In determining the incremental costs of FFVs, the fuel
sensor which identifies the type of fuel in the vehicle
(methanol, gasoline, or a blend) is one of the more costly
items. Other costs are added to assure engine and fuel system
compatibility with both fuels and to reflect an increased fuel
tank size. Overall, the EPA estimate, based on discussions
with auto company engineers, is that an FFV will have up to a
$300 cost incremental to a comparable gasoline vehicle.

These vehicle cost estimates are described in more detail
in Attachment 4.

-14-



Table 1

Cost of Fuel Methanol Delivered to Los Angeles '

Location Trinidad Mid East Australia Canada US Gulf Alaska
Annual Natural Gas

Consumption (bcf) 109.6 -109.6 109.6 109.6 109.6 109.6
Annual Methanol
- Production

(million gal) 1151 1151 1151 1151 1151 1151

Total Capital Cost
(Million 1988 $) 985 1088 1537 926 883 1498

Capital Recovery
Cost (¢/gal)

-16.2% CRR 13.9 15.3 21.6 13.0 12.4 21.1
10% CRR 8.6 .. 9.5 13.4 8.0 1.7 13.0
-20% CRR 17.4 18.9 26.7 16.1 15.3 26.0
~30% CRR 25.7 28.4 40.1 24.1 23.0 39.0
Nongas Operating 5.9 7.1 9.1 5.4 5.6 9.4

Cost (¢/gal)

Transport Cost ; ‘
(#/gal) : 5.0 5.0 4.0 8.0 0.0* 8.0%

* Bechtel estimated costs of 9¢ and 52¢/gal from the Gulf Coast and Alaska sites,
respectively.

-32-



What Would Be The Gasoline-Equivalent Methanol Retail Price?

The projected gasoline-equivalent methanol retail price is
simply the methanol port .price plus the added costs of
distribution, service station markup, and taxes, multiplied by
a ratio accounting for the number of gallons needed for a
methanol vehicle to travel the same distance as a gasoline
vehicle on a gallon of gasoline. Because methanol has one-half
of the energy of a gallon of gasoline, if methanol (M100)
vehicles had only equal energy efficiency then the ratio is
2.0. An M85 vehicle with 5 percent improved efficiency would
have a ratio of 1.67. At 30 percent better energy efficiency,
appropriate for dedicated and optimized M100 vehicles, then the
ratio is 1.54 (2 divided by 1.3). Thus, as shown in the
following table, the projected gasoline-equivalent methanol
retail price would be $1.14 to $1.24 for an M85 vehicle with 5
percent better energy efficiency at current methanol prices,
and $1.10 to $1.14 per gallon for equal efficiency and $0.85 to
$0.88 per gallon for 30 percent better efficiency for. M100
vehicles at projected future methanol prices.

Gasoline-Equivalent Methanol Retail Price
(cents per gallon)

Current M85 Future M100
M100 Equal 5% Better 30% Better
Efficiency Efficiency Efficiency

Methanol Port Price 35. 40-45 35

Gasoline Blending for oO. 4-5 0
M85 | :

Distribution, Markup, 20-22 23-25 20-22
and. Taxes _

Total Methanol Retail 55-57 68-74 55-57
Price . :

Gasoline-Equivalent 2.0 1.67 1.54
Ratio .

Total Gasoline-Equivalent 110-114 114-124 85-88

Methanol Retail Price

pBO RANGE



120.

121.

122.

123.

124.

125.

126.

127.

128.

129.

130.

Memorandum: “preliminary Assessment of Methanol vs
Gasoline Ingestion," from Murray Rosenfeld, Standards
Development Support Branch, to Charles L. Gray dJr.,
Director, Emission Control Technology Division, June 30,
1981. : .

"Volatile Organic Compound Emissions from 46 In—Use
Passenger Cars," John E. Sigsby, Jr. et al., U.S. EPA,
Environ. Sci. Technol., Volume 21, 1987.

"Unregulated Exhaust Emissions from Non-Catalyst Baseline
Cars Under Malfunction Conditions," Charles | Urban,
Southwest Research Institute,. Report EPA-460/3-81-020, May
1981.

“Regulated and Unregulated Exhaust Emissions from
Malfunctioning Non-Catalyst and Oxidation Catalyst
Gasoline Automobiles," Charles Urban, Southwest Research
Institute, Report EPA-460/3-80-003, January 1980.

"Regulated and Unregulated Exhaust Emissions from
Malfunctioning Three-Way Catalyst Gasoline Automobiles,"
Charles Urban, Southwest Research Institute, Report
EPA-460/3-80-004, January 1980.

"Characterization of Exhaust Emissions from High Mileage

Catalyst-Equipped Automobiles," Lawrence R. Smith,
Southwest Research Institute, Report EPA-460/3-81-024,
September 1981.

"A Compilation of Work on the Topic of the Environmental
Consequences of Methanol Spills," Peter N. D'Eliscu,
Acurex Corporation, 1987.

Craig A. Harvey, "Determination of a Range of Concern for
Mobile Source Emissions of Methanol," EPA Office of Mobile
Sources Report TSS 83-6, July 1983.

Penny M. Carey, "Determination of a Range of Concern for
Mobile Source Emissions of Formaldehyde Based Only on its
Toxicological Properties," EPA Office of Mobile Sources

Report TSS 83-5, July 1983.

"Metabolism, Ocular Toxicity and Possible Chronic Effects
of Methanol," Dr. Kenneth McMartin, Presentation at the
Methanol Health and Safety Workshop, South Coast Air
Quality Management District, November 2, 1988. :

"Phe Percutaneous Absorption of Methanol After Dermal
Exposure to Mixtures of Methanol and Petrol," D.G. Ferry,
W.A. Temple, and E.G. McQueen, Proceedings, Fifth
International Alcohol Fuel Technology Symposium, Volume 3,
1982. ‘ ‘

-82-

eae



Table 3

Break-Even Natural Gas Price as a Function of
Crude Oil Price, CRR, and Vehicle Efficiency

Crude Oi1 Capital Recovery
($/bb1) Rate (%)
20 16.2
20 16.2
20 16.2
20 20
20 30
35 16.2
35 20
35 30

Improvement _(%)

-37-

Methanol
Efficiency

0

5
30
30
30
30
30
30

Break-Even
Natural Gas

Price ($/MMBtu)
0.69
0.97
2.33
2.19
1.83
4.85
4.71
4.34



local facility. For example, natural gas could be available to
the Prudhoe Bay, Alaska site at less than $0.50/MMBtu over the
next 20 years.(1) In other remote locations, given the vast
quantity of natural gas which is currently vented and flared,
it seems likely that gas can be supplied at similar prices.
Based. on a recent DOE analysis, prices ranging from
$0.50-1,.00/MMBtu: appear reasonable, thus contributing 5-10¢/gal
to the price of methanol for many sites.(2) (The SRI study
projected somewhat higher natural gas prices at several of the
same remote sites, and although not used as “best estimates",
the SRI values are considered in the sensitivity analysis in
Attachment 3.) In developed areas such as the U.S., high
natural gas prices are likely ($1.50/MMBtu or more) and will
probably prohibit the competitive production of fuel grade
methanol until oil prices rise significantly. For western
Canada, which has no developed natural gas market, but could be
connected to the U.S. distribution system at a moderate cost,
an intermediate price for natural. gas of $1.00-1.50 per MMBtu
or higher is likely. As petroleum prices rise in the future,
it seems reasonable to expect upward pressures on all natural
gas. However, considering the diversity of supply of natural
gas and the absence of competing uses of the gas at most
locations, the energy price rise of remote natural gas should
be slower than that of petroleum.

In summary, natural gas prices of -$0,.50-1.00 MMBtu in
remote areas should allow for gas related costs of 5-10¢/gal of
methanol. When this is added to the total non-gas costs shown
in Table 2, total production costs of 25-35¢/gal is estimated
for low-cost areas.

Overseas Transportation and Total U.S. Port Costs

Also shown in Table 2 are transportation costs, which were
projected in the Bechtel report (with one exception).
Bechtel's estimates range from 4 to 9¢/gal for all sites except
Prudhoe Bay, Alaska, where transportation costs of 52¢/gal were
suggested based on the assumption that a new Trans—-Alaska
methanol pipeline would be required for methanol. The Bechtel -
study ignores the projected decline in the throughput of the
existing Trans-Alaska pipeline, which will create spare
capacity over the next several years. Thus, the transportation
cost for Alaskan methanol has been estimated at 8¢/gal,
comparable to that of Canada. ,

(i) “the Economics of Alternative Fuels and Conventional
Fuels," SRI International, presented to the Economics
Board on Air Quality and Fuels, February 1989.

(2) “Assessment of Costs and Benefits of Flexible and
Alternative Fuel Use in the U.S. Transportation Sector,
Technical Report Two: Executive Summary-—-Methanol and LNG
Production and Transportation Costs," Office of Policy,
Planning and Analysis, U.S. DOE, May 1989.



10.
11.
12.
13.
“aa.
15.
16.

17.

MLN. Ingalls, RJ. Garbe, “Ambient Pollution
Concentrations from Mobile Sources in Microscale
Situations," Society of Automotive Engineers Paper 820787,
June 1982.

P.A. Gabele, J.0O. Baugh, F.M. Black, R. Snow,
“Characterization of Emissions from. Vehicles Using
Methanol and Methanol-Gasoline Blended Fuels," Journal of
the Air Pollution Control Association, 35, 1168-1175, 1985.

L.R. Smith, C. Urban, T. Baines, "Unregulated Exhaust
Emissions from  Methanol-Fueled Cars," Society of
Automotive Engineers Paper 820967, August 1982.

"Summary and Analysis of Comments on the Notice of
Proposed Rulemaking for Emission Standards and Test
Procedures for Methanol-Fueled Vehicles and Engines," EPA
Report, January 1989.

Proceedings from 8th International - Symposium on Alcohol
Fuels, Tokyo, Japan, November 1988.

Proceedings of the Methanol Health and Safety Workshop,
South Coast Air Quality Management District, November 1988.

F. Lipari, R.L. Williams, “Formaldehyde, Methanol, and
Hydrocarbon Emissions from Methanol-fueled Cars," Air and
Waste Management Association Paper 89-124.3, June 1989.

"Request for Applications, Phase Two, Set II, Research
Agenda," RFA 85-1, "Health Effects of Aldehydes", Health
Effects Institute, July 24, 1985.

"Motor Vehicle Toxics: Assessment of Sources, Potential
Risks and Control Measures," State of California, Air
Resources Board Report, June 1989.

Penny M. ‘Carey, “Air Toxics Emissions From _ Motor

Vehicles," EPA Office of Air and Radiation Report, .

September 1987.

Penny M. Carey and Joseph H. Somers, "Air Toxics Emissions
From Motor Vehicles," Air Pollution Control Association
Paper 88-128.1, June 1988.

Jonathan M. Adler and Penny M. Carey, “Air Toxics

Emissions and Health Risks from Motor Vehicles," Air and .

Waste Management Association Paper 89-34A.6, June 1989.

CHarles E. Moulis, "Formaldehyde Emissions from Mobile
Sources and the Potential Human Exposures," Air and Waste
Management Association Paper 89-34A.1, June 1989.

"Formaldehyde Health Effects," Midwest Research Institute

Report for EPA Office of Mobile Source Air Pollution
Control, December 1981.

-64-

sad

fe]

Pees

jenn.

ela

Baad

Weaiio Buc





Further cost savings in the emission control system due to
reduced engine size are possible. Most emission control
systems use a certain ratio of catalyst volume to engine
displacement. With a smaller engine, a smaller catalytic
converter could be used, with no loss in emission control
capability. .

Methanol's combustion properties are such that less heat
is rejected into the engine's cooling system. That fact,
coupled with the cool exhaust typical of highly efficient M100
combustion, leads to more savings. In order to ensure that the
catalyst will light-off quickly enough, the M100-fueled engine
will have to increase the sensible heat in the exhaust. This
will require exhaust port insulation, which will provide the
appropriate exhaust conditions for good emission control. It
is then not necessary to reject as much heat in the vehicle's
cooling system. It will clearly be possible to reduce the size
of the conventional radiator substantially and it may even be
possible to eliminate the conventional radiator, fan, and
controls completely and rely on only the heater core for engine
heat rejection. :

Methanol's volatility characteristics make it an excellent:
fuel as far as evaporative emissions are concerned. The
combination of low volatility and high specific heat make the
evaporative emissions characteristics of M100 so good that much
of che cost of the evaporative emission control systems can be
saved. :

In addition to the cost savings outlined above, possible
cost increases must be considered. Considerations of fuel
system modifications for M100 compatibility might lead to cost
increases; however, the fact that fuel systems are now being
made tolerant of oxygenated fuel blends might make this less
so. All vehicles will already be tolerant of these blends when
optimized M100 vehicles are introduced and the changes already
made may be sufficient for methanol, since intermediate level
oxygenated blends are in some ways more of a challenge to the
fuel system than M100. Therefore, fuel compatibility should

_ not result in a significant cost increase.

The more sophisticated fuel injection system that will be
required for satisfactory cold start performance with an
advanced optimized M100 engine is expected to result in a cost
increase over the fuel metering system on the engine it
replaces, but the systems currently under consideration are low
cost designs. The fuel tank for a dedicated methanol vehicle’
will also be larger and more expensive and may involve
modifications such as a flame arrestor or bladder for safety
reasons. Additionally, formaldehyde controls may lead to more
expensive catalytic converters. .

-45-



Because there is only a small database of in-use emissions
from methanol vehicles, MOBILE4 does not include methanol
vehicles and an alternative methodology is necessary for
projecting emission factors for methanol vehicles. The FFV M85
exhaust values shown in Table 1 generally reflect the
manufacturers' views of what is possible, although there are
some differences of opinion among them. With a credits banking
program, vehicle manufacturers will have an incentive to make
FFV's as clean as practicable. For the evaporative emission
components (hot soak/diurnal, running loss, and refueling), the
methanol FFV data were assumed to be equal to those of the
improved gasoline vehicles on a mass basis (which is reasonable
since M85 fuel currently has a volatility similar to 9 RVP
gasoline), with the HC-to-methanol ratio based on EPA test data.

There is a very small database with dedicated M100
vehicles, with most of the data generated by EPA test
programs. Theoretically, it would: be expected that there would
be little (exhaust) or no (evaporative) HC in M100 vehicle
emissions because of the lack of HC in the fuel, and EPA data
support this. EPA has tested several prototype dedicated M100
vehicles with exhaust HC emissions of 0.02 gpm or less and
exhaust methanol emissions of 0.40 gpm or less. Averaging
these low-mileage data and assuming typical deterioration rates
yield the 0.05 and 0.50 gpm emission factors for HC and
‘ methanol exhaust emissions given in Table 1. The 0.015 gpm
formaldehyde emission factor represents an aggressive yet
reasonable goal for optimized M100 vehicles and is equivalent
to the long-term standard recently adopted by the California
Air Resources Board. EPA has tested two vehicles employing
conventional technology, a Volkswagen Rabbit at low mileage and
a Toyota Carina at 11,000 miles, that have resulted in
formaldehyde levels of approximately 0.010 gpm.(1,2) In
addition, testing at EPA with an advanced technology
resistively-heated catalytic converter has yielded formaldehyde
emissions less than 0.005 gpm. The evaporative emission
factors for M100 would be expected to be very low given
methanol's extremely low volatility (approximately 5 RVP).
This potential for gteatly reduced evaporative emissions is
supported by a recent test program performed by EPA where
organic running loss emissions were measured with both M85 and
M100 on the same vehicle (the Toyota Carina) with the gas cap

(1) “Unregulated Exhaust Emissions from Methanol-Fueled Cars,"
Lawrence R. Smith, Charles M. Urban, and Thomas M. Baines,
Society of Automotive Engineers Paper No. 820967, August
1982. .

(2) "Fuel Economy and Emissions of a Toyota T-LCS-M Methanol
Prototype Vehicle," J.D. Murrell and G.K. Piotrowski, U.S.
EPA, Society of Automotive Engineers Paper No. 871090, May
1987.

-50-

a los, |



Assuming that, for the year 2005, mobile sources represent
‘on average only about 15% of the total VOC inventory*, the
program described above would yield an average reduction in voc
levels in the 9 metropolitan areas studied of 1.5 percent. In
addition, the full voC benefits are not attained by 2005 since
we assume sales of methanol vehicles would not begin until
1995, and because FFVs are projected to be sold for the first
five years of the program (1995-1999), only sales thereafter
will involve dedicated M100 vehicles. The maximum benefits
would accrue by 2015 when dedicated methanol vehicles will have
reached a "steady state" in the overall vehicle fleet (assuming
the market continued to result in 1,000,000 new dedicated
vehicles being sold each year). The average, steady state VOC
reduction in 2015 for the nine worst cities would be 3.3
percent.

The projected VOC reductions vary by city, of course, and
are given in Table 3 for each of the 9 most serious ozone
areas.(1,2) As can be seen, values as high as 2.2 percent are
attained in 2005 and as high as 4.7 percent in 2015. It is
important to note that these city-specific projections are
rough estimates of the VOC reductions that would be achieved;
specific projections would be worked out in discussions between
EPA and state and local air quality agencies.

While methanol's lower photochemical reactivity is a
distinct advantage in terms of urban ozone formation, the
question arises as to whether methanol, because of its. low
reactivity, will cause problems in ozone transport regions by

* Mobile source emissions currently represent from 30 to 50
percent of an urban area VOC inventory. However, the
implementation of more stringent emission standards
affecting both motor vehicles and petroleum fuels is
expected to significantly reduce the contribution of
mobile sources to the total VOC inventory, as vehicles and
fuels meeting these standards are phased in. If these
programs are not as effective in reducing in use emissions
as projected, then mobile source emissions levels would be
higher. In the projections described below, city-specific
values for the mobile source fraction of total VOC were
used, with the average being approximately 15 percent.

