price of methanol is higher (than gasoline) by a factor of 40% or 50% it would delay the introduction . . . in a significant way.” O’Toole, an economist at the Jet Propulsion Laboratories near Pasadena, is the former director of JPL’s California methanol assessment project.

Later this week, General Motors Corp. and Chevron U.S.A., are scheduled to announce a test program in Northern California to market methanol fuel and test a GM Chevrolet Corsica that can run on either gasoline or methanol. Last May, Arco announced that it would begin marketing methanol at 25 Southern California service stations in January.

However, no major oil company at this point produces methanol. Arco and Chevron will buy methanol from the state, which purchases it from other producers. It would require major capital expenditures for the oil companies to produce methanol.

Current Production

Air Resources Board spokesman Bill Sessa said there is enough methanol produced now to meet the demands of 2 million to 2.5 million vehicles. But there are less than 1,000 cars in California equipped to burn methanol.

The oil industry’s higher cost estimates are based on studies that show that methanol will not get as many miles per gallon as the state’s 1986 estimates. The industry study based its cost estimates on the assumption that it would take 1.8 gallons of methanol to equal the mileage in a gallon of gasoline.

Western Oil & Gas Assn. spokesman Michael Wang said the industry estimates also include capital costs of expanding trucking fleets, building methanol terminals, refineries and other facilities that were not included in figures produced by the state.

“I think the real critical concern is are we jumping on a methnol bandwagon without giving due consideration to large capital costs that are going to be sunk and then if you find (methanol) is not viable, then you’ll never be able to recover the costs,” Wang said.

Methanol is made by a different process than gasoline and can be produced from coal and decaying organic matter as well as crude oil.

Likely Source

But, the Western Oil & Gas Assn. study concluded that methanol producers would likely turn to the cheapest stock available to make methanol--natural gas from the Middle East, South America and Mexico, the countries that are already crude oil exporters.

“If you’re asking who would make the most of it, I would say most of it would be made by companies using supplies from the Middle East,” Wang said.

“We don’t disagree with WOGA (the Western Oil & Gas Assn.) when they say natural gas is the most economical (stock) for most of the rest of the century,” Sessa said.

Sessa said that where state government agencies and the oil industry may differ is on the longer-term costs when the existing world methanol glut gives way to greater demand.

Sessa said it was too early to determine if rising estimates of methanol cost meant that it would not be competitive with gasoline.

“We’re saying it’s really up to the industry whether it’s competitive or not,” Sessa said. He added that it has always been difficult to predict future energy prices.