ECONOMIC FEASIBILITY OF ALTERNATIVE FUELS DEEMED UNLIKELY

Since the first Oil Embargo, many in governments, industry and academia have been operating on the belief that alternative transportation fuels (and vehicles) will need to be developed to meet society’s future mobile transportation requirements. The reasons for their beliefs varied over time from projected future high crude oil prices (economics), energy security, reducing mobile source pollutants and more recently, greenhouse gases. As energy prices stabilized or declined, the economic and security arguments have diminished. Past and recent experience suggests that as gasoline and diesel quality becomes cleaner, the automakers are finding that they can burn these conventional fuels in vehicles more efficiently and cleanly by improving both the combustion engines and exhaust aftertreatment technologies. This dampens, if not eliminates, the need for society to change over to an entirely new powertrain technology such as fuel cells. W. Piel of TEIR Associates Inc. reviewed some of the issues that have driven the need (or belief) to switch to Alternative Fuel Vehicles (AFV) at the 219th American Chemical Society National Meeting held in San Francisco, California, in March.

The Oil Embargoes of the 1970s created a fear that oil supplies were declining and therefore helped spur the creation of the United States Department of Energy and the original push to develop fuel alternatives for gasoline derived from crude oil. Energy forecasters in the 1980s projected that crude supply alternatives to OPEC-controlled crude would not develop. As a result, they ignored doing the fundamental cost analysis of the marketplace’s ability to develop alternative crude supplies, and therefore projected that crude oil prices would climb much higher than $20 per barrel. When projected consumption is actually stacked against oil sources, Figure 1 suggests that there may be a century’s worth or more of oil supply available for future oil markets. In addition, historical crude prices (corrected to a 1995 dollar basis) lie mostly between $10 and $20 per barrel. Assuming oil recovery technology continues to improve, one should expect that this price range will continue into the foreseeable future. Piel also notes that, if crude oil prices continue to stay near $20 per barrel, and the refining margins and gasoline prices continue to decline, it will be economically difficult to justify developing alternative fuel substitutes for gasoline and diesel.

Figure 1

Figure 2 shows the wholesale prices of a number of possible alternative fuels (on an energy equivalent basis) compared to conventional gasoline. Only Compressed Natural Gas (CNG) and Liquefied Petroleum Gas (LPG) appear to have some economic advantage relative to gasoline while ethanol, methanol and electricity are at a severe economic disadvantage. However, even these simple economics do not capture the added cost necessary to build the supporting fuel distribution infrastructure as well as the added cost of the vehicle to use that alternative fuel. These added costs will usually eliminate most if not all of CNG’s and LPG’s economic advantage over gasoline and further disadvantage the other alternative fuels. These unfavorable economics help explain the small market share of AFVs that has developed since the crude oil price spike of the early 1980s. All the AFV fleets combined represent less than 0.25 percent of the total United States vehicle fleet, and even those AFVs are usually found in niche markets that are supported by central fueling locations and favorable tax supports.

Figure 2

Air quality agencies have been reducing tailpipe emission standards which provide an incentive to switch to AFVs with their lower emissions. In response, the oil and auto industries combined have found ways to further cleanup gasoline and diesel fuels, which not only reduces the emissions from the current vehicle fleet, but also allows the automakers to develop even cleaner burning vehicles that approach the lower emissions of the AFVs. As a result of the cleaner burning gasoline, the auto industry is now introducing cars that not only meet California Ultra-Low Emission Vehicle (ULEV) standard but also the Super Ultra-Low Emission Vehicle (SULEV) standard without using AFVs. As new model gasoline vehicles become cleaner, the shrinking emission advantage of the AFVs diminishes to a point where the cost of reducing this small remaining emission becomes costly compared to other options for reducing emissions elsewhere.

To decrease mobile sources of greenhouse gases, the drive has been to reduce vehicle fuel consumption by moving to a higher efficiency vehicle with a fuel economy of 80 miles per gallon or 3 liters per 100 kilometers. To achieve this goal many have thought it would require using a higher efficiency powertrain such as a fuel cell running on an alternative fuel such as hydrogen or methanol. The development of the high-efficiency diesel engines coupled with hybrid drivetrains are rising to meet this challenge. Although the responsiveness and performance of the diesel engine has been improved to be comparable to that of the gasoline engine, a major hurdle still exists for reducing the diesel’s NOx and Particulate Matter (PM) emissions to be comparable to gasoline engines. To help reduce these emissions, the reformulation of diesel continues to be studied. For example, increasing the hydrogen content of the fuel will help reduce PM emissions by as much as 30 percent. In addition, adding as much as 5 percent oxygen can reduce emissions by another 25 percent.

When one looks at the recent history and current events, they suggest that the fuels of the foreseeable future will still be gasoline and diesel, but will be improved, cleaner burning versions. These cleaner fuels will allow automakers to further develop even cleaner vehicles that will produce minimal emissions and consume much less fuel. Thus, the economic incentives to switch to AFVs will not likely exist in the foreseeable future except for niche markets, says Piel.