(1) “Impact of Methanol Vehicles on Ozone Air Quality," T.¥Y.
Chang, S.J. Rudy, G. Kuntasal, R.A. Gorse, Jr., draft
. Atmospheric Environment Paper, in press. . :

(2) “Assessment of Emissions from Methanol-Fueled Vehicles:
Implications for Ozone Air Quality," R.J. Nichols and J.M.
Norbeck, Air Pollution Control Association Paper 85-38.3,
dune 1985. :

-54-

<i Bel See



Appendix A

Derivation of “Break-even" Natural Gas Price

Methanol Port Cost (from Trinidad)

Mport ‘= 5-9 + 5 + 0.8558 (CRR) + 9.8(N)
= 10.9 + 0.8558 (CCR) + 9.8 (N)

Mport = Methanol Port Price (¢/gal)
CRR = Annual Capital Recovery Rate (%)
N = Natural Gas Feedstock Price

Methanol Pump Cost

Mpump = 10.9 + .0.8558 (CRR) + 9.8(N) + 22
= 32.9 + 0.8558 (CCR) + 9.8 (N)

Methanol Pump Cost (per gallon gasoline equivalent) | I.
Mi = Mpum 2.00
g pune (i+ £) [
100
Mg = Methanol Pump Cost (Gasoline Equivalent) /

E = Efficiency Improvement of Methanol Vehicle (%)

Gasoline Pump Cost

G = 2.54(C) + 5.323 + 0.7703 (CRR) + 39
= 2.54(C) + 0.7703 (CRR) + 44.323

6 = Gasoline Pump Cost (¢/gal)

Cc = Crude 0i1 ($/bb1)

Break Even Price

N=(1+_E_) x (2.2506 + 0.129C + 0.0391 CRR) - (0.0873 CRR + 3.357)

100
Where,
N=  Break-even Natural Gas Price ($/MMBtu)
E = Methanol Vehicle Efficiency Improvement (percent)
C= Crude Oil Price ($/bb1)
CRR = Annual Capital Recovery Rate (percent)

-43-



For the foreseeable future, the economics of methanol
production clearly favor the production of methanol from
natural gas. It is anticipated, though not certain, that the
methanol will be produced from vented and flared natural gas.
I£ currently vented or flared natural gas is used to produce
methanol, a large global warming benefit will accrue, since
such gas is currently being wasted while adding to the
greenhouse gas burden. If natural gas reserves that are not
being vented or flared supply methanol fuel, equal or slightly
lower greenhouse gas emissions are projected relative to those
of gasoline from crude oi1.(1,2) Other things being equal, the
use of coal as a methanol feedstock could nearly double
greenhouse gas emissions, but improved technology in the future

such as methane recovery at the coal mine and carbon dioxide.

recovery at the production plant could reduce the global
warming impact to less than that from gasoline from crude oil.
Research should continue in these areas since such technologies
need to be developed if coal use is to be considered. The use
of cellulose, biomass or other renewable feedstocks to produce
methanol could yield a very large global warming benefit, since
such materials do not require the use of “stored carbon."

The sale of alternative-fueled vehicles will generate CAFE
credits under the Alternative Motor Fuels Act of 1988. To the
extent that automobile manufacturers and purchasers accept
lower fuel economy of the gasoline-powered portion of the
fleet, CAFE could no longer be a binding constraint and an
increase in gasoline consumption and global warming could
result. This effect would be reduced to the extent that
consumers demand good fuel economy and that methanol is
produced from currently vented and flared natural gas.

'

Other Issues

Questions have been raised regarding the use of methanol
as a vehicle fuel with respect to fuel spills and human
safety. EPA is analyzing these issues and has concluded at
this time that, like all fuels, methanol has _ certain
characteristics that justify protective regulatory safeguards.
These issues. are discussed, along with a more detailed review
o£ the environmental implications of a clean, alternative fuels
program, in Attachment 5.

(i) “Global Warming as Affected by Fuels Choices," . Acurex
‘ Corporation, prepared for the 1989 SAE Government/Industry
Meeting, May 2-4, 1989. .
(2) "Transportation Fuels and the Greenhouse Effect," Mark A.
DeLuchi, Robert A. Johnson, and Daniel Sperling, U. of
California, December 1987.

-18-

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ead

wed

[coe es oe eed



the price of competing energy sources (crude oil, coal, etc.),
the existence of a viable market for the gas at the particular
location, and the cost of collecting and transporting the gas
to that market. In highly developed areas, such as the U.S.
Gulf Coast, an extensive gas pipeline infrastructure exists to
supply domestic demand, therefore linking the value of natural
gas to other premium energy prices. In remote locations, such
as Prudhoe Bay, however, no market for natural gas exists, nor
is one likely to develop in the near future, and thus the
natural gas has little market value. The price at which
natural gas could be supplied to a methanol plant at such a
location would thus be minimal, reflecting principally the
costs of collection and transport to the facility. In other
developing countries, it is difficult to predict the rate at
which alternative markets for natural gas will develop, thus
adding complexity to the issue.

As presented earlier, because of the widespread
availability of vast quantities of currently unmarketable gas,
it seems reasonable to expect that it will be possible to
identify low cost natural gas in sufficient quantities to
supply methanol production facilities. For example, the report
prepared by SRI estimated that natural gas could be available
to the Prudhoe Bay, Alaska site at under $0.50/MMBtu over the
next 20 years.(1) In numerous other locations, given the vast
quantity of natural gas which is currently vented, flared, and
re-injected, it seems likely that gas can be supplied at prices
ranging from $0.50-1.00/MMBtu, thus contributing 5-10¢/gal to
the price of methanol at those sites. In developed areas such
as the U.S., higher natural gas prices (greater than
$1.50/MMBtu or so) may prohibit the competitive production of
fuel grade methanol. As petroleum prices rise in the future,
it seems reasonable to expect upward pressures on all natural
gas. However, considering the diversity of supply of natural
gas and the absence of competing uses of the gas at most
locations, the energy price rise of remote natural gas should
be slower than that of petroleum.

In summary, natural gas prices of $0.50-1.00 MMBtu will be
likely in remote areas resulting in gas related costs of
5-10¢/gal of methanol. As will be seen later in this
attachment, however, even with substantially higher gas prices,
methanol can compete economically with gasoline.

(i) “The Economics of Alternative Fuels and Conventional
Fuels," SRI International, presented to the Economics
Board on Air Quality and Fuels, February 1989.

-33-

asia



toed

gasoline-fueled vehicles under the proposed new standards and
vehicles optimized for methanol are 5 milligrams per mile and
15 milligrams per mile, respectively. A catalyst is required
to control formaldehyde from ‘methanol vehicles. The potential
exists to optimize the catalyst to achieve formaldehyde levels

.Similar to gasoline vehicles, if necessary.

: In contrast to direct formaldehyde emissions, it is
believed that indirect formaldehyde formation with neat
methanol vehicles will decrease relative to gasoline-fueled
vehicles. This is due to the decrease in reactive hydrocarbons
emitted from _- methanol-fueled vehicles relative to
gasoline-fueled vehicles (methanol is not very reactive). A
decrease in reactive hydrocarbons emitted is expected to result
in less indirect formaldehyde formed.(1) The use of neat
methanol is estimated to result in an 80 percent reduction in
reactive hydrocarbons and, thus, an 80 percent reduction in
indirect formaldehyde.

With the use of neat methanol, the reduction in cancer
cases from indirect formaldehyde is projected to roughly offset
the increase in cancer cases from direct formaldehyde. As a
result, the net impact is projected to be no increase in
formaldehyde cancer cases with neat methanol use. However, the
exposure and health effects tradeoffs associated with direct
formaldehyde emissions and indirect formaldehyde exposure will
continue to be studied.

More information on the air toxics implications of the
clean, alternative fuels program, is included in the following
references: :

1. “Emission Standards For Methanol-Fueled Motor Vehicles and
Motor Vehicle Engines," EPA Final Rulemaking, Federal
Register Part 86, No. 68, 14426-14613, April 11, 1989.

2. Paul A. Machiele, "Flammability and Toxicity Tradeoffs
with Methanol Fuels," -SAE Paper 872064, November 1987.

3. Richard Snow, Linnie Baker, William Crews, C.O. Davis,
John Duncan, Ned Perry, Paula Siudak, Fred Stump, William
Ray, James Braddock, "Characterization of Emissions from a
Methanol Fueled Motor Vehicle," Journal of the Air

Pollution Control Association, 39, No. -1, 4854, ° January
1989. : : ; :

(i) “Summary and Analysis of Comments on the Notice of
Proposed Rulemaking for Emission Standards and Test
Procedures for Methanol-Fueled Vehicles and Engines," EPA
Office of Mobile Sources, January 1989.

-63-

|
|



TABLE OF CONTENTS

Page
Economic Analysis of Methanol a 1
Current Methanol Market Prices a 1
Fuel-Grade Methanol Price at the Port... Ce 2
Cost of Fuel Methanol Production . . rr 3
Overseas Transportation and Total U.S. Port Costs . 8
Retail Price of Methanol and Gasoline-Equivalent Price ... 10
Current Gasoline Price Compared to Methanol . oe 13
Future Gasoline and Methanol Prices . ee Fc}
Vehicle Costs... 1. ee ee ee ee ee ee TB
Environmental Analysis of Methanol. ............4.. 215
Urban Ozone Levels ......%., soe wee oe 15
Air Toxics . 1... 1. ee eee se ee eee ee ew 16
Global Warming ....... an rns ff
Other Issues 6 we ee eee ee ee ee ee ee ee 18
Attachment 1 - Potential Natural Gas Feedstock Availability :
for Future Methanol Fuel Production Facilities . 19
Attachment 2 - What Are The Distribution Costs Associated
With Fuel Methanol? ..........44 4s 22
What Level Of Fuel Efficiency Can Be Expected
From An Optimized Dedicated M100 Vehicle? ... 26
What Would Be The Gasoline-Equivalent Methanol
: : Retail Price? «2... eee ee ee ee 2D
' Attachment 3 - Sensitivity Analysis of Methanol and :
Gasoline Price Comparison ......:... 30
Attachment 4 - What Is the Cost Difference Likely To Be
Between A Methanol Vehicle and Its
Conventional Fuel Counterpart? ......4.4.. 44

Attachment 5

Environmental Implications of Methanol... .. 47



32.

33.

34.

35.

36.

37.

38.

39.

40.

41.

42.

43.

44.

“Report on Methanol," National Academy of Sciences -
National Research Council, Washington D.C., Toxicological
Information Center, March 9, 1959.

"Biohazards of Methanol in Proposed New Uses," Herbert S.
Posner, Journal of Toxicology and Environmental Health,
15153-171, 1975.

"A Review of the Toxicity of Methanol", Dr. John J. Clary,
Presented at the First International Conference on
Methanol, May, 1983.

"Biological Monitoring of Persons Exposed to Methanol
Vapors," V. Sedivec, et.al., Int. Arch. Occup. Environ.
Health, 48: 257-271, 1981.

"Blood Methanol Concentrations in Normal Adult Subjects
Administered Abuse Doses of Aspartame," L.D. Stegink,
et.al., J. Toxicol, Environ. Health, 7: 281-290, 1981.

"Circulating Concentrations of Testosterone, Luteinizing
Hormone, and Follicle Stimulating Hormone In Male Rats
after Inhalation of Methanol," A.M. Cameron, et.al., Arch.
Toxicol., Supply 7:441-443, 1984.

"Teratological Assessment of Methanol and Ethanol at High
Inhalation Levels in Rats," B.K. Nelson, et.al., Fund.
Appl. Toxicol., 5: 727-736, 1985.

"Neonatal Behavioral Toxicity in Rats Following Prenatal
Exposure to Methanol," R. Infurna, B. Weiss, Teratology,
33: 259-265, 1986.

"Toxicological Research of Methanol as a Fuel Power
Station: Demonstration Tests for the Environmental Safety
of Methanol," New Energy Development Organization.

"Summary Review of Health Effects Associated with
Methanol: Health Issue Assessment," EPA/OHEA Draft
Report, September, 1987.

Craig A. Harvey, "Determination of a Range of ‘concern for
Mobile Source Emissions of Methanol," EPA Office of Mobile
Sources Report TSS 83-6, July 1983. :

Penny M. Carey, "Determination of a Range of Concern for
Mobile Source Emissions of Formaldehyde Based Only on its
Toxicological Properties," EPA Office of Mobile Sources
Report TSS 83-5, July 1983.

"Metabolism, Ocular Toxicity and Possible Chronic Effects
of Methanol," Dr. Kenneth McMartin, Presentation at the
Methanol Health and Safety Workshop, South Coast Air
Quality Management District, November 2, 1988.

-66-

Pre a oe

Yeas eed



.

x

18.

19.

20.

21.

22.

23.

24.

25.

26.

27.

28.

29.

30.

31.

"Formaldehyde," Documentation of the Threshold Limit
Values, AGCIH, 1985.

"Report on the Consensus Workshop on Formaldehyde,"

‘Environmental Health Perspectives, 58, 323, 1984.

“Assessment of Health Risks to Garment’ Workers and Certain
Home Residents from Exposure to Formaldehyde," EPA Office
of Pesticides and Toxic Substances Final Draft Report,
March 1987.

“Formaldehyde and Other Aldehydes", Committee on
Aldehydes, National Research Council, National Academy of
Sciences, 1981.

“Characterization of Exhaust Emissions from Methanol and
Gasoline-Fueled Automobiles," Southwest Research Institute
Report for EPA Office of Mobile Source Air Pollution
Control, Report EPA 460/3-82-004, August 1982.

“Automotive Methanol Vapors and Human Health: An
Evaluation of Existing Scientific Information and Issues
for Future Research," Health Effects Institute, May 1987.

Paul Machiele, "Flammability and Toxicity Tradeoffs with
Methanol Fuels," SAE Report No. 872064, November 1987.

Kathleen M. Nauss, "An Evaluation of the Human Health
Effects of Automotive Methanol Vapors," Health Effects
Institute, presented at the South Coast Air Quality
Management District Methanol Health and Safety Workshop,
November 1, 1988.

Dr. John J. Clary, "Discussion Paper on New Research on
Methanol," prepared for the American Petroleum Institute
by Bio Risk Consultants, June 9, 1989.

Dr. Toby Litovitz, "Acute Exposure to Methanol in Fuels:
A Prediction of Ingestion Incidence and Toxicity,"
National Capital Poison Center, October 31, 1988.

“Material Safety Data Sheet: Methyl Alcohol",
Occupational Health Services Inc., September, 1985.

“Inhalation of Vapors Related to Use of Methanol Fuel:
Disposition of Inhaled Methanol," Dr. Michele Medinsky,;
Presentation at the Methanol Health and Safety Workshop,

South Coast Air Quality Management District, November 2,
1988. :

"Methanol Health Effects," Midwest Research Institute for
EPA, EPA-460/3-81-032, December, 1981.

“Alcohols Toxicology", William W. Wimer, John A. Russell,
Harold L. Kaplan, Southwest Research Institute, 1983.

-65-



The sale of alternative-fueled vehicles will generate CAFE
credits under the Alternative Motor Fuels Act of 1988. To the
extent that automobile manufacturers and purchasers accept
lower fuel economy of the gasoline-powered portion of the
fleet, CAFE could no longer be a binding constraint and an
increase in gasoline consumption and global warming: could
result. This effect would be reduced to the extent that
consumers demand good fuel economy and that methanol is
produced from currently vented and flared natural gas.

More thorough discussion on the effects of alternative
fuels on global warming is covered in the following references:

1. "Global Warming as Affected by Fuels Choices," Acurex
Corporation, prepared for the 1989 SAE Government/Industry
Meeting, May 2-4, 1989.

2. Timothy L. Sprik, "Alternative Transportation Fuels and
the Greenhouse Effect," U.S. EPA, [Draft Report].

3. "Coal-to-Methanol: An Engineering Evaluation of Texaco
Gasification and ICI Methanol-Synthesis Route," prepared
by Fluor Engineers and Constructors, Inc. for Electric
Power Research Institute, EPRI AP-1962, Project 832-4,
August 1981.

4. Meyer Steinberg and Hsing C. Cheng, "A Systems Study for
the Removal, Recovery, and Disposal of Carbon Dioxide from
Fossil Fuel Power Plants in the U.S.," Brookhaven National
Laboratory, BNL 35666, February 1985.

5. Mark’ A. DeLuchi, Robert A. Johnston, Daniel Sperling,
“Pransportation Fuels and the Greenhouse Effect," December
1987.

6. "A Carbon Dioxide Power Plant for Total Emission Control
and Enhanced Oil Recovery," Frederick L. Horn and Meyer
Steinberg, Brookhaven National Laboratory, BNL-30046,
August 1981.

7. "Advanced Technologies for Reduced C02 Emissions," M.
Steinberg and H.C. Cheng, Brookhaven National Laboratory,
BNL-40730, December’ 1987.

8. "Comparing the Impact of Different Transportation Fuels on
the Greenhouse Effect," Stefan Unnasch, Carl B. Moyer,
Douglas D. Lowell, Michael D. Jackson, Acurex Corporation,
December, 1988.

9. “Coalbed Methane in the Black Warrior Basin," Thompson,
Dan A., Telle, Whitney R., Alabama Geology, Resources, and
Development, GRI Quarterly Review of Methane from Coal
Seams Technology, Volume 4, Number 3, February 1987.

-68-



FIGURE 4-1 3

40--

w.
wn
I

&
I

Best Estimate

rn
wm
I

~
w
J

So
I

Fuel Efficiency Increase Over Gasoline, %
3
J

NO x Control

Down-Size ;

Increase

Extra Fuel Weight

Ske. Lean
Compression Fuel-Air
Ratio Mixture

Design Strategy

Note: Figure taken from "The Outlook for Use of
Methanol as a Transportation Fuel," Chevron
U.S.A., Inc., January 1985.



ENVIRONMENTAL ANALYSIS OF METHANOL

Urban Ozone Levels

The primary environmental benefit associated with the
alternative fuels program will be significant improvements in
ozone levels in the most seriously polluted areas of the
country. The clean, alternative fuel advantage over gasoline
in terms of urban ozone formation is due to both lower levels
of vehicle emissions and the lower photochemical reactivity of
these emissions.

The VOC emissions from methanol vehicles, for example,
consist of mostly unburned methanol, a simple compound with a
reactivity of only one-fifth that of average gasoline vehicle
hydrocarbon emissions. Smaller quantities of hydrocarbons and
formaldehyde are also emitted from methanol vehicles
(formaldehyde possesses approximately twice the reactivity of
gasoline hydrocarbon). On a reactivity-equivalent basis,
methanol flexible fuel vehicles (FFVs) are projected to emit at
least 30 percent less volatile organic compounds (VOC) than
typical future in-use gasoline vehicles, while optimized,
dedicated methanol (M100) vehicles are projected to emit 80
percent less VOC than future gasoline vehicles.(1,2,3,4,5)

Passenger cars and light-duty trucks typically are
responsible for approximately 87 percent of all motor vehicle
related VOC emissions. If all passenger cars and light trucks
in a given metropolitan area were optimized, dedicated methanol
vehicles that emitted 80 percent less VOC than gasoline
vehicles, then these vehicles would reduce the motor vehicle.
voc in that area by an average of 70 percent. Assuming that
motor vehicles will be responsible for just 20 percent of all

voc in such an area, this would reduce total VOC in 2015 by
about 14 percent. :

(i) “Guidance on Estimating Motor Vehicle Emission Reductions.
from the Use of Alternative Fuels and Fuel Blends," U.S.
EPA, EPA~AA-TSS—PA-87-4, January 29, 1988.

(2) “The Emission Characteristics of Methanol and Compressed
Natural Gas in Light Vehicles," Jeffrey A. Alson, U.S.
EPA, APCA Paper No. 88-99.3, June 1988.

(3) “Effects of Emission Standards on Methanol Vehicle-Related
Ozone, Formaldehyde, and Methanol Exposure," Michael D.
Gold and Charles E. Moulis, U.S. EPA, APCA Paper No. .
88-41.4, June 1988. :

(4) “Fuel Economy and Emissions of a Toyota T-LCS-M Methanol
Prototype Vehicle," J.D. Murrell and G.K. Piotrowski, U.S.
EPA, Society of Automotive Engineers Paper No. 871090, May
1987. ‘ :

(5) “Air Quality Benefits of Alternative Fuels," EPA Report
for Alternative Fuels Working Group Report of the
President's Task Force on Regulatory Relief, July 1987.

-15-



In summary, it is clear that a huge resource base of
natural gas is available to produce methanol. The natural gas
supply is also more geographically diverse than the world oil
supply (where about 65 percent of holdings are in the Middle
East). Using natural gas as a source of transportation energy
would, insofar as petroleum consumption were reduced, also
reduce our dependence on oil imports from the Middle East, thus
enhancing national energy security. Finally, the potential
exists to provide domestic and Canadian sources for a
significant amount of the methanol needed for the clean fuels
program by utilizing natural gas from the Alaskan North Slope
that is currently reinjected at a significant cost and from
proven Western Canadian fields that are shut in.

The estimates from DOE used to make the conclusions stated
above are given in the following documents:

1. International Energy Annual, 1987, DOE/EIA-0219(87),
Energy Information Administration, 1987. :

2. ‘Natural Gas Annual, 1987 - Volume II, DOE/EIA-0131(87)/2,
Energy Information Admninistration, 1987.

-21-



converters will be utilized on methanol vehicles to reduce
formaldehyde emissions, and levels could be reduced to gasoline
levels if necessary. But it is important to note, however,
that neat methanol use is not expected to increase the number
of cancer cases from formaldehyde exposure. This is because
the majority of ambient formaldehyde is not due to direct
emissions from vehicles but rather is formed indirectly in the
atmosphere through photochemical reactions involving reactive
hydrocarbons. Indirect formaldehyde formation with neat
methanol vehicles will decrease relative to gasoline vehicles
due to the relative decrease in reactive hydrocarbons emitted.
With neat methanol use, the decreased amount of indirect
formaldehyde formed is expected to offset any increase in
direct formaldehyde emissions.(1,2) However, the exposure and
health effects tradeoffs between direct. formaldehyde emissions
and indirect formaldehyde formation will continue to be studied.

Both methanol and formaldehyde can be acutely toxic at
elevated concentrations. Concentrations of these pollutants
from methanol vehicles could occur in specific localized
exposure scenarios, such as personal garages, parking garages,
Toadway tunnels, etc. EPA has analyzed potential exposures in
such scenarios in the recent final rulemaking for methanol
fueled vehicles, ‘and has concluded that methanol and/or
formaldehyde levels would remain well below the levels of acute
toxicity concern except under extreme conditions such as
extended idling in personal garages. Such extended idling
could also produce very high carbon monoxide emission levels,
just as with gasoline vehicles today. Research is ongoing to
better identify the public health issues associated with
exposure to methanol and gasoline vehicle emissions in these
localized exposure scenarios.

Global Warming

. The combustion of all carbon-containing fuels yields
emissions that are greenhouse gases. However, the global
warming implications of using methanol as a transportation fuel
have received much attention and scrutiny, as is appropriate
for any candidate alternative transportation fuel.

(1) “Emission Standards For Methanol-Fueled Motor Vehicles and
- Motor Vehicle Engines," EPA Final Rulemaking, Federal
Register Part 86, No. 68, 14426-14613, April 11, 1989.

(2) "Summary and Analysis of Comments on the Notice of
Proposed Rulemaking for Emission Standards and Test
Procedures for Methanol-Fueled Vehicles and Engines," EPA
Report, January 1989.

-17-





Table 3

Gasoline-Equivalent Methanol Retail Price
(cents per gallon)

5% Better 30% Better
Efficiency Efficiency

Methanol Port Price : 35 35

Distribution, Markup, and Taxes 20-22 20-22
Total Methanol Retail Price 55-57 55-57
Gasoline-Equivalent Ratio-. 1.90 1.54

Total Gasoline-Equivalent :
. Methanol Retail Price 105-109 85-88

-12-



94.

95.
96.

97.

98.

99.

100.
101.
102.

103.

104.
105.
106.

107.

"Alcohol Gasoline Blend Volatility for Cold and Moderate
Climates," A. Lawson, VII International Symposium . on
Alcohol Fuels, Toronto, 1984.

“preliminary Perspective on Pure Methanol Fuel for
Transportation," EPA 460/3-83-003, September 1982.

"Overview of Environmental Impacts from Methanol Fuel
Spills, Dr. Peter D'Eliscu, West Valley College, 1981.

‘an Environmental Assessment of the Use of Alcohol Fuels
in Highway Vehicles," - Argonne National Laboratory,
December 1980.

“Environmental Consequences of Methanol Spills and
Methanol Fuel Emissions on Terrestrial and Freshwater
Organisms," Dr. Peter Neal D'Eliscu, Department of
Biology, University of Santa Clara.

Methanol as a Transportation Fuel: Assessment of
Environmental and Health Research," Lawrence Livermore
Laboratory, June 18, 1979.

"Environmental Effects and Toxicity," Richard K. Pefley,
First International Conference on Fuel Methanol.

“Technical Support Document: Methyl Tert-Butyl Ether,"
Draft Final, Michael W Neal, et al., Syracuse Research
Corporation for the Office of Toxic Substances, February
1987.

“underground Leakage of Hydrocarbons, An Overview of a
Potential Fire Problem," Martin F. Henry, Fire Journal,
March 1981.

"Cleanup of Releases of Petroleum USTs: Selective
Technologies," EPA/530/UST-88/001, April 1988. -

Letter to Charles R. Imbrecht, Chairman, California Energy
Commission, from Dr. Peter D'Eliscu, Department of
Biology, West Valley College, April 28, 1987.

“Summary Review of Health Effects Associated with
Methanol: Health Issue Assessment," EPA/OHEA Draft
Report, September, 1987.

"Biodegradation of Methanol and Tertiary Butyl Alcohol in
Subsurface Systems," J.T. Novak et.al., Water Sci Tech,
Vol 17, pp 71-85, 1985. :

"Update on the Underground Leakage Problem," Martin F.
Henry, Fire Journal, January 1986.

-80-

eae



Global Warming

Another environmental issue raised is the effect of
methanol use on global warming. Much of this effect is
dependent on the feedstock used to produce the methanol.

In the near term, the most economically and
environmentally attractive fuel methanol feedstock is
associated natural gas (gas which is co-produced with
petroleum). Presently, a vast quantity of associated gas is
either flared or vented, resulting in energy wasted and in
emissions of carbon dioxide (COg) and methane (CHg), both
highly effective greenhouse gases, to the atmosphere. Clearly,
if this wasted energy resource were used to supply a fuel that
could power vehicles (that would otherwise have used gasoline
produced from crude oil), a significant greenhouse gas emission
reduction would result. Greenhouse gases which would have been
emitted at flaring or venting sites would instead be emitted by
the methanol transportation sector. The aggregate short-term
result would be a percentage reduction in greenhouse gas
emissions due to the U.S. transportation sector, roughly
equivalent to the percent of vehicles operating on methanol
fuel.

In the long term, venting and flaring of natural gas are
expected to decrease as new markets are found for co-produced
natural gas. Under such conditions remote natural gas would
likely be used as a methanol feedstock. The greenhouse gas
contribution of improved efficiency methanol vehicles operating

“on methanol made from remote natural gas would be roughly

equivalent or slightly lower than that of their gasoline
counterparts.

Coal, on the other hand, produces a greater amount of
CO2 per unit energy delivered than any other conventional
fossil fuel (because of its higher carbon-to-hydrogen ratio).
In addition, large quantities of methane are released from coal
formations during mining, also contributing to the global
warming problem.

. Based on EPA analysis, if no measures are taken to prevent
the release of CO. from coal-to-methanol plants, the
greenhouse gas emissions of coal-based, present technology,
methanol vehicles would be roughly twice those of gasoline
vehicles. Improved efficiency methanol vehicles - would
contribute 70 to 80 percent more greenhouse gas emissions than
their gasoline counterparts. However, if COz recovery and
disposal technology is developed and employed, advanced
technology methanol vehicles would have roughly the same and
potentially even less impact on long-term global warming than
crude-oil-based gasoline vehicles. Clearly, more research is
needed to identify the feasibility and cost of minemouth
methane recovery and disposal as well as production plant C02
recovery and disposal technologies.

-67-

a

is naananasvacnacdamnasecleiach Late HCE cRNA



developed a model that provides reactivity factors for methanol
and formaldehyde relative to typical HC from gasoline
vehicles.(1)* Based on this model, the average reactivity
factors on a carbon basis are projected to be 0.43 for methanol
and 4.8 for formaldehyde. That is, on an equivalent-carbon
basis, the methanol molecule has only 43 percent of the
potential to form ozone as the typical gasoline HC molecule,
while the formaldehyde molecule has a 4.8 times higher
potential. On a gram per mile basis, the reactivity factors
are 0.19 for methanol and 2.2 for formaldehyde (these compounds
have higher mass-—to-carbon ratios than typical gasoline HC).

Table 2 utilizes these reactivity factors and the
projected emission factors from Table 1 to project the
“gasoline VvOC-equivalent" emissions for gasoline, methanol
FFVs, and optimized M100 vehicles. The data in Table 2 suggest
that methanol FFVs would reduce gasoline voC-equivalent
emissions by 30 to 43 percent, while optimized M100 vehicles
could reduce gasoline VOC-equivalent emissions by 80 percent.
These reductions are relative to gasoline vehicles meeting the
new requirements contained in the clean air proposal. It is
assumed that methanol FFVs could reduce gasoline vehicle VOC by
30 percent and optimized M100 vehicles would reduce VOC by 80
percent. :

Finally, projections had to be made for the fraction of
the overall VOC inventory in the affected areas that was due to
mobile sources and the fraction of the total mobile source VOC
contribution that was due to light-duty vehicles and light-duty
trucks.

1) Effects of Emission Standards on Methanol Vehicle-Related
Ozone, Formaldehyde, and Methanol Exposure, Michael D.
Gold and Charles E. Moulis, U.S. Environmental Protection
Agency, APCA Paper No. 88-41.4, June 1988.

* The model assumes that the change in peak hourly ozone is
linearly proportional to any change in the emission levels
of HC, methanol and formaldehyde, as weighted by their
respective relative reactivities. The relative reactivity
of HC is taken to be 1.0. Modeling results for a total of
20 cities were input into the model to calculate the
relative reactivities of methanol and formaldehyde for
each city. The results for the 20 cities were averaged to
yield the reactivity factors, on a per carbon basis, of
0.43 for methanol and 4.8 for formaldehyde.

-52-



investment (including on- and off-site costs, field costs,
owner costs, and contingency) ranged from $883 million in the
U.S. Gulf Coast to $1,537 million at Dampier, Australia. Key
information on each of the sites is presented in Table 1.
These investment costs could well be _ lower, since only
conventional technology (i.e., that already in use) was
assumed. Bechtel estimated that if emerging technologies were
implemented, such as catalytic partial oxidation, required
investment might be reduced by about 13 percent. Emerging
methanol synthesis technologies, such as fluidized bed and
liquid-phase synthesis could also provide additional savings.
Other studies have projected even larger reductions. (1,2,3)

Although Bechtel's plant investment estimates do not
reflect improved technology, they do provide a conservative
baseline estimate of the cost of constructing fuel methanol
facilities. The actual impact of these investment costs on the
price of methanol depends on the annual capital recovery rate
(CRR) or the annual cost of supporting the given investment.
The CRR is a complex function involving (among other things)
plant life, cost of capital, and income tax rates. Estimates
of the annual CRR for methanol plants can vary widely and have
a major impact on the calculated cost of methanol produced.

A study by Jack Faucett Associates of historical (1977-85)
financial data showed that a real after-tax return on total
investment of 5 percent was typical for the U.S. petroleum
refining industry.(4) While the return on investment used as a
criterion in corporate spending decisions may be higher than
this, the fact remains that, once in operation, both new
methanol plants and new gasoline refineries will likely return
the same rate on capital investments. An after-tax return on
investment of 10 percent(5) will be used here, to account for

(i) “Assessment of Costs and Benefits of Flexible and
Alternative Fuel Use in the U.S. Transportation Sector,
Technical Report Two: Executive Summary-—Methanol and LNG
Production and Transportation Costs," Office of Policy,
Planning, and Analysis, U.S. DOE, May 1989.

(2) “Australia as a Potential Source of Methanol for the
California Clean Fuels Program," BHP Petroleum FIY LDT,
January 1989.

(3) Letter from K. Mansfield, ICI Chemicals and Polymers
Limited, to Charles L. Gray, Jr., U.S. EPA, May 25, 1989.

(4) “Butane Suppliers: An Industry Profile and Analysis of the
Impacts of Decreased Market Prices Caused by Gasoline
Volatility Control," prepared by Jack Faucett Associates
for U.S. EPA, February 1988.

(5) Letter From George E. Crow, Manager, Fuels Planning, Sun
Refining .and Marketing Company to Charles L. Gray, Jr.,
U.S. EPA, May 31, 1989. .-

-4-



What Level Of Fuel Efficiency Can Be Expected

From An Optimized Dedicated M100 Vehicle?

Methanol has about one-half of the energy per gallon of
gasoline, primarily because half of the methanol molecule is
oxygen which has no energy value. Accordingly, vehicles fueled
with methanol yield lower miles per gallon values compared to
those fueled with gasoline. But energy efficiency is the most
important criterion in this regard, and méthanol is actually a
more energy efficient fuel than gasoline.

Methanol has chemical and combustion properties which make
it an inherently more efficient fuel than gasoline. The most
important properties are its higher octane rating, which allows
a higher compression ratio, its wide flammability limits, which
permit good combustion at high air-to-fuel ratios, and its
higher power output, which allows the use of a smaller, more
efficient engine. : :

Methanol's higher octane allows substantial increases in
engine compression ratio from today's values with gasoline-
fueled vehicles (about 9:1) to values exceeding 13:1. This
alone will increase engine efficiency by about 10 percent.

Methanol can be used in a combustion system which operates
lean much of the time to provide attendant benefits in fuel
efficiency. For lean operation, methanol's characteristics are

‘superior to gasoline, resulting in efficiency gains in the 15
percent range. :

The combustion of methanol produces a slight increase in
engine power even if nothing is done to increase the
compression ratio, because the post-combustion pressure is
higher with methanol. This effect alone is about 6 percent.
Also, the combustion of methanol results in less heat transfer

losses to the engine's cooling system which is another
efficiency plus. .

There is a synergistic effect when an optimized methanol-
fueled engine and vehicle are considered. The higher
compression ratio possible and the higher post-combustion
pressure both combine to make the engine more powerful for a
given engine size. This benefit could be taken as higher
performance in the form of increased power. However, if the
performance target remains constant compared to gasoline, the.
engine size can be reduced. This results in even better fuel
efficiency since idle fuel consumption is reduced.. A smaller
engine can be lighter and this means a lighter overall vehicle
due to the lighter engine and corresponding lighter weight
vehicle structure. Both weight reductions also yield improved
vehicle fuel efficiency.



Beg

Laud

‘a Base |

30.

"31.

32.

33.

34.

35.

36.

37.

38.

39.

H.G. Jeffries, K.G. Sexton, M.S. Holleman, "Outdoor Smog
Chamber Experiments: Reactivity of Methanol Exhaust,"
University of North Carolina Report for EPA Office of
Mobile Sources (Report EPA 460/3-85-009a), September 1985.

H.G Jeffries, K.G. Sexton,  R.M. Kamens, M.S. Holleman,
“Outdoor Smog Chamber Experiments: Reactivity of Methanol
Exhaust; Part II: Quality Assurance and Data Processing
System Description," University of North Carolina Report
for EPA Office of Mobile Sources (Report EPA
460/3-85-009b), September 1985.

Howard Balentine, Craig Beskid, Larry Edwards, Rob

Klausmeier, Steven Langevin, "An Analysis of Chemistry

Mechanisms and Photochemical Dispersion Models for Use in

Simulating Methanol Photochemistry," Radian Corporation

Report for EPA Office of Mobile Sources (Report

460/3-85-008), September 1985.

R.J. Nichols, J.M. Norbeck, "Assessment of Emissions from

Methanol-Fueled. Vehicles: Implications for Ozone Air ~
Quality," Air Pollution Control Association Paper 85-38.3,

June 1985.

T.¥. Chang, S.J. Rudy, G. Kuntasal, R.A. Gorse, Jdr.,
“Impact of Methanol Vehicles on Ozone Air Quality," draft
Atmospheric Environment Paper, in press.

Alan M. Dunker, "The Relative Reactivity of Emissions from.
Methanol-Fueled and Gasoline-Fueled Vehicles in Forming

Ozone," Air and Waste Management Association Paper 89-7.6,

June 1989,

Joel N. Harris, Armistead G. Russell, Jana B. Milford,
"Air Quality Implications of Methanol Fuel Utilization,"
SAE Paper 881198, August 1988.

Gary .Z. Whitten, “Evaluation of the Impact of
Ethanol/Gasoline Blends on Urban Ozone Formation," Systems
Applications,. Inc. Report for the Renewable Fuels
Association, February 10, 1988.

Ralph E. Morris, Thomas C. Myers, Henry Hogo, Lyle R.
Chinkin, Lu Ann Gardner, Robert G. Johnson, "A Low-Cost
Application of the Urban Airshed Model to the New York
Metropolitan Area and the City of St. Louis," SAI Interim
Final Report prepared for EPA Office of Policy, Planning,
and Evaluation and the Office of Air Quality Planning and
Standards, May 15, 1989.

R. O'Toole, E. Dutzi, R. Gershman, R. Heft, W. Kalema, D.
Maynard, California Methanol Assessment, Jet Propulsion
Laboratory, JPL Publication 83-18 (Vol II), March 1983.

=59-


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polycyclic organic material (POM) adsorbed onto gasoline-
derived particulate matter, and formaldehyde. These pollutants
are emitted by gasoline-fueled vehicles and are classified by
EPA as either known or probable human carcinogens. ‘The base
motor vehicle cancer cases in the year 2005 or 2015 from
gasoline-fueled vehicles and light-duty trucks in the nine
affected cities were used as a starting point.(1)

To obtain reductions in cancer cases for each pollutant,
the base urban cancer cases are multiplied by the per vehicle
reductions (expressed as a fraction), and the fraction of the
urban gasoline fuel consumption displaced by methanol. As seen
in the table, vehicles fueled with neat methanol emit little or
no benzene, gasoline refueling vapors, 1,3-butadiene or POM.
The virtual elimination of these pollutants with neat methanol
use is responsible for most of the cancer reductions. Vehicles
fueled with neat methanol also do not emit any diesel
particulate; however, since the analysis was only performed for
gasoline vehicles, the base cancer cases due to diesel
particulate are unaffected and not included in Table 4.

Formaldehyde in ambient air includes both "direct" and
“indirect" formaldehyde. Direct formaldehyde is emitted in the
exhaust of vehicles, while indirect formaldehyde is formed in
the atmosphere from the reactions of various reactive
hydrocarbons. As discussed in the Final Rulemaking for
methanol-fueled vehicles, (2) indirect formaldehyde is
responsible for the majority of the formaldehyde in ambient
air, although the relative contribution of direct and indirect
formaldehyde is uncertain. It is estimated that indirect
formaldehyde could be responsible for 50 to 90 percent of the
total formaldehyde in the atmosphere; hence, the midpoint of 70
percent was used in the attached table. As a result, 30
percent of the total formaldehyde base cancer cases were
assigned to direct formaldehyde and 70 percent of the total
formaldehyde base cancer cases were assigned to indirect
formaldehyde. (3)

Unlike the other pollutants, direct formaldehyde emissions

from vehicles fueled with neat methanol may be greater than.

those from gasoline-fueled vehicles. The 200 percent increase
‘in direct formaldehyde emissions contained in the table was
estimated assuming that formaldehyde emissions from future

(1) “Air Toxic Emissions and Health Risks from Motor
Vehicles," Jonathan M. Adler and Penny M. Carey, Air and
Waste Management Association Paper 89-34A.6, 1989.

(2) “Emission Standards for Methanol-Fueled Motor Vehicles and ,

Motor Vehicle Engines," EPA Final Rulemaking, Federal
Register Part 86, No. 68, 14426-14613, April 11, 1989.

(3) “Source Assessment of Formaldehyde Emissions," Radian
Corporation, September 3, 1985.

-62-

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The total overall price increment due to fuel
distribution, service station markup, and taxes should be
slightly higher, on ‘an energy-equivalent basis, for methanol
than the price increment for gasoline today.

‘Long-range . distribution through the use of pipelines,
barges, and tankers is projected to be significantly less
expensive per gallon of fuel for methanol, principally because
the most significant ozone nonattainment metropolitan areas
tend to be located on the coast or near or on pipelines and
major waterways. Thus, methanol produced in foreign locations
could be supplied at a lower per gallon distribution cost than
gasoline is currently supplied nationwide. To the extent that
foreign methanol is compared with gasoline supplied from a new
refinery (built on foreign soil), distribution costs should be
nearly equal on a per gallon basis.  Terminaling costs per
gallon are estimated to be virtually the same for methanol as
for gasoline, as they tend to be strictly a function of
volume. Trucking costs may tend to be slightly lower on a per
gallon basis for methanol (higher on a per energy basis) as
truck delivery route lengths will tend to be shorter, since the
routes can be optimized for methanol fuel deliveries. All in
all, however, we project that long-range and local distribution
costs for methanol will be similar to those of the other
studies summarized above.

The largest area of disagreement concerns service station
markup. SRI's estimate, for example, would mean that a service
station owner would make 3 to 4 times more money on a methanol
customer than a gasoline customer. Perhaps this markup could
be justified for a very low volume fuel, but it is unlikely in
a stabilized, high methanol fuel demand scenario. Accordingly,
at worst the costs of retailing methanol will be the same as
for gasoline on a volumetric basis. But it is much more
appropriate to assume that the cost per mile driven (or the
cost per refueling event) will be equalized, rather than the
cost per volume of fuel (put another way, a consumer should be
able to go the same number of miles on $10 worth of methanol as
with $10 worth of gasoline). Since it will take anywhere from
2 gallons (equal efficiency) to 1.54 gallons (30 percent better
efficiency) of methanol to provide the same mileage as
gasoline, the markup per gallon of methanol should be closer to
one-half to two-thirds that of gasoline.

Some studies have assumed that the number of service
stations would need to significantly increase with methanol
fuel because more fuel would have to be dispensed. With this
assumption, the write-off of the new capital investment against
the sales of methanol "justifies" a higher retail markup for
methanol. However, this assumption does not seem valid. The
need to dispense a larger volume of fuel to fill a larger

-23-

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paneer | heed



visible flame, is estimated to be very low (nearby substances
such as roadside grasses, vehicle plastic and rubber
components, engine oils, building structures, etc. also become
involved). As a result, in many cases the lack of flame
luminosity is not a serious concern. Work is continuing toward
finding an appropriate luminosity additive to allay all
concerns. ,

With regard to human toxicity, the Health Effects
Institute, an independent non-profit. research organization
funded jointly. by EPA and the automobile industry, concluded in
a May 1987 report that "the weight of available scientific
evidence indicates that exposure to methanol vapors is not
likely to cause adverse health effects. Health concerns
regarding methanol vapor should not prevent government and
industry from encouraging the development and use of methanol
fuels, assuming that such development and use are otherwise in
the public interest." Nevertheless, EPA supports further
research in this area, especially with respect to chronic
exposure to low levels of methanol. Such research will help to
determine the type of emission control equipment required.

One advantage of methanol is that there are no known
long-term carcinogenic effects resulting from exposure to
methanol. On the other hand, benzene in gasoline is a proven
carcinogen, and the gasoline vapor itself is a possible
carcinogen. .

Methanol, however, is more of a hazard in terms of
ingestion. Neat methanol has no taste, color, or detectable
odor, and, as a result, may be more likely to be ingested than
gasoline. In addition, as little as 2 teaspoons of methanol
have resulted in death, while 5 to 30 times this level is a

normal lethal range if treatment is not given. ‘Small amounts _

of gasoline aspirated into the lungs can also result in death,
but this occurrence is statistically rare. The main causes of
motor fuel ingestion are siphoning by adults and ingestion by
children of fuels stored in containers around the home. The
vast majority of these occurrences can be avoided by preventing
siphoning from vehicles through the use of flame arresters. In
addition, as was discussed above, additives to neat methanol
can be used to give it an identifiable odor, taste, and/or
color in order to reduce the chance of accidental ingestion.

Safety issues of methanol fuel use, in particular fire -

safety and human toxicity, are discussed in more detail in the
following references:

1. "Automotive Methanol . Vapors and Human Health: An
Evaluation of Existing Scientific Information and Issues
for Future Research," Health Effects Institute, May 1987.

2. Paul Machiele, “Flammability and Toxicity Tradeoffs with
Methanol Fuels," SAE Report No. 872064, November 1987.

-72-

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Sead = aad



ECONOMIC ANALYSIS OF METHANOL
Current Methanol Market Prices

Currently methanol is a major chemical product (20th
largest in terms of volume) but is used in transportation fuels
only as a feedstock for MTBE, a gasoline blending agent. As
such, methanol is produced to meet very high purity standards
at relatively small plants, and is transported via relatively
small ships and rail cars. Accordingly, current methanol
production and distribution is unable to take advantage of

various economies of scale that will be discussed later in this
report.

It is important to note, however, that even absent the
improved economies of scale, methanol can be competitive with
gasoline at current world oil prices.

While prices have fluctuated over the last year,
chemical-grade methariol is currently selling in the U.S. for
between 40 and 45 cents per gallon.(1,2) Methanol would likely
be available from existing producers under long term contracts
for around 40 cents per gallon.(3,4) One likely option in the
near term is to utilize methanol in a 85 percent methanol/15

percent gasoline blend (M85) in a flexible fuel vehicle that.

could utilize M85, gasoline, or any blend in between. Blending
15 percent gasoline at the current refinery price of 70 to 75
cents per gallon and adding 23 to 25 cents per gallon for
distribution, retail markup, and fuel taxes (the derivation of
these values will be discussed later in this report) for M85
yields a current M85 pump price of 68 to 74 cents per gallon.
Based on the lower energy content of M85 (since methanol has
one half of the energy per gallon of gasoline) and a.5 percent
higher energy efficiency with M85 in an FFV, the projected
gasoline retail price equivalent of M85 today is 114 to 124
cents per gallon. Since regular unleaded gasoline has been
selling for an average of 108 cents per gallon, and premium
unleaded for, an average of 123 cents per gallon, it is clear
that M85 is competitive with current gasoline prices,
particularly given that the high octane of M85 makes it a
natural competitor to premium gasoline. ‘The: State of

California has also concluded that chemical-grade methanol is.

competitive within the range of current prices for regular
unleaded gasoline and premium unleaded gasoline’. (5)

“Alcohol Week," July 10, 1989.
"Alcohol Outlook," June 1989.

Letter from Hoechst Celanese Corporation to EPA, June 2,
1989.

Letter from Charles R. Imbrecht, Chairman, California
Energy Commission, to William K. Reilly, Administrator,
EPA, July 6, 1989.

(1) .

(2)

(3) Letter from Alberta Gas Chemicals to EPA, March 22, 1989.
(4)

(5)

ata





Current Gasoline Price Compared to Methanol

Currently, about 72 percent of unleaded gasoline sales are
regular unleaded at an average pump price of $1.08. The
remainder of unleaded sales is premium with an average price of
§2-23- Thus, the sales weighted average cost of gasoline today.
is $1.12. .

The gasoline-equivalent methanol price. for 5 percent
efficiency improvement vehicles of $1.05-1.09 is competitive
with present gasoline prices,. and the dedicated vehicle
equivalent price of $0.85-0.88 is much cheaper. Therefore,
methanol-fueled vehicles would be attractive even at today's
petroleum prices.

Future Gasoline and Methanol Prices

Predicting the relationship between future gasoline and
methanol prices is somewhat more difficult, especially with
scenarios where crude oil prices increase. Future gasoline
price increases will most likely cause natural gas feedstock
prices to increase as well. We estimate that remote natural
gas prices would increase, but at a lesser rate than gasoline
(based on the fact that the remote gas has no other competitive
market and it is not controlled by a cartel). This would cause
increased price competition with gasoline, with methanol
increasing its -market share or gasoline prices being
suppressed. Obviously, if this occurred, there would be
substantial savings to the U.S. economy.

A more detailed discussion of fuel methanol and gasoline
prices, and their inter-relationship, is contained in
Attachment 3.

‘

Vehicle Costs :

From EPA's discussions with vehicle manufacturers with
respect to dedicated methanol vehicles and EPA's analysis,
there are several areas that have been identified where cost
savings over gasoline vehicles will be likely and several areas
in which cost increases will be likely. Overall, this analysis
suggests there will be no net cost difference between dedicated
methanol vehicles and future gasoline vehicles. Such a
conclusion is also supported by Congressional testimony in 1984
given by both Ford and General Motors.(1)

(1) Responses by Helen Petrauskas, Ford Motor Company, and
Robert Frotsch, General Motors Corporation, to questions
at the Joint Hearing by the Subcommittees on Fossil and
Synthetic Fuels and Energy Conservation and Power, April
25, 1984.

-13-)



Cost of Fuel Methanol Production

Fuel methanol can be produced “from a variety of sources,
including natural gas, coal, biomass, and cellulose. The most
economical source currently, however, is natural gas, and this
is likely to persist well into the 21st century. Currently
about 6 billion. gallons per year of methanol are produced from
natural gas worldwide, for use as a chemical as well as in MTBE
production. The present selling price for. chemical grade
methanol is about 40-45¢/gal.(1,2) However, the production

cost of fuel methanol is expected to be considerably lower for
two reasons. :

First, if a substantial demand for methanol fuel were
established, production facilities would be expected to be much
larger than present chemical market facilities. Current
chemical methanol demand is only a small fraction of what
demand could be under a widespread clean fuel program. Higher
demand would allow for the construction of large multitrain
facilities, which would benefit significantly from economies. of
scale. Second, these large production volumes would likely
spur the development of newly emerging technology for producing
methanol (including catalytic partial oxidation, fluidized bed
and liquid-phase synthesis). Some of these technologies are
already near commercial status and would reduce methanol prices
even further via lower plant capital costs and higher process
efficiencies; however, this improved technology was not assumed
in the EPA fuel methanol price projections.

In estimating the future price of fuel grade methanol,
careful consideration should be given to a number of key
factors, which include the availability and price of natural
gas feedstock, the capital investment required for a new plant,
the annual capital recovery rate (CRR), and operating costs.

Under a scenario where there is a substantial, consistent
demand: for fuel methanol, large scale methanol production
facilities (at least 10,000 tons per day (tpd)) could be built
to serve the market. The cost (per ton of capacity) of such
facilities would be somewhat less than current facilities (less
than 2,500 tpd) due to favorable economies of scale. In a
recent study by Bechtel, Inc., the required investment for six
conventional technology 10,000 tpd plants located at various
world sites was estimated. (3) Total projected capital

"Alcohol Week," July 10, 1989.

“Alcohol Outlook," June 1989.

“California Fuel Methanol Cost Study," prepared by
Bechtel, Inc., for Chevron U.S.A., Inc., Amoco Oil
Company, ARCO Products Company, California Energy
Commission, Canadian Oxygenated Fuels Association,
Electric Power Research Institute, Mobil Research and
Development Corporation, South’ . Coast Air Quality
Management District, Texaco Refining and Marketing, Inc.,
Union Oil Company of California, January 1989.

yoveten
One
ver.

-3-)



wen ey

108.

109.

110.

111.

“112.

113.

114.

115.

116.

117.

118.

119.

"Storage and Handling of #Gasoline-Methanol/Cosolvent
Blends at Distribution Terminals and Service Stations,"
API recommended practice, API Publication No. 1627, First
Edition, August 1986. :

"Motor Vehicle Emission Characteristics and Air Quality
Impacts of Methanol and Compressed Natural Gas," Jeffrey
A. Alson, Jonathan M. Adler, Thomas M. Baines, U.S. EPA,
Office of Mobile Sources, Chapter 8 of a book published by
Greenwood Press and Edited by Daniel Sperling, January
1989. .

“Effects of Emission Standards on Methanol Vehicle-Related
Ozone, Formaldehyde, and Methanol Exposure," Michael D.
Gold, Charles E. Moulis, EPA/OAR/OMS/ECTD/SDSB, APCA. Paper
No. 88-41.4, June 1988.

“Formaldehyde Emissions From Mobile Sources and Potential
Human Exposures," Charles E. Moulis, U.S. EPA, AWMA Paper
No. 89-34A.1. :

"Revisions to the National Ambient Air Quality Standards
for Particulate Matter," EPA Federal Register Vol 52, No.
126, pp. 24634-24750, July 1, 1987.

"Regulatory Support Document: Proposed Organic Emission
Standards and Test Procedures for 1988 and Later Methanol
Vehicles and Engines," EPA/OMS/ECTD/SDSB, July 1986.

"Evaluation of Federal Motor Vehicle Safety Standard
301-75, Fuel System Integrity: Passenger Cars," NHTSA
Technical Report, DOT HS-806-335. January 1983.

"Comparison of Urinary Methanol Concentration with Formic
Acid Exeretion Rate as a Measure of Occupational
Exposure," D.G. Ferry, W.A. Temple, E.G. McQueen, Int.
Arch. Occup. Environ. Health, 47(2): 155-163, 1980.

“Occupational Chronic Exposure to Organic Solvents xX.
Biological monitoring parameters for methanol exposure."
R. Heinrich, J. Angerer, Int. Arch. Occup. Environ.
Health, 50(4): 341-9, 1982.

“Safety Concerns with Fuel Methanol," J.E. Anderson, R.E.
Baker, Fuels and Lubricants Dept., Ford Motor Co.,
Position Document, 1984. . 7

“Air Toxics Emissions From Motor Vehicles," Penny M.
Carey, EPA Technical Report, EPA-AA-TSS-PA-86-5, September
1987.

“Toxicological Aspects of Alcohol Fuel .Utilization,"
Andrew J. Moriarity, M.D., International Symposium on
Alcohol Fuel Technology, Methanol and Ethanol, Wolfsburg,
FRG, November 21-23, 1977.

-81-



15.

16.

17.
18.
19.
20.

21.

22.

23.
24.
25.

26.

27.

"Material Safety Data Sheet: Diesel Fuel Oil No. 2-D",
Occupational Health Services, Inc., September 1985.

Safe Handling and Testing of Alternative Fuels," Mueller
Associates for the U.S. DOE Alternative Fuels Utilization
Program, January 1982. ,

Trends in the Quality of the Nation's Air," U.S. EPA
Publication, August 1984.

"Material Safety Data Sheet: Gasoline/Automotive".
Occupational Health Services, Inc., September 1985.

Explosibility of High Methanol Fuel Blends," Sebastian I.
Amadi and E. Earl Graham, Dept. of Chem Engr, Pennsylvania
State University, Ind. Eng. Chem. Prod. Res. Dev., 1983,
22, 500-505. .

Tag Closed Cup Flash Points and Lower Flammable Limits of
Nearly Neat Methanol Fuels," OD.d. Gordon, Celanese
Chemical Company, Inc., March 1985.

"Comparative Safety of Methanol-Fueled Buses in a Tunnel
Environment," Arthur D. Little Inc., for Triborough Bridge
and Tunnel Authority, ADL Ref. 60219, December 1987.

“Groundwater Contamination by Methanol Fuels," Bruce J.
Bauman, Ph.D., Presentation at the Methanol Health and

Safety Workshop, South Coast Air Quality Management
District, November 2, 1988.

"Alcohol and Alcohol Blends as Motor Fuels", Vol. IIA,
IIB, Swedish National Board for Technical Development,
1986.

"Assessment of Methane-Related Fuels for Automobile Fleet
Vehicles," Energy Conservation Directorate, The Aerospace
Corporation, for U.S. DOE, DOE/CE-50179-1, February 1982.

“Summary and Analysis of Comments Regarding the Potential
Safety Implications of Onboard Vapor Recovery Systems,"
Office of Mobile Sources, U.S. EPA, August 1988.

"An In-Depth Study of Truck Fire Accident Data," James
O'Day, Robin Ruthazer, Tom Gonzalez, The University of
Michigan Transportation Research Institute, UMTRI-85-17-1,.
April 1985.

"Fire in Motor Vehicle Accidents: An HSRI Special
Report", Peter Cooley, University of Michigan Highway

Safety Research Institute, April 1974.

-74-



ate

55.

56.

57.

58.

59.

60.

61.

62.

63.

64.

65.

66.

67.

68.

, “Material Safety Data Sheet: Methyl Alcohol,"

Occupational Health Services Inc., September 1985.

“Investigation into Methanol Fuel Formulations," Morrie

- Kirshenblatt and Matthew A. Bol, Sypher Mueller

International Inc., SAE Paper No. 881599.

"Survey of Safety Related Additives for Methanol Fuel,"
E. Robert Fanick, Lawrence R. Smith, . Environmental
Protection Agency, EPA 460/3-84-016, November 1984,

Letter to Paul Machiele, EPA/OAR/OMS/ECTD/SDSB, from
Morrie Kirshenblatt, Sypher: Mueller International Inc.,
December 19, 1988.

“Photochemical Modeling of Methanol-Use Scenarios in
Philadelphia," G.Z. Whitten, .N. Yonkow, 1.C. Myers,
Systems Applications, Inc., for USEPA, EPA 460/3-86-001.

Information supplied by Chevron in response to the
November 1987 Draft Technical Report, Methanol Fuel
Safety: A Comparative Study of M100, M85, Gasoline, and
Diesel Fuel’ as Motor Vehicle Fuels, by Paul Machiele,
EPA/OMS/ECTD/SDSB. :

"Hydrocarbon Contact Injuries," J.F. Hansbrough et al.,
The Journal of Trauma, Vol 25, No.3, March 1985.

“Toxicology: The Basic Science of Poisons," Gasarett and
Doulls, 2nd Edition, 1980.

Information supplied by API in response to the November
1987 Draft Technical Report, Methanol Fuel Safety: A
Comparative Study of M100, M85, Gasoline, and Diesei Fuel
as Motor Vehicle Fuels, by Paul Machiele,
EPA/OMS/ECTD/SDSB.

"Incidence of Siphoning-Related Gasoline Ingestion,". Draft
report, Battelle for EPA/OAR/OMS/ECTD/SDSB, February 1989.

“Facts and Issues Associated with the Need for a
Hydrocarbon Criteria Document," EPA/ORD Environmental

Criteria and Assessment Office Internal Document,’ February
1980, . :

"Gasoline Intoxication," W. Machle, J. Amer. Med. Assoc.,
[1]: 1967-1971, 1941. .

“Toxicology of the Eye," Second Edition, W. Morton Grant,
M.D.

"Kidney-Specific DNA Repair Assay: An Evaluation of
Unleaded Gasoline," Chemical Industry Institute . of
Toxicology, Volume 6, No. 4, April 1986.



Attachment 1

Potential Natural Gas Feedstock Availability for
Future Methanol Fuel Production Facilities

The production of crude oil often includes a significant
quantity of natural gas that is produced along with the crude.
oil.. This "associated" gas is considered a nuisance in remote
areas where there is no local market for the gas. Therefore,
much of the gas is simply vented or flared. According to DOE
estimates, the worldwide volume of natural gas which is. vented
and flared annually (a contributor to global warming) is
roughly 2,975 billion cubic feet (bcef).. Using existing
conversion technology, this volume of gas would translate into
about 31 billion gallons of methanol annually. More than twice
this volume of gas is produced with petroleum and is currently
being reinjected into oil reservoirs (6151 bef per year or 64
billion gallons of methanol per year). While some of this gas
is used to maintain reservoir pressure, an established methanol

fuel market would likely attract a portion of this low-value
gas.

Combined, this unmarketed natural gas could supply a total
of 95 billion gallons of methanol per year, equivalent to about
half the gasoline currently used in the U.S. As can be seen in
Table 1, roughly 20 percent of this gas is located in the
United States, the majority from the North Slope of Alaska.
Approximately 30 percent is located in Africa, 10 percent in
South America, 6 percent in the Far East, and 5 percent in
Western Canada. Only about 15 percent of flared, vented, or
reinjected gas is produced in the Middle East.

| Vast quantities of natural gas are co-produced on the
Alaskan North Slope and are currently reinjected into the oil
reservoirs at significant cost, because there is no pipeline to
transport the gas to market. If the gas is converted to liquid
methanol, tests have shown that the methanol could be
transported ‘through the Trans-Alaskan pipeline to tankers in
Valdez. At current reinjection rates this gas could be used to

produce approximately 14 billion gallons of fuel methanol
annually. .

Looking at the long-term picture, estimated proven naturai
gas reserves total 3,797 trillion cubic feet (tcf) worldwide.
Since most of the natural gas reserves have been discovered as

a result of oil exploration, projected natural gas resources
are much greater. f

-19-



Analysis of the Economic and Environmental Effects

of Methanol as an Automotive Fuel

September 1989



69.

70.

71.

72.

73.

74.

75.

76.

77.

78.

79.

80..

81.

"Gasoline Vapor Exposure and Human Cancer: Evaluation of
Existing Scientific Information and Recommendations for
Future Research," Special Supplementary Report, Health
Effects Institute, January 1988.

"Health Aspects when Dealing with Methanol," Dr. K.

Hanisch, Presentation during the 27th DGMK-Main Assembly
in Aachen.

"Clinical Toxicology of Commercial Products," Robert E.
Gosselin, M.D., Ph.D., Harold C. Hodge, Ph.D., D.Sc.,

Roger P. Smith, Ph.D., Marion N. Gleason, M.Sc., Fourth
Edition, 1976. .

"Inhalation of Vapors Related to Use of Methanol Fuel:
Disposition of Inhaled Methanol," Dr. Michele Medinsky,
Presentation at the Methanol Health and Safety Workshop,
South Coast Air Quality Management District, November 2,
1988.

"Methanol Health Effects," Midwest Research Institute for
EPA, EPA~460/3-81-032, December 1981.

"Alcohols Toxicology," William W. Wimer, John A. Russell,
Harold L. Kaplan, Southwest Research Institute, 1983.

“Report on Methanol," National Academy of Sciences —-
National Research Council, Washington D.C., Toxicological
Information Center, March 9, 1959.

"Biohazards of Methanol in Proposed New Uses," Herbert S.
Posner, Journal of Toxicology and Environmental Health,
1:153-171, 1975.

"A Review of the Toxicity of Methanol," Dr. John J. Clary,
Presented at the First International Conference on
Methanol, May, 1983.

“Biological Monitoring of Persons Exposed to Methanol
Vapors," V. Sedivec, et al., Int. Arch. Occup. Environ.
Health, 48: 257-271, 1981. :

"Blood Methanol Concentrations in Normal Adult Subjects
Administered Abuse Doses of Aspartame," L.D. Stegink,
et al., J. Toxicol, Environ. Health, 7: 281-290, 1981.

"Circulating Concentrations of Testosterone, Luteinizing
Hormone, and Follicle Stimulating Hormone In Male Rats
after Inhalation of Methanol," A.M. Cameron, et al., Arch.
Toxicol., Supply 7:441-443, 1984.

“Teratological Assessment of Methanol and Ethanol at High
Inhalation Levels in Rats," B. K. Nelson, et al., Fund.
Appl. Toxicol., 5: 727-736, 1985.

-78-

eine



to be the midpoint between the LNG netback and the cost of
service for the Trinidad location, as estimated by the gas
price contractor used in the SRI International study.(1) As
the figure shows, remote gas prices are projected to be
significantly less than the break-even price, even those
estimated by the recent SRI study. (2)

For a more thorough explanation of the fuel price
estimates and assumptions employed in this study, refer to the
following documents: ~- :

1. "Assessment of Costs and Benefits of Flexible and
Alternative Fuel Use in the U.S. Transportation Sector,
Technical Report Two: Executive Summary--Methanol and LNG
Production and Transportation Costs," Office of Policy,
Planning and. Analysis, U.S. DOE, May 1989.

2. “The Economics of Alternative Fuels and Conventional
Fuels," SRI International, prepared for California oil
companies, February 2, 1989.

3. "Australia as a Potential Source of Methanol for the
California Clean Fuels Program," BHP Petroleum FIY LTD,
January 1989. ° .

4. K. Mansfield, ICI Chemicals and Polymers Limited, letter
to Charles L. Gray, dr., U.S. EPA, May 25, 1989.

5. "California . Fuel Methanol Cost Study," prepared by
Bechtel, Inc., for Chevron U.S.A., Inc., Amoco Oil
Company, ARCO Products Company, California Energy
Commission, Canadian Oxygenated Fuels Association,
Blectric Power Research Institute, Mobil Research and
Development Corporation, South Coast Air Quality
Management District, Texaco Refining and Marketing, Inc.,
Union Oil Company of California, January 1989.

6. "Assessment of Impacts on the Refining and Natural Gas
Liquids Industries of Summer Gasoline Vapor Pressure
Control," prepared for U.S. EPA by Bonner & Moore
Management Science, August 24, 1987. ~

(1) “Natural Gas Supply, Demand, and Price," James T. Jensen,
Jensen Associates, Inc., February 1989.

(2) "The Economics of Alternative Fuels and Conventional

‘ Fuels," SRI International, prepared for ‘California oil
companies, February 2, 1989. :

-39-

ka



the likelihood that: 1) these years were atypical, and 2) a
methanol plant may, especially initially, entail more risk.
Assuming a 15-year plant life, this translates into an annual
CRR of 16.2 percent. (Note that methanol production costs
increase approximately 1 cent/gallon for each 1 _ percent
increase in CRR at a typical facility.) A recent study by SRI
International(1) for oil companies marketing in California used
a real after-tax return on investment of 11.4 percent for
plants which would be located in developed countries and a real
after-tax return on investment as high as 14.3 percent for
plants built in Trinidad and Saudi Arabia.(2)

When a CRR of 16.2 percent is applied to the investment
values shown in Table 1, annual investment related costs
ranging from $143 million to $249 million (12.4-21.6¢/gal)
result. These are shown for each of the six sites evaluated in
the Bechtel study in Table 2. The sensitivity of methanol
costs to CRR is discussed in more detail in Attachment 3.

Non-gas operating costs for the six plants are also shown
in Table 2. These values were also’ taken from the Bechtel
study and include such things as utilities, operating labor and
supplies, maintenance, insurance, etc. These range from 5.4 to
9.4 cents per gallon.

By far the most sensitive and controversial factor
influencing methanol cost is the price at which natural gas is
available as a feedstock. With current technology plants, the
price of methanol is increased by about 10¢/gal for every $1
per million Btu (MMBtu) increase in the price of natural gas.
The price at which natural gas is available, in turn, is
dependent, on the price of competing energy sources (crude oil,
coal, etc.), the existence or nonexistence of an alternative
market for the specific gas, and the cost of collecting and
transporting the gas to the plant. In highly developed areas,
such as the U.S. Gulf Coast, an extensive gas pipeline
infrastructure exists to supply domestic demand, therefore -
linking the value of natural gas to other industrial energy
prices. On the other extreme, in remote locations, such as
Prudhoe Bay, the natural gas co-produced with oil is
reinjected back into the wells at a negative cost because no
market for natural gas exists, nor is one likely to develop in
the near future, and thus the natural gas has little market
value. The price at which natural gas could be supplied to a
methanol plant at such a location would thus be minimal,
reflecting only the costs of collection and transport to the

(1) "The Economics of Alternative Fuels and Conventional
Fuels," SRI International, February 2, 1989.

(2) “Capital Servicing Costs of Fuel Methanol Plants," William
E. Stevenson, Bechtel Financing Services, Inc., May 3,
1989.



Table 1

“Bechtel Methanol Plant Information

Location Trinidad Mid East Australia Canada US Gulf Alaska

Total Capital ‘Cost

(Million 1988 $) 985 _ 1088 1537 926 883 1498
Annual Natural Gas ! .

Consumption (bcf) 109.6 109.6 109.6 109.6 109.6 109.6
Annual Methanol :

Production

(million gal) 1151 1151 1151 1151 1151 1151

|



removed to simulate a worst-case situation. Over an LA-4
driving cycle the M85 vehicle: emitted 3.37 gpm while the M100
vehicle emitted 0.08 gpm, a 98 percent improvement for M100.
The projected evaporative emission factors for optimized M100
vehicles in Table 1 reflect the very low evaporative emission
levels that would be expected from all M100 vehicles, even
considering worst-case situations where major emission control
tampering has occurred.

By summing the various emission components in Table 1, it
can be seen that methanol FFVs are projected to emit higher
overall mass organic emissions, and optimized M100 vehicles
lower overall mass organic emissions, than the gasoline
vehicles they would be replacing. Both types of methanol
vehicles would emit less HC, and. more methanol and
formaldehyde, than gasoline vehicles.

The second factor to be considered is relative reactivity
of the various organic compounds. It has long been recognized
that different organic compounds have different photochemical
reactivities, i.e., each compound has a unique rate at which it
reacts in the complex photochemical reactions that lead to
ozone formation. EPA's present exhaust and evaporative HC
emission standards assume that the mix of individual HC
constituents remains fairly similar from one gasoline vehicle
to the next, which is probably a reasonable assumption. But
for fuels that are considerably different than. gasoline, such
as methanol, it is no longer valid to simply assume that
organic emissions will have the same overall photochemical
reactivities as gasoline vehicle HC emissions.

In order to assess the overall ozone impact of
substituting methanol vehicle organics for gasoline vehicle
organics, a number of computer simulation studies have been
performed.(1,2,3,4) These studies simulated air chemistry and
transport within certain urban areas, and accounted for
dispersion of pollutants. Based on these studies, EPA has

_ (i) Assessment of Emissions from Methanol-Fueled Vehicles:
Implications for Ozone Air Quality, R.d. Nichols and J.M.
Norbeck, Ford Motor Company, APCA Paper No. 85-38.3, June
1985.

(2) Photochemical Modeling of Methanol-Use Scenarios in
Philadelphia, G.Z. Whitten, et al., Systems Applications,
Inc., EPA 460/3-86-001, March 1986.

(3) Impact of Methanol Vehicles on Ozone Air Quality, T.Y.-

Chang, et al., Ford Motor Company, Atmospheric
Environment, in press. :

(4). “Impact of Methanol on Smog: A Preliminary Estimate,"
Gary Z. Whitten, Systems Applications, Inc. Report for
ARCO Petroleum Products Company, February 1983.

~si-



Table 2

Total Pump Price Comparison

Low Crude ($20/bb1)

High Crude 35/bb1

Gasoline Methanol Gasoline Methanol
Refinery/Port Price 68.6 35 106.7 35
Long Range and Local
Distribution* 6(3) 3 6(3) 3
Service Station Markup 9 5-7 9 5-7
All Taxes 24 12 24 12
Subtotal Distribution 39(36) 20-22 39(36) 20-22
Total Pump Price 107.6 55-57 145.7 55-57
(104.6) (142.7)
Per Gallon Gasoline Equivalent:
- 5% Methanol 104.6 105-109 142.7 105-109
Efficiency Improvement
- 30% Methanol ;
Efficiency Improvement 104.6 85-88 142.7 85-88
* Long-range distribution for gasoline made from a new refinery (likely

located or foreign soil) would be similar to those of methanol (3¢/gal)
since shipping routes would be similar for either product.

-35-



soe &

28.

29.

30.

31.
32.

33.

34.

35.

36.

37.

38)

39.0

40.

Memorandum: “Analysis of Fuel. Tank-related Fires," from
Kathleen A. Steilen, Standards Development Support Branch,
to Charles Ll. Gray, Jr., Director, Emission Control
Technology Division, April 1987.

} .
"Methanol Fuel in the Racing Industry," Memo to Charles L.
Gray, Jr., Director, Emission Control Technology Division,
from Paul A. Machiele, Emission Control Technology
Division, November 17, 1986. a

"Air Quality Benefits of Alternative Fuels," Prepared for
the Alternative Fuels Working Group of the President's
Task Force on Regulatory Relief, OMS/OAR/EPA, July 1987.

Methanol Informational Brochure, Alberta Gas Chemicals Ltd.

“study of Motor Vehicle Fires," Prepared by Data Link

Inc., for the National Highway Traffic Safety
Administration, February 1988.

"Feasibility Study on the Utilization of Neat Methanol
(M80-M100) Fuel for Automobile in FY1985 (Abstract),"
Volumes 1 and 2, Nomura Research Institute, January 1986.

"Volatility Characteristics . of |Gasoline-Alcohol and
Gasoline-Ether Fuel Blends," Robert L. Fury, General
Motors Research Laboratories, SAE Paper No. 852116.

“Characterization of Emissions from Vehicles. Using
Methanol and Methanol-Gasoline Blended Fuels," Peter A.

Gabele, James O. Baugh, Frank Black, Richard Snow, JAPCA
35: 1168-1175, 1985. !

"Characterization of Emissions from a Methanol Fueled
Motor Vehicle," Richard Snow, et al., Submitted to JAPCA,
September 1987. ‘ .

“Temperature Flammable Limits of Methanol Unleaded

Gasoline Mixtures," Douglas J. Gordon, et al., SAE Paper
No. 852107 L

"Data Collection on Methanol Vapor Exposure," Draft
Report, Battelle for Office .of Bus and Paratransit
Systems, UMTA, November 1987. .

“Training Manual for Methanol Use in Transit Operations,"
Battelle for UMTA, UMTA IT-06-0322-88-2, July 1988.

"Introduction to Combustion Phenomena," A. Murty Kanury,

Gordon and Breach Science Publishers, New York, N.Y., May
1977. _



9.
10.

"The 1986 Bureau of Census State & Metro Area Data Book, &
City/County Data Book", Bureau of the Census, U.S. Dept.
of Commerce.

"The 1982 Census of Retail Trade", Bureau of the Census,
Dept. of Commerce.

“The 1982 & 1987 FHWA Highway Statistics", Dept of
Transportation.

“The National Petroleum News Fact Book", 1987 and 1988,
Hunter Publications.

Lundberg Surveys, which provide data on metro area service
station distributions & throughputs.

Rand-McNally Motor Carriers' Road Atlas 1989

County Road Mileage, US DOT Transportation Computer
Center, Washington, D.C.

-25-



nd

10.
11.

12.

13.

14.

15.

16.

17.

18.

19.

“Butane Suppliers: An Industry Profile and Analysis of the
Impacts of Decreased Market Prices Caused by Gasoline
Volatility Control," prépared.by Jack Faucett Associates
for U.S. EPA, February 1988.

Debra A. Gwyn, “Worldwide Construction," Oi] §& Gas
Journal, April 10, 1989.

“Natural Gas Supply, Demand, and Price," James T. Jensen,
Jensen Associates, Inc., February 1989.

Octane Week, Volume IV, Number 4, June 5, 1989.

"Cost & Availability of Low Emission Motor Vehicles and
Fuels," AB 234 Report, California Energy Commission,
Draft, April 1989.

"Discussion Review of Critical Cost Assumptions for
Methanol as Presented at the AB 234 Workshop on February
1-2, 1989," Acurex Corporation, February 16, 1989.

"Statement by ICI on the. Proposed SCAQMD Phase Out
Policy," letter to Mr. Paul Wuebeen, SCAQMD from G. D.
Short, ICI Products, December 6, 1988.

Letter from Charles L. Gray, Jr., U.S. EPA to Mr. Robert
Friedman, Office of Technology Assessment, June 8, 1989.

“Methanol Manufacturing Plant Financing," William E.
Stevenson, Bechtel Financing Services, Inc., February 1,
1989.

“Alternate Fuels Supply Issues," Mike Lawrence, Jack
Faucett Associates, slides presented at SAE
Government/Industry Meeting, May 1989.

Letter to Ms. Jananne Sharpless, Secretary of
Environmental Affairs, State of California from R.
Colledge, Canadian Oxgenated Fuels Association, April 3,
1989.

Letter to Charles L. Gray, Jr., U.S. EPA from J.J.
Hennessey, Vice President and General Manager, Alberta Gas
Chemicals, Inc., March 22, 1989.

Letter to Honorable Jananne Sharpless, Secretary ‘of
Environmental Affairs, State of California from Peter J.
Booras, President, Yankee Energy Corporation, January 9,
1989.

-40—


methanol tank would most logically result in increased
dispensing rates and no increase in filling time, instead of
the construction of. new stations and the acceptance of longer
filling times. With methanol's low volatility, increased
dispensing rates should be more cost effective than building
new stations. The actual time spent filling up the ‘tank is
nonetheless only a fraction of the total time spent in the
station (e.g., time is also spent pulling in and out, opening
and sealing’ the tank, paying the cashier, buying other goods,
etc.). The only costs which would be fully proportional to
volume are the pumping costs, which are a small proportion of
total station costs. Therefore, it seems reasonable to assume
that total retailing costs only increase slightly and that the
dealer margin for M100 per gallon will be about 5 to 7 cents
per gallon (or 6 to 8 cents per gallon for M85 which has a
slightly higher energy content). .

Taxes for methanol and gasoline are assumed to be
equivalent on a Btu basis, 12 cents per gallon for M100 and 14
cents per gallon for M85. This does not reflect expected
increases in fleet average energy efficiency due to the
introduction of high-efficiency M100 vehicles, however. As
fleet energy efficiency increases, taxes (on a Btu basis) would
have to increase to create a “revenue-neutral" program. Any
increased taxes would likely be allocated to gasoline and
methanol equally on a Btu basis, maintaining the two-to-one
ratio used in this analysis.

In summary, EPA estimates the total M100 price increment
from port to customer would be about 20 to 22 cents per gallon
and the total M85 price increment would be 23 to 25 cents per
gallon. Higher estimates are possible under different
assumptions but do not appear appropriate for a stabilized,
high methanol fuel demand scenario.

For a more detailed discussion on the distribution costs
associated with a future methanol fuel market, refer to the
documents listed below:

1. "Distribution of Methanol for Motor Vehicle Use in the

: California South Coast Air Basin," Energy and
Environmental Aanlysis, Inc., prepared for U.S. EPA,
September 1986.

2. "The Economics of Alternative Fuels and Conventional
Fuels," SRI International, prepared for California oil
companies, February 2, 1989. : :

3. "Preliminary Perspective on. Pure Methanol Fuel for
Transportation, "U.S. EPA Report to Congress,
EPA460/3-83-003, September 1982.

-24-



17.

is.

19.

20.

21.

22.

23.

24.

25.

26.

27.

28.

29.

Proceedings from 6th International Symposium on Alcohol
Fuels Technology, Ottawa, Canada, May 1984.

Proceedings from 7th International Symposium on Alcohol

.Fuels, Paris, France, October 1986.

Proceedings from 8th International Symposium on Alcohol
Fuels, Tokyo, Japan, November 1988.

Proceedings of the Methanol Health and Safety Workshop,
South Coast Air Quality Management District, November 1988.

Robert I. Bruetsch, "Emissions, Fuel Economy, and
Performance of Light-Duty CNG and Dual-Fuel Vehicles," EPA
Office of Mobile Sources Report EPA/AA/CTAB-88-05, June
1988.

F. Lipari, R.L. Williams, “«Formaldehyde, Methanol, and
Hydrocarbon Emissions from Methanol-fueled Cars," Air and
Waste Management Association Paper 89-124.3, June 1989.

"Influence of Ambient Temperature, Fuel Composition, and
Duty Cycle on Exhaust Emissions,", NIPER Final Draft
Report to EPA, December 1987. :

"Alcohol Fueled Fleet Test Program - 8th Interim Report,"
State of California Air Resources Board, MS-88-05, June
1988.

Gary 2%. Whitten, “Impact of Methanol on Smog: A
Preliminary Estimate," Systems Applications, Inc. Report
for ARCO Petroleum Products Company, February 1983.

"Air Quality Benefits of Alternative Fuels," EPA Report
for Alternative Fuels Working Group Report of the
President's Task Force on Regulatory Relief, July 1987.

G.Z. Whitten, -N. Yonkow, 1.C. Myers, “Photochemical
Modeling of Methanol-Use Scenarios in Philadelphia,"
Systems Applications, Inc. Report for EPA Office of Mobile
Sources (Report EPA 460/3-86-001), March 1986.

"Guidance on Estimating Motor Vehicle Emission Reductions
From The Use of Alternative Fuels and Fuel Blends," EPA
Office of Mobile Sources Report TSS-PA-87-4, January 29,
1988. ~

William P.L. Carter, “Effects of Methanol Fuel
Substitution on Multi-Day Air Pollution Episodes,"
University of California Riverside Report for California
Aix Resources Board, September 1986.

-58-—



In the long run, methanol should be used in its pure form,
as M100, because of its superior environmental benefits.
Taking today's methanol price of 40 to 45 cents per gallon and
adding 20 to 22 cents per gallon for distribution, retail
markup, and fuel taxes (slightly lower than for M85 because an
M100 vehicle will require more gallons to travel the same
mileage) yields ,@ current M100 pump price of 60 to 67 cents per
gallon. Assuming 30 percent higher efficiency for an
optimized, dedicated methanol vehicle gives. a projected
gasoline retail price equivalent for M100 today of 92 to 103
cents per gallon. This projected price range for M100 in an
optimized, dedicated methanol vehicle is actually below today's
gasoline prices. :

Fuel-Grade Methanol Price at the Port

This analysis projects fuel methanol prices on an energy
equivalent basis will become even more competitive with
gasoline at the pump, based to a large extent on DOE's
projections of future natural gas and petroleum prices.
However, it is recognized that future energy price projections
are problematic and always involve some degree of uncertainty.
Major changes in world oil prices could significantly impact
the competitiveness of methanol or any other alterantive fuel.

Obviously, one key question is the likely location of new
fuel grade methanol plants. These plants are expected to be
built in remote locations with large supplies of natural gas
for which there is no other competitive market. Such locations
are numerous and include Alaska's North Slope, Western Canada,
Australia, Trinidad, Nigeria, South America, Chile and the
Persian Gulf. Only about 15 percent of the unmarketed gas
(i.e., that gas associated with oil production which is flared,
vented, or reinjected) is located in the Middle East. (See
Attachment 1 for more details.)

Obtaining methanol from non-OPEC countries would diversify
energy sources and improve this country's energy security.(1)
It also provides competition with OPEC oil which could hold
down future oil price increases. (2)

The cost of fuel methanol delivered to'the U.S. is the sum
of two costs: 1) the cost of producing the methanol, and 2).
the cost of transporting it to the U.S., if it is produced at
remote locations. Both of these costs vary depending on the
location of the plant. The following two sections project
methanol production and overseas transportation costs at. a
number of probable locations and derive current best estimates
for these costs.

(1) "Energy Security - A Report to the President of the United
States," U.S. Department of Energy, March 1987.

(2) "Assessment of Costs and Benefits of Flexible and
Alternative Fuel Use in the U.S. Transportation Sector,"
U.S. Department of Energy, January 1988.

-2-



fn —OAEeSOoOoOorreeoonnnns ee

fhe VOC emission reductions achievable with the clean,
alternative fuels program are a significant portion of what
could be achieved by taking the same number of cars off the
road, and are much larger than the reductions that would be
available from any other motor vehicle VOC control program
absent major vehicle use restrictions.

Air Toxics

The use of methanol: in motor vehicles will also reduce the
air toxics impacts of motor vehicle emissions. Considering the
pollutants which are emitted from gasoline vehicles and
classified by EPA as_ either known or probable human
carcinogens, projected reductions in the number of cancer cases
as a result of a clean fuels program are significant. The
elimination or reduction of emissions of benzene, gasoline
refueling vapors, 1,3-butadiene, and polycyclic organic
material (POM) would be responsible for most.of the projected
cancer reductions. (1,2,3)

Methanol is not generally considered a toxic air pollutant
at levels likely to be encountered from use as a motor vehicle
fuel.(4) Available information indicates that methanol is ‘not
carcinogenic. Additional research is being conducted, however,
on the health effects of methanol to provide an even broader
base of health effects information.

Formaldehyde exposure is an important air toxics issue
often raised as a concern with the use of methanol.
Formaldehyde is classified by EPA as a probable human
carcinogen. There is some concern since burning methanol
produces formaldehyde and most prototype methanol vehicles have
emitted more formaldehyde than gasoline vehicles. Catalytic

(i) “Unregulated Exhaust Emissions from Methanol-Fueled Cars,"
L.R. Smith, C. Urban, T. Baines, Society of Automotive
Engineers Paper 820967, August 1982.

(2) “Characterization of Emissions from a Methanol Fueled
Motor Vehicle," Richard Snow, Linnie Baker, William Crews,
C.0. Davis, John Duncan, Ned Perry, Paula Siudak, Fred
Stump, William Ray, James Braddock, Journal of the Air
Pollution Control. Association, 39, No. 1, 4854, January
1989. :

(3) “Air Toxic Emissions and Health Risks. from Motor
Vehicles," Jonathan M. Adler and Penny M. Carey, Air and
Waste Management Association Paper 89-34A.6, June 1989.

(4) “Automotive Methanol Vapors and Human Health: An
Evaluation of Existing Scientific Information And Issues
for Future Research," Health Effects Institute Report, May
1987. :

-16-



4l.

42.

43.

44.

45.

46.

47.

48.

49.

50.
51.

52,

53.

54.

\
"Recent Canadian Research Initiatives on Methanol Safety,"
Pat Hallett, Canadian Dept. of Transport, Presentation at
the Methanol Health and Safety Workshop, South Coast Air
Quality Management District, November 2, 1988.

"Ignition Risks of Hot Surfaces in Open Air," API, API PSD
2216, July 1980. :

"Spilled Fuel Ignition Sources and Countermeasures," N.
Johnson, et al, Ultrasystems Inc., Prepared for NHTSA,
September 1975.

Hazards with Flammable Mixtures," W.B. Howard, Monsanto
Co., Volume 4, Loss Prevention, AIChE, 1969.

"Fuel-Fed Fires and Commercial Vehicle Design," J. O'Day,
Published in IAUD Congress on Vehicle Design and
Components Third Conference D: Safety Considerations in
Vehicle Design, P. D177-D185, 1986.

"Fires During Refueling With No. 2 Diesel Fuel," R.D.
Ervin, HSRI Review, Vol 12, No. 6, May-June 1982.

Letter to Mr. Linas Gobis, MVMA, from E. H. Schanerberger,
Ford Motor Company, February 1986.

Letter to Charles L. Gray, Jr., Director, Emission Control
Technology Division, EPA/OMS, from K. R. Parker, Senior
Project Engineer, Volkswagen of America, Inc., September
17, 1987.

Presentation by Vittoria Battista, Transport Canada, at
the Fourth Windsor Workshop on Alternative Fuels, June
1988.

"Fire Protection Manual," Ed. C.H. Vervalin, 3rd edition.

"The Possible Use of Neat Methanol for Canada's Road
Vehicles, ‘A Policy Oriented Analysis, Energy Mines and
Resources, Canada, July 1986.

“Fuel Methanol Additives: Issues and Concerns," J.E.
Anderson and R.J. Nichols, Engineering and Research Staff,
Ford Motor Company, Presented at the 10th Energy
Technology Conference, 1983.

"Methanol as a Fuel: A Review with Bibliography," David
L. Hagen, University of Minnesota, SAE Paper No. 770792.

“Evaluation of Fire Fighting Foams As Fire Protection for

Alcohol Containing Fuels," API Publication 2300, April
1985. .

-76-

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te gy

10.

11.

12.

13.

14,

Kathleen M. Nauss,; “An Evaluation of the Human Health
Effects of Automotive Methanol Vapors," Health Effects f
Institute, presented at the South Coast Air Quality e
Management District Methanol Health and Safety Workshop, S
November’ 1, 1988. i

R. F. Webb, "Assessment of the Safety of Transportation,
Distribution, and Storage of Methanol Fuels," prepared for
Transport Canada, September 1988.

“The Transport of Methanol by Pipeline," U.S. Department
of Transportation, April 1985.

A. Larson, et al., “Safety Aspects of the Use of Alcohol
in Road Vehicles," Ontario Research Foundation Final
Report No. 4439, September 1986.

Vittoria Battista, "Comparative Safety of Methanol and
Conventional Fuels," Transport Canada, Presentation at the
Fifth Windsor Workshop on Alternative Fuels, June 1989.

Susan E. Rosenberg and John R. Gasper, “Potential Health
and Safety Impacts from Distribution and Storage of
Alcohol Fuels," Report No. ANL/CNSU-TM-61, Argonne
National Laboratory for U.S. DOE, June 1980.

Dr. John J. Clary, “Discussion Paper on New Research on
Methanol," prepared for the American Petroleum Institute !
by Bio Risk Consultants, June 9,,1989.

Dr. Toby Litovitz, "Acute Exposure to Methanol in Fuels: '
A Prediction of Ingestion Incidence and Toxicity,"
National Capital Poison Center, October 31, 1988.

Letter to Richard D. Wilson, Director of Office of Mobile
Sources, from Donald R.. Buist, Director, Automotive
Emissions and Fuel Economy Office, Ford Motor Company.
November 26, 1986.

"Fire Safety Considerations for Storing, Transporting, and
Dispensing Methanol and Methanol-Blend Fuels," Donald M.
Johnson, Presentation at the Methanol Health and Safety
Workshop, South Coast Air Quality Management District,
November 2, 1988.

"A Technical Assessment of ‘Alcohol Fuels," Alternative
Fuels Committee of the Engine Manufacturers Association,
SAE Paper No. 820261, February 1982.

“Methanol Fuel Manual: General Guidelines for the Use of
Methanol Fuel by Transit Properties, Draft," ABACUS
Enterprises LTD for the Florida Dept. of Transportation,
March 1986.


woe ow

83.
84,

85.

86.

87.

89.

90.

91.

92.

82.-

“Neonatal Behavioral Toxicity in Rats Following Prenatal
Exposure to Methanol," R. Infurna, B. Weiss, Teratology,
33: 259-265, 1986. i

"Methanol Fuel Modification: for Highway Vehicle Use,"
Union Oil Company of California for U.S. Department of
Energy, Final Report, HCP/W3683-18, July 1978.

"Atmospheric Chemistry: Fundamentals and Experimental
Techniques," Barbara J. Finlayson-Pitts,. James N. Pitts,
dr., 1986. f

"Gasoline Vapor Exposures at a High Volume Service
Station," Christine A. Kearney and David B. Dunham, Mobil

Oil Corporation, Am. Ind. Hyg. Assoc. J. 47(8): 535-539,
1986. ; :

"Air Toxics Emissions and Health .Risks from Motor
Vehicles," Jonathan M. Adler and Penny M. Carey, U.S. EPA,
AWMA Paper No. 89-34A.6, July 1989.

“Toxicological Research of Methanol as a Fuel Power
Station: Demonstration Tests for the Environmental Safety
of Methanol," New Energy Development Organization.

"Projected Air Concentrations of Methanol," Presentation
by Penny M. Carey, U.S. EPA at the Health Effects
Institute Workshop on Fetal Toxicity of Methanol and
Carbon Monoxide, October 3, 1988.

"LA County Mall .Garage Emissions Study," Ken Smith,
California Energy Commission, Presentation to the Advisory
Board on Air Quality and Fuels, December 1, 1988.

“The New York City Bus Terminal Diesel Emissions Study,
Measurement and Collection of Diesel Exhaust for Chemical
Characterization and Mutagenic Activity," Robert M.
Burton, et al., presented at the 80th Annual Meeting of
APCA, New York, New York, June 21-26, 1987.

"Quantitative Estimate of the Air. Quality Impacts of
Methanol Use," Armistead Russell, et al., Carnegie Mellon
University, for the California Air Resources Board, April
1989. ,

“Methanol/Ethanol Equivalent Dose Levels," Memorandum from
Penny M. Carey, Emission Control Technology Division to
Charles L. Gray Jr., Director, Emission Control Technology
Division, April 14, 1988.

“Fuel Alcohol Formulations," Swedish Motor Fuel Technology
Company, for U.S. DOE, DOE/CE/50181-H1, September 1988.



reacting downwind. A large modeling study of methanol vehicle
use in California's South Coast Air Basin was recently
performed by Carnegie Mellon University for the California Air
Resources Board.(1) The modeling covered a three-day period
(all previous modeling studies examined a single day). The
results indicate that the use of methanol vehicles could result
in significant reductions in ozone levels for all three days.

No modeling studies of methanol vehicle use have been
conducted to address transport episodes of even longer
duration. The three-day wind path followed in the CMU study is
shorter than some episodes on the East Coast in which a
polluted air mass takes days to move from Washington, D.C. to
Maine, and possibly drifts over the Atlantic and then returns.
With more time available for the ozone reaction, more of the
methanol emitted early in the episode will react. However,
since the mass of organic carbon from methanol vehicles is
less, even the ultimate ozone potential is reduced. Also,
methanol can be scrubbed out by rain more so than
hydrocarbons. Longer time periods also provide for more
dispersion of the methanol emitted early in the episode thus
further reducing its concentrations in the cities along the
East Coast. 7

More information on the ozone implications. of the clean,
alternative fuels program is included in the following
references.

1. "Emission Standards For Methanol-Fueled Motor Vehicles and
Motor Vehicle Engines," EPA Final Rulemaking, Federal
Register Part 86, No. 68, 14426-14613, April 11, 1989.

2. Quantitative Estimate of the Air Quality Impacts of
Methanol Fuel Use, Armistead Russell, et al., Carnegie
Mellon University, prepared for the California Air
Resources Board and the South Coast Air Quality Management
District, April 1989. -

3. “Notice of Proposed Rulemaking for Methanol-Fueled
Vehicles and Motor Vehicle Engines," Federal Register, Vol
51, No. 168, August 29, 1986.

4. M.D. Gold, "Organic Standards for Light-Duty
Methanol-Fueled Vehicles: A Methodology," Air. Pollution
Control Association Paper 85-38.6, June 1985. :

(1) Quantitative Estimate of the Air Quality Impacts of
Methanol Fuel Use, Armistead Russell, et al., Carnegie

Mellon University, prepared for the California Air

Resources Board and the South Coast Air Quality Management
District, April 1989.

-56-

eens

Dae

Eee ct

find ts tals



Attachment 3

Sensitivity Analysis of Methanol and Gasoline Price Comparison

.. Future crude oil and natural gas prices will obviously
affect the relative prices of gasoline and methanol, however
predicting crude oil and gas prices is rather difficult.
Future crude oil price increases will likely cause domestic
natural gas prices to increase as well. Remote natural gas
prices will likely increase too, but at a lesser rate than
crude oil (based on the fact that the remote gas has no other
competitive market and it is not controlled by a cartel). Also
important is the capital recovery rate (CRR) used in
determining future fuel prices, as it relates to both future

methanol and gasoline prices. Methanol vehicle efficiency
improvements will also have an impact on methanol's ability to
compete. After analyzing each of these parameters

individually, the interrelationship among them will be defined,
allowing consideration of the circumstances under which
methanol price "breaks-even" with that of gasoline.

Cost of Fuel Methanol Production

Capital Recovery Rate

As discussed earlier, EPA has used a real after-tax return
on investment of 10 percent in this analysis. While the
"projected" return on investment used as a criterion in
corporate spending decisions is often higher than this, the
fact remains that capital investments are being made in the
motor fuel sector where a real after-tax return on investment
of 10 percent is realistically expected. Thus, in a stable
fuel methanol market situation, the CRR for a methanol facility
and a refinery should be about the same.

There has been some concern raised over whether investment
in a methanol plant would be riskier than investment in a
gasoline refinery, thus requiring a higher return on
investment. Under a stable, secure market this would not
likely be the case. As methanol demand grows, potential
producers will compete to supply the market, subject to risks
similar to those faced by the petroleum industry. The
perception that future gasoline refineries will be built in
safe domestic areas while methanol plants will be built
overseas is also unfounded. The new refineries being built are
located in the Middle East and South America, not in the U.S.
Required . returns on investment in these areas will not
necessarily be higher than in the U.S. either. In deriving

-30-



ad

KO Oe

etal

ancl

Spill Issues

If methanol were involved in a spill or leak into the
ocean, into rivers, onto land, or into drinking water supplies,
the question arises as to whether a greater environmental and
public health hazard would be posed relative to a petroleum
fuel spill or leak. A methanol fuel leak or spill into
aquatic systems or on land indeed poses environmental and
health concerns because of the fuel's toxic effects, and it
would be expected that there would be a larger number of spills
because of the larger quantities of methanol fuel that would
have to be transported. However, as a result of. methanol's
inherent properties of water solubility, biodegradability, and
relative ease of complete evaporation, it could quickly dilute
to non-toxic concentrations, disperse downstream, and decompose
if spilled into large bodies of water, and evaporate or
decompose if spilled on land areas. Thus, in many scenarios, a
methanol spill should not be as hazardous as a petroleum
spill. One scenario which must be analyzed in much greater

detail, however, is groundwater contamination, given methanol's
solubility in water.

In comparison to petroleum fuels, a tanker spill of
methanol into the ocean should pose less risk to aquatic life.
Methanol's water solubility allows for rapid dispersion and
dilution and, therefore, short exposure durations. Also,
methanol's quicker biodegradation than that of crude oil,
diesel fuel, or gasoline results in shorter residence times of
the fuel and faster recolonization of life at spill sites, with
less severe long-term effects of spills on animal life and on
the environment. In general, cleanup of methanol spills
requires less extensive efforts and costs than cleanups
associated with spills of water-insoluble petroleum fuels.
Small methanol spills usually do not require any cleanup
efforts because of the effectiveness of natural biodegradation,

_while large methanol spills may require aeration of the water

(to supply depleted oxygen to marine life and. speed
biodegradation) and/or use of methanol-destroying bacteria.

Methanol spills into rivers and other moving bodies. of

- water also benefit from the fuel's water solubility and

biodegradation. Again, in contrast to petroleum fuels,
methanol spilled into a river from, for example, a barge, is
quickly diluted and carried downstream. Cleanup of a methanol

; fuel spill into a moving body of water would be handled

similarly to that of a spill into the ocean.

Although, like petroleum fuels, methanol is toxic to plant

and animal life, its toxic effects after a spill onto land are
of shorter duration than those exhibited by a petroleum fuel
spill. Again, methanol's inherent properties of relative ease
of complete evaporation and biodegradability play a positive
role. Its more rapid evaporation from the earth allows for
less to be absorbed. (It is important to note that while some
of the lighter ends of gasoline evaporate very quickly, its

-69-



Middle East gas costs for the oil company-sponsored SRI report,
Jensen Associates, Inc. used a capital recovery rate of 15
percent in analyzing a gas production plant located in Qatar,
even lower than the 16.2 percent used in this analysis.(1)

Further, there are some risks currently facing the
petroleum refining industry that would not be faced by the fuel
methanol industry. The potential for environmental regulation
of gasoline composition creates uncertainty for refinery
investors. For instance, regulations requiring the removal of
aromatics from gasoline would make reforming for. octane
unprofitable. Faced with this potential, investing in a new
reformer (a major cost item. in a new refinery) is risky. The
potential for other gasoline regulations pose additional risk.
The possibility of more stringent fuel economy standards also
poses some risk of future reductions in gasoline demand. Thus,
the idea that gasoline refining is comparatively a low-risk,
stable operation may not hold true for the future.

As discussed in the analysis of EPA's projected methanol
cost presented earlier, when a CRR of 16.2 percent is applied
to the estimated methanol plant investments values, annual
investment related costs ranging from $143 million to $249
million (12.4-21.6¢/gal) result. These are shown for each of
the six sites evaluated in the Bechtel study in Table 1.
While, as described above, EPA believes a CRR of 16.2 is most
appropriate for this analysis, it is instructive to consider
the effect that other CRRs might have on methanol price. Thus,
Table 1 also shows the sensitivity of the methanol price as a
function of CRR. One lower CRR of 10 percent, typical of
utility investment, and two higher CRRs, 20 percent and 30
percent, corresponding to high-risk/high-profit potential
investments are shown. The 20 percent CRR increases the
methanol production cost by only 3-5¢/gal at the various sites,
and the 30 percent CRR increases the methanol costs 11-18¢.
Clearly, programs designed to minimize the risk to the investor
are critical to assuring the availability of low priced
methanol.

Natural Gas Feedstock Price

By far the most sensitive and controversial factor
influencing methanol. cost is the projected natural gas
feedstock price. With current technology plants, the price of
methanol is increased by about 10¢/gal for every $1 per million
Btu ($1/MMBtu) increase in the price of natural gas. The price
at which natural gas is available, in turn, is dependent on

(1) "Natural’Gas Supply, Demand, and Price," James T. Jensen,
Jensen Associates, Inc., February 1989

. -31-



i
’

In summary, there are several areas in which cost savings
over conventional vehicles are possible and several in which
cost increases will be possible. While much uncertainty still
exists regarding the relative. costs,of future gasoline and M100
vehicles, this report assumes a base case scenario in which the
savings and the increases will net out to zero, and that there
will be no cost difference between future optimized M100
engine/vehicle systems and the vehicles they replace.

In determining the incremental costs of FFVs, several
considerations must be taken into account. First, since FFVs
must be capable of operating on methanol, they must incorporate
those modifications necessary for methanol combustion discussed
above which can increase vehicle cost. Yet, because FFVs must
also operate well on gasoline, they cannot incorporate any of
the changes discussed above which can reduce dedicated methanol
vehicle cost. The fuel tank for an FFV would have to be larger .
than those of a dedicated methanol vehicle in order to provide
equivalent range. This could be somewhat more problematic
because such vehicles will sometimes carry the more volatile
gasoline fuel, and there will be no offsetting weight
reductions. One component necessary for an FFV that neither a
gasoline nor. a methanol vehicle must have is a fuel sensor.
Since fuel sensors used by both General Motors and Ford. in
their FFVs have never been mass produced, the cost impact of
doing so is very difficult to assess. Given this extra
componentry required and the inability to take advantage of the
cost savings described above for dedicated methanol vehicles,
EPA is relying on Ford cost estimates of an extra $200 to $400
per vehicle to produce an FFV at high volumes compared to a
gasoline vehicle. Hence, a value of $300 per vehicle is used
as the incremental cost of FFVs for purposes of projecting the
total costs of the neat fuels program.

-46-





(3)

(4)

(5)

(6)

Regulated and Unregulated Exhaust Emissions from
Malfunctioning Non-Catalyst and Oxidation Catalyst
Gasoline Automobiles, Charles Urban, Southwest Research
Institute, Report EPA-460/3-80-003, January 1980.

Regulated and Unregulated Exhaust Emissions from
Malfunctioning Three-Way Catalyst Gasoline Automobiles,
Charles Urban, Southwest Research Institute, Report
EPA-460/3-80-004, January 1980.

Characterization of Exhaust Emissions from High Mileage
Catalyst-Equipped Automobiles, Lawrence R. Smith,
Southwest Research Institute, Report EPA-460/3-81-024,
September 1981. :

Mobile Source Emissions of Formaldehyde and Other
Aldehydes, Penny M. Carey, U.S. Environmental Protection
Agency, Report EPA/AA/CTAB/PA/81-11, May 1981.

-48-

igs eds ss Ka}

Peel
‘Geeaat



10.

11.

12.

13.

14,

1s.

16.

M.D. Gold, C.E. Moulis, "Emission Factor Data Base for
Prototype Light-Duty Methanol Vehicles," SAE Paper 872055,
November 1987.

Jeffrey A. Alson, "The Emission Characteristics of
Methanol and Compressed Natural Gas in Light Vehicles,"
Air Pollution Control Association Paper 88-99.3, June 1988.

"Regulatory Support Document for Proposed Organic Emission
Standards and Test Procedures for Methanol Vehicles and
Engines," EPA Office of Mobile Sources, July 1986.

L.R. Smith, "Characterization of Exhaust Emissions from
Alcohol-fueled. Vehicles", Southwest Research Institute
Report for Coordinating Research Council, CAPE-30-81,
October 1984.

J.D. Murrell, G.K. Piotrowski, "Fuel Economy and Emissions
of a Toyota T-LCS-M Methanol Prototype Vehicle," Society
of Automotive Engineers Paper 871090, May 1987.

PLA, Gabele, J.O. Baugh, FM. Black, R. Snow,
"Characterization of Emissions from Vehicles Using
Methanol and Methanol-Gasoline Blended Fuels," Journal of
the Air Pollution Control Association, 35, 1168-1175, 1985.

“Alcohol Fueled Fleet Test Program - 7th Interim Report,"
State of California Air Resources Board, MS-85-003, March
1987.

“Emission and Fuel Economy Test of Two Bank of America
Methanol Fueled Vehicles," State of California Air
Resources Board, MS-84-001, October 1983.

C.F. Edwards, W.H. Baisley, "Emission Characteristics of
Methanol Fueled Vehicles Using Feedback Carburetion and
Three-Way Catalysts," Society of Automotive Engineers
Paper 811211, 1981. ,

K. Katoh, Y¥. Imamura, T. Inoue, "Development of Methanol
Lean Burn System," Society of Automotive Engineers Paper.
860247, 1986.

"Summary and Analysis of Comments on the Notice of
Proposed Rulemaking for Emission Standards and Test
Procedures for Methanol-Fueled Vehicles and Engines," EPA
Report, January 1989.

“Methanol Promise and Problems," society of Automotive
Engineers Publication SP-726, November 1987.





Natural Gas Price ($/MMBTU)

FIGURE 1!

Methanol vs. Gasoline Break Even Price

10

i

i
——— +30% Efficiency
wecsene Equal Efficiency
—_—+t—__ Likely Remote Price
e+ji——o—_—- LNG Netback
° SRI Trinidad
4 SRI Australia

oO 10 20 39

ol Price ($/bbl)

— -38-

40

so



Methanol/Gasoline Comparison

Each of these factors impacts the relative price at which
methanol and gasoline will be available. In order to more
clearly understand the relationship between these variables, a
"break-even" natural gas price (the natural gas price at which
gasoline and methanol have the same cost per mile traveled) has
been defined in terms of crude oil price, capital recovery rate
(CRR), and vehicle efficiency, using the capital investment,
operating, and transport costs defined by Bechtel for the
Trinidad site.(1,2) For the CRR (16.2 percent)’ used in. this
analysis, and assuming a 30 percent vehicle efficiency
improvement a break even natural gas price of $2.33/MMBtu at a
crude oil price of $20/bbl is calculated. Table 3 shows the
break-even natural gas price for various CRR's, crude oil
prices, and vehicle efficiencies.

As can be seen from Table 3, even with no efficiency
improvement, at current oil prices the break-even natural gas
price is $0.69/MMBtu. With a 30 percent improved efficiency
methanol vehicle, as long as natural gas prices do not exceed
$2.33/MMBtu (Trinidad location), methanol will cost less than
gasoline ($20/bbl crude). With $35/bbl crude, natural gas
prices could rise as high as $4.85/MMBtu. As can be seen, the
assumed CRR has only a minor effect.

This relationship between break-even natural. gas price,
crude oil price, and vehicle efficiency is graphically
illustrated in Figure 1 for a CRR of 16.2 percent. Also shown
is an "LNG netback" for Trinidad, based on DOE's U.S. wellhead
gas price projections and LNG production and transport
costs.(3) Also shown is a "Likely" remote gas price, assumed

(1) The break-even natural gas price can be expressed
mathematically as shown in Appendix A.

(2). "California Fuel Methanol Cost Study," prepared by
Bechtel, Inc., for Chevron U.S.A., Inc., Amoco Oil
Company, ARCO Products Company, California Energy
Commission, Canadian Oxygenated Fuels Association,
Electric Power Research Institute, Mobil Research and
Development Corporation, South Coast Air Quality
Management District, Texaco Refining and Marketing, Inc.,
Union Oil Company of California, January 1989.

(3) "Long Range Energy Projections to 2000," U.S. DOE, Office
of Policy, Planning, and Analysis, DOE/PE-0082, July 1988.

-36-


Air Toxics

The use of methanol in motor vehicles will also reduce the
air toxics impacts of motor vehicle emissions. The potential
reduction in cancer cases in the year 2005 has been estimated
earlier. This analysis indicates that methanol would, under
the given example, result in about 9 reductions (a reduction of
13 percent) in cancer cases in 2005.

Methanol is not generally considered a toxic pollutant at
levels likely to be inhaled from use as a motor vehicle fuel.
Available information indicates that methanol is not a
carcinogen. The Health Effects Institute, an independent
non-profit research organization funded jointly by EPA and the
motor vehicle industry, concluded in a May 1987 report that
“the weight of available scientific evidence indicates that
exposure to methanol vapors is not likely to cause adverse
health effects. Health concerns regarding methanol vapors
should not prevent government and industry from encouraging the
development and use of methanol fuels, assuming that such
development and use are otherwise in the public interest."(1)
Nevertheless, EPA and HEI are conducting further research in
this area, especially with respect to chronic" exposure to low
levels of methanol.

Table 4 provides a pollutant specific analysis of the air
toxics impacts of methanol.(2) A range of total cancer case
reductions of 9.3-22.6 is presented. The lower number
represents the minimum benefit of the proposed program in the
nine affected areas in 2005. Cancer cases are estimated for
the year 2005 assuming a 50/50 split of FFVs (utilizing M85
year round) and dedicated vehicles in these areas. The larger
number represents the benefit in the nine areas in 2015.
Replacement of 30 percent of gasoline vehicles with dedicated
methanol vehicles is assumed in the year 2015 in these nine
areas. As many as 75 cancer case reductions could be realized,
assuming complete replacement of gasoline vehicles with
dedicated methanol vehicles in the year 2015 in these nine
areas.

The following toxic pollutants were examined: benzene
(including exhaust, evaporative, running loss, and refueling
benzene), gasoline refueling vapors, exhaust 1,3-butadiene,

(1) “Automotive Methanol Vapors and Human Health: An
Evaluation of Existing Scientific Information and Issues
for Future Research," Health Effects Institute Report, May

7.

(2) Air Toxics Emissions and Health Risks from Mobile Sources,
Jonathan M. Adler and Penny M. Carey, U.S. Environmental
Protection Agency, APCA Paper No. 89-34A.6, June 1989.

-60-



Table 2 shows the total landed cost estimates for

methanol. As can be seen, costs in the 30-40¢/gal range are
typical for the low-cost sites. The mid-point of this range,
35¢/gal, will be used as an estimate for this analysis. This
is within the range of methanol price estimates developed by
several other analysts.(1-12) :

(1)

(2)
(3)

(4)

(5)
(6)
(7)
(8)
(9)
(10)
(11)

(12)

"Assessment of Costs and Benefits of Flexible and
Alternative Fuel Use in the U.S. Transportation Sector,
Technical Report Two: Executive Summary--Methanol and LNG
Production and Transportation Costs," Office of Policy,
Planning and Analysis, U.S. DOE, May 1989.

“Australia as a Potential Source of Methanol for the
California Clean Fuels Program," BHP Petroleum FTY LTD,
January 1989,

"Statement by ICI on the Proposed SCAQMD Phase Out
Policy," letter to Mr. Paul Wuebben, SCAQMD from G. D.
Short, ICI Products, December 6, 1988.

Letter to Ms. Jananne Sharpless, Secretary of
Environmental Affairs, State of California from R.
Colledge, Canadian Oxgenated Fuels Association, April 3,
1989. .

Letter to Charles L. Gray, Jr., U.S. EPA from J.J.
Hennessey, Vice President and General Manager, Alberta Gas
Chemicals, Incorporated, March 22, 1989.

Letter to Honorable Jananne Sharpless, Secretary of
Environmental Affairs, State of California from Peter J.
Booras, President, Yankee Energy Corporation, January 9,
1989.

Letter To Jeffrey A. Alson, U.S. EPA from Chris Grant,
Alberta Gas Chemicals, Incorporated, April 28, 1989.

Letter to Charles L. Gray, Jr. U.S. EPA, from R. D.
Morris, Hoechst Celanese, April 27, 1989.

Letter to Charles L. Gray, Jr., U.S. EPA from R.D. Morris,
Hoeschst Celanese Corporation, June 2, 1989.

“Conversion of Offshore Natural Gas to Methanol," Phase I
Report, Federal Highway Administration, U.S. Department of
Transportation, Contract: DITFH-61-85-C-0076, Yankee Energy
Corporation, May 1987.

Letter: to Charles L. Gray, Jr., U.S. EPA, from John
Meyers, President, Fuel Methanol of America, Inc., January
, 1989. '

Letter to Charles L. Gray, Jr., U.S. EPA, from Y.
Mizukami, General Manager, Energy and Chemical Project
Manager, Marubeni Corporation, December 27, 1988.



Attachment 5

Environmental Implications of Methanol

Urban Ozone Levels

The primary environmental benefit of methanol will be
significant improvements in ozone levels in the most seriously
polluted areas of the country. Projected hydrocarbon
reductions have been computed for each of the nine most serious
ozone non-attainment cities. For this analysis, it is assumed
that methanol flexible fuel vehicles (FFVs) will be sold for
the first five years (1995-1999), while sales thereafter will
be dedicated M100 vehicles. However, the results apply to any

clean fueled vehicles that meet the same emissions performance
targets.

EPA's projection that methanol vehicles will yield lower
“ozone—producing potential" or “gasoline voc-equivalent
emissions" involves two primary inputs: emission factors for
the various organic compounds emitted by gasoline and methanol
vehicles and reactivity factors which account for the fact that
different organic compounds have various propensities for

yielding ozone. Table 1 gives projected in-use organic ©

emission. factors (excluding methane which is considered to be
nonreactive for purposes of urban ozone formation) for current
and improved gasoline vehicles, methanol FFVs that operate on
M85, and optimized, dedicated M100 vehicles. The gasoline
vehicle emissions values in Table 1 are from the EPA MOBILE4
computer ‘emissions model. Since MOBILE4 does not include
formaldehyde emissions, gasoline vehicle formaldehyde emission
factors were derived assuming that formaldehyde constituted 1
percent of the total exhaust HC level based on EPA test data
involving in-use gasoline vehicles.(1,2,3,4,5,6) The emissions
of a fleet-of gasoline vehicles meeting the new requirements of
the Clean Air -Act proposal were estimated by making special
changes to the MOBILE4 program to reflect the proposed
requirements, including that of a more stringent inspection and
maintenance program than assumed for current gasoline
vehicles. All of the estimates in Table 1 are for a 71°F to
95°F ozone season day.

(ly Volatile Organic _Compound' Emissions from 46  In-Use
Passenger Cars, John E. Sigsby, Jr. et al., U.S.
Environmental Protection Agency, Environ. Sci. Technol.,
Volume 21, 1987. : :

(2) Unregulated Exhaust Emissions from Non-Catalyst Baseline
Cars Under. Malfunction Conditions, Charles Urban,

Southwest Research Institute, Report EPA-460/3-81-020, May
1981.

-47-

|
|
|



Table 2

Projected In-Use Gasoline VOC-Equivalent
Emissions for Gasoline and Methanol Vehicles
(grams per mile)

- He . Methanol Formaldehyde Gasoline
. Reactivity Reactivity Reactivity voc-
Vehicle Type HC Factor Meth Factor Form Factor Equivalent
Gasoline
- Current Standards (1.73 x 1.00) + ( 0: = 0.19) + (.007 x 2.2) = 1.75
~- Proposed Standards (0.94 x 1.00) + ( 0 x 0.19) + (.005.x 2.2) = 0.95
FFVs on M85 .
- Readily Feasible (0.350 x 1.00) + (0.950 x 0.19) + (.060 x 2.2) = 0.66
- Optimized (0.310 x 1.00) + (0.750 x 0.19) + (.035 x 2.2) = 0.53
M100 :
= 0.19

- Optimized (0.05 2 1.00) + (0.572 x 0.19) + (.015 x 2.2)

. -53-)



ae [dtee

Figure | SUPPLY

LOGISTICS
Methanol! : FOR
Plant a FUEL
Ocean Transportation METHANOL

S¢/gailon

Production Price

Port
Terminal

v
Long Range and

Bulk _Local Distribution
Terminal 3¢/gallon

Markup 5-7¢/galion
Taxes 12¢/gallon

* Gasoline equivatent price of 105-109 ¢/galion
with a flexible-fueled vehicie and: 85-88 ¢/galion
with an optimized, dedicated vehicie.

‘e-1l-



PREFACE

- In July 1989 the President submitted to Congress his
Administration's proposals for revising the Clean Air Act. One
major component of his plan is the Clean Alternative Fuels
Program. This program would replace a portion of the motor
vehicle fleet in certain cities with new vehicles that meet
stringent air emission limits operating on clean burning fuels
such as methanol, ethanol, compressed natural gas, liquefied
petroleum gas, electricity, and reformulated gasoline.

This report, released by EPA, is the first in a series of
reports that will discuss the economic and environmental issues
associated with each of these fuels. The Environmental
Protection Agency has committed to prepare reports on the
remaining candidate fuels according to the following schedule.

Fuel . Final Report
Compressed Natural Gas "End of November
Ethanol ; End of November
Liquefied Petroleum Gas | End of February
Electricity End of February
Reformulated Gasoline After receipt of

; formulation

The ordeting for these reports does not represent any
preference by the Administration, but is the result of the

status and availability of the information and research needed
to prepare the reports.

The economic and environmental analyses contained in this
and subsequent reports assume the full implementation of the
President's Alternative Fuels Program.

com,





heavy components require long periods of time before
evaporation occurs.) However, if absorbed, methanol's larger
degree of biodegradability facilitates decomposition by
micro-organisms present in the soil. Because of its shorter
retention periods near a spill site, cleanup of a methanol
spill on the earth requires less effort than that of a
petroleum fuel spill. In the event of a massive spill,
however, enhancement of the natural biodegradation process of
methanol may be beneficial.

Since methanol's solubility in water and, hence, rapid
dilution and dispersion are considered advantages in spills
into large and/or quickly moving water masses, most scenarios
where groundwater contamination is at risk would be less severe
with methanol than with petroleum. In some situations,
however, such as a river spill located very near a drinking
water supply or leakage from an underground storage tank
located very close to a well, methanol may indeed be dispersed
more quickly into drinking water supplies contained in aquifers
or wells. Coupling its ready dilution in water with the fact
that methanol contains no "built-in" detection mechanism of
odor, color, or taste, toxic concentrations may form before its
presence is recognized. Studies on the disposition of methanol
spills very near drinking water supplies are not readily
available, and further study by EPA and other organizations is
warranted. In any event, the use of additives in methanol to
impart a color, odor, and/or taste to the fuel are essential to
permit methanol to be detected in groundwater supplies to
facilitate its cleanup before harmful quantities were ingested.

For more detailed information on the topic of methanol
spills into the various water and land media as well as on the
comparison of methanol and petroleum spills, the following
references may be consulted:

1. | "Assessment of Methane-Related Fuels for Automotive Fleet
Vehicles: Technical, Supply, and Economic Assessments,"
Report No. DOE/CE/50179-1, Energy Conservation Directorate
for U.S. Department of Energy, February 1982.

2. Peter N. D'Eliscu, A Compilation of Work on the Topic of
the Environmental Consequences of Methanol Spills, Acurex
Corporation, 1987.

3. Susan E. Rosenberg and John R. Gasper, "Potential Health
and Safety Impacts from Distribution and Storage of
Alcohol Fuels," Report No. ANL/CNSV-TM-61, Argonne
National Laboratory for U.S. Department of Energy, June
1980. .

4. Hideaki Takamatsu, "Toxicological Research of Methanol as
a Fuel Power Station, New Energy Development Corporation,
Tokyo, Japan.

-70-

oe ee)



TABLE 1

Total Natural Gas Reserves

‘Annual Unmarketed Natural Gas (bcf) and Methanol (tef) and Methano}
Potential (billion gal/yr)
Vented, Methanol Methanol Proved Methano)
———_eaion Flared* Equivalent** Reinjected® Equivalent" Reserves" Equivalent**
— Country bef) bil gal/vr) bef) {bil gal/yr) (ici = Shil_ gals)
NORTH AMERICA
88 497 98.0
69 NA 76.5
United States... 38 - B38 - —
Total 255 3 2,335 24 361.7 3,747
CENTRAL AND SOUTH AMERICA
6 47 23.6
4 59 5.0
33 36 3.6
0 W2 NA
18 16 3.6
Trinidad and Tobago. 108 0 10.4
Venezuela. 90 438 95.0
_ _ jh —
3 mTM 7 150.1 1,555
0 NA
0 6.4
0 10.2
0 64.1
141 105.9
13 22.0
- 24 - A —
1 278 a 28.1 2,260
0 oy
0 NA
a) NA
0 NA
NA 1,450.0
- aA -_ —
4 0 0 1,479.3 15,326
65
430
2
so
0
67
36
- 2 = th —
8 670 7 1,086.1 11,231
1,870 105.9
. 0 . 10.2
, 190 25.7
at 84.0
- —l - jh —
Total....- 949 mW. 1,902 20 248.7 2,877
FAR EAST AND OCEANIA
. 0 0 ry
: 0 0 18.6
: 10 0 7.0
. NA NA 30.7
+ 100 ) 17.6
+ 108 225 73.0
. 0 0 ry
: 5 0 $2.2
: 0 30 5.2
. 0 0 22.4
~ of - 2 - a —_—
+ 293 3 255 3 255.5 2,647
WORLD TOTAL 2,975 31 6,151 64 3,797.6 39,343

= From Energy Information Administration

== Assuming a 65% natural gas-to-methanol conversion efficiency

-20-





20.

21.

22.

23.
24.

25.

26.

27.

28.

29.

30.

31.

32.

33.

Letter To Jeffrey A. Alson, U.S. EPA from Chris Grant,
Alberta Gas Chemicals, Incorporated, April 28, 1989.

Letter to Charles L. Gray, Jr., U.S. EPA, from R. D.
Morris, Hoechst Celanese, April 27, 1989.

Richard L. Klimisch, General Motors Corporation, Testimony
before U.S. Congress, House of Representatives, Committee.
on Energy and Commerce, Subcommittee on Energy and Power,
dune 17, 1987.

“Alcohol Outlook," Information Resources, Inc., July 1989.

International Energy Annual, __1987, DOE/EIA-0219(87),
Energy information Administration, 1987.

Natural Gas Annual, 1987 - Volume II, DOE/EIA-0131(87)/2,
Energy Information Administration, 1987.

"Distribution of Methanol for Motor Vehicle Use in the
California South Cast Air Basin," Energy and Environmental
Analysis, Inc., prepared for U.S. EPA, September 1986.

"Long Range Energy Projections to 2000," U.S. DOE, Office
of Policy, Planning, and Analysis, DOE/PE-0082, July 1988.

"Alcohol Week," July 10, 1989.

"Letter to Charles L. Gray, Jr., U.S. EPA from R.D.
Morris, Hoechst Celanese Corporation, June 2, 1989.

Letter to Charles L. Gray, Jr., U.S. EPA, from George E.
Crow, Manager, Fuels Planning, Sun Refining and Marketing.
Company, May 31, 1989. .

"Capital Servicing Costs of Fuel Methanol Plants," William
E, Stevenson, Bechtel Financing Services, Inc., May 3,
1989.

Responses by Helen Petrauskas, Ford Motor Company, and
Robert Frotsch, General Motors Corporation, to questions
at the Joint Hearing by the Subcommittees on Fossil and
Synthetic Fuels and Energy Conservation and Power, April
25, 1984.

"Conversion. of Offshore Natural Gas to Methanol," Phase I
Report, Federal Highway Administration, U.S. Department of
Transportation, Contract: DTFH-61-85-C-0076, Yankee Energy
Corporation, May 1987.

-41-



Even without considering the synergistic effects,
substantial improvements will be achieved. A 30 percent
increase in vehicle efficiency seems a reasonable assumption
and is within the range of the values estimated by Chevron.
(See attached Chevron Figure 4-1 from reference number 5
below.) The degree to which manufacturers choose to optimize
fuel efficiency rather than performance will depend on such
factors as fuel economy standards, fuel prices, and _ the

perceived relative marketability of "power" versus "fuel
economy".

EPA, in its Ann Arbor laboratory, has tested prototype
vehicles powered by methanol-fueled engines which employ some
of the characteristics just described. Vehicles from two
different manufacturers have been evaluated. Since the
M100-fueled vehicles did not have an exact weight and
performance match in the gasoline-fueled vehicle base, the data
were adjusted to estimate matched results.

Efficiency Benefit of

M100 Over Gasoline (percent) ,

Manufacturer Before Adjustment After Adjustment
N 47 36
T 20 26

These values from vehicles that are not fully optimized,

span the 30 percent estimate being used.

The following references provide useful additional
information on this topic:

1. K.H. Hellman, "Adjusting MPG for Constant Performance,"
note to Charles L. Gray, Jr., U.S. EPA, May 1986.

2. K. Katoh, et al., “Development of Methanol Lean Burn
System," SAE Paper 860247, February 1986. :

"3. G.K. Piotrowski and J.D. Murrell, "Phase I Testing of

Toyota Lean Combustion System (Methanol)," Report No.

EPA/AA/CTAB/87-02, January 1987.

4. "Preliminary Test Results from the Nissan Sentra

Methanol-Fueled Vehicle," memorandum from Karl H. Hellman

to Charles L. Gray, Jr., U.S. EPA, July 6, 1989.

5. "The Outlook for Use of Methanol as a Transportation
Fuel," prepared for the National Science Foundation
Workshop on Automotive Use of Methanol-Based Fuels,
Chevron U.S.A., January 1985.

-27-



Cost of Gasoline Production

Based on contractor estimates and published construction
data, a new 100,000 barrel per day refinery (roughly the size
of an average U.S. refinery) would cost about $1 billion to
construct.(1,2) -Using an annual capital recovery factor of
16.2 percent, (based on a 10 percent cost of capital and a 15
year economic life typical of the U.S. refining industry), this
translates into a daily capital-related charge of $440,000.
For the range of CRR's used to assess methanol production as
shown in Table 1 (10-30%), daily capital related costs at a
petroleum refinery would range from $270-820,000 per day.

Based on refinery modeling performed by Bonner and Moore
(a highly respected petroleum industry contractor), daily
operating costs (feedstocks and utilities) for such a refinery
were calculated to be approximately $2.3 million (assuming
$20/bbl crude oil).(3) These costs were allocated over the
entire product slate, proportional to total expected revenues
from each product. Capital related charges were appropriately
allocated only to "capital intensive" products (i.e., gasoline,
No. 2 distillate, kerosene, and aviation fuel). Bonner and
Moore also project that six percent of capital per year is
spent for local taxes, maintenance, and insurance.: This cost
was also allocated to gasoline and distillate product sales.

Using this cost and allocation scheme, the gate price of
gasoline can be projected for various crude oil prices. For
instance, at a crude oil price of $20/bbl (the cost of crude
oil recently), the calculated gasoline cost is 68.6¢/gal,
(63.8-79.2¢/gal for CRR's ranging from 10-30%). At a crude oil
price of $35/bbl, feedstock and utility costs increase, raising
the calculated gasoline cost to 106.7¢/gal (101.9-117.3¢/gal).
This relationship between gasoline price and crude oil cost can
be used to estimate gasoline prices under various crude oil
price scenarios. Table 2 shows 'a pump price comparison for
gasoline and methanol under two different crude oil price
scenarios, including vehicle efficiency considerations.

(1) Debra A. Gwyn, “Worldwide Construction," Oil & Gas
Journal, April 10, 1989. :

(2) Personal Communication with Bonner and Moore Management
Science personnel, May 3, 1989.

(3) “Assessment of Impacts. on the Refining and Natural Gas
Liquids Industries of Summer Gasoline Vapor Pressure
Control," prepared for U.S. EPA by Bonner & Moore
Management Science, August 24, 1987.



Attachment 2

What Are The Distribution Costs
Associated With Fuel Methanol?

The difference between the port price of a fuel and its retail
price can be divided into three main components: distribution of
the fuel to the service station, service station markup, and
taxes. A summary of estimates by EPA and other groups of these
primary components is shown in the following table.

Estimates of Fuel Price Components
from Port/Refinery to Retail
(cents per galion)

Typical M100 M100 M8S M85

Gasoline EPA EEA(1) EPA SRI(2)
Long-range and 6 (3) ° 3 , 3 3 3
Local Distribution* : :
Service Station Markup 9 5-7 9 6-8 13
All Taxes 24 12 13 14 15
Total : 39 (36) 20-22 25 23-25 31

Total, Gasoline-Equivalent 39 (36) 40-44 50 40-44 62

* 6¢/gallon represents average for U.S. gasoline supply.
Long range distribution for gasoline made from a new
refinery (likely located on foreign soil) would be similar
to those of methanol (3¢/gal) since shipping routes would
be similar for either product. .

(1) “Distribution of Methanol for Motor Vehicle Use in the
California South Coast Air Basin," prepared for the U.S.
’ EPA by Energy and Environmental Analysis, Inc., September
1986.
(2) "The Economics of Alternative Fuels and Conventional
Fuels," prepared for several California oil companies by
SRI International, February 2, 1989.

-22- |



Table 2

Cost of Fuel Methanol Delivered to U.S.
(¢/gal)

yee

Trinidad Mid East Australia Canada US Gulf Alaska

Natural Gas 5-10 - 5-10 a) 10-25+ 15-35+ 3-10

:
ot E
Nongas Operating 5.9 7.1 ' 9.1 5.4 5.6 9.4 :
Capital Recovery f
Cost 13.9 15.3 21.6 13.0 12.4 21.1 |
Total Production ' |
Cost 25-30 27-32 "36-40 28-434 33-53+ 33-40 i
: i
Transport Cost 5.0 5.0 4.0 8.0 0) + 8.0

Total Delivered Cost 30-35 32-37 : 40-45 36-51+ 33-53+ 41-48



_ Table 3. |

7 Projected City Specific VOC Reductions

. : Steady State
: Metropolitan Area 2005 2015

Los Angeles
Houston

New York City
Milwaukee
Baltimore
Philadelphia
Greater Connecticut
Chicago

, _ San Diego

WO KDWOMAKPHPIDO

a NUONOANIWHW

HP PReEENE NOM
Ww NWENH WEED

Typical VOC Reduction



cae pee

Gee ad

4

omen

ene we

5. Hector Timourian and Fred Milanovich, “Methanol as a
Transportation Fuel: Assessment of Environmental and
Health Research," Report No. UCRL-52697, Lawrence
Livermore Laboratory, June 1979..

Safety Issues

Methanol, like all combustible fuels such as gasoline,
poses a potential human safety risk. Because of the
differences in the physical and chemical properties of methanol
and gasoline, the human safety risks of neat methanol are
dramatically different than those of gasoline. Based on what
is currently known, methanol would appear to offer fire safety
benefits compared to gasoline. Further research is necessary
to identify those areas where precautions are needed. The two
key areas for.comparison are fire safety and human-toxicity.

With regard to fire safety of methanol, there are two main
advantages and two main disadvantages. The advantages, along
with the possibility for mitigating the disadvantages, cause

the fire safety risks of methanol to be lower than for .

gasoline. Methanol's low volatility, relatively high lower
flammability limit*, and low vapor density cause it to be much
less likely to ignite in an open area resulting from a spill of
fuel or release of vapor. In addition, once it does ignite,
methanol's low heat of combustion and high heat of vaporization
cause it to burn much slower and less violently, releasing heat
at roughly one-fifth the rate of gasoline. However, these same
combustion properties cause methanol to be in the flammable
range inside fuel storage tanks under normal ambient
temperatures (45- -108°F), while gasoline is virtually always too
rich to ignite. Fortunately, precautions can be taken to
prevent either flammable vapor/air mixtures from forming in
storage tanks (e.g., nitrogen blanketing, bladder tanks,
floating roof tanks) or to prevent ignition sources from
entering the tanks (e.g., flame arresters, removing or
modifying in-tank electrical devices) thereby mitigating any

additional risk. “The other disadvantage of methanol is that

due to the lack of any large carbonaceous particles in- its
products of combustion, pure methanol burns with a light blue
flame which is essentially invisible to the human eye in bright
daylight. This can represent a serious safety concern for fire
identification and its accompanying warnings. The only means
of detecting the burning methanol in such situations is by
feeling the heat being generated or seeing the "heat waves."
Fortunately, the fraction of fires which occur in broad
daylight, where no other substances are present to provide a

* Methanol will not ignite in air at concentrations below
about 6 percent while gasoline will ignite at concentrations
as low as 1.4 percent.

-71-


ne

34.

35.

Letter to Charles L. Gray, Jr., U.S. EPA, from John
Meyers, President, Fuel Methanol of America, Inc., January

4, 1989,

Letter to Charles L. Gray, Jr., U.S. EPA, from Y.
Mizukami, General Manager, Energy and Chemical Project
Manager, Marubeni Corporation, December 27, 1988.

-42-


Attachment 4

What Is the Cost Difference Likely To Be
Between A Methanol Vehicle and
Its Conventional Fuel Counterpart?

The most significant environmental benefits available with
methanol fuel would be with the use of optimized, dedicated
M100 vehicles. Several propotype dedicated M100 vehicles have
been evaluated, but certain features of the optimized M100
vehicle continue to be under development, in particular, the
method of starting under cold temperatures. Several methods of
cold starting have been demonstrated, including propane assist
and direct cylinder fuel injection. However, the optimum
resolution of this and other issues will likely be identified
in the next several years. :

In projecting the incremental cost of a dedicated methanol
vehicle relative to a gasoline vehicle, a two-sided approach
was followed. First, the estimates that are supported by the
vehicle manufacturers were obtained and then an independent
analysis was performed. From Congressional testimony in 1984,
both Ford and General Motors stated that in volumes of 100,000
or more the cost of a dedicated methanol vehicle would be no
more than that of a comparable gasoline vehicle.(1)

The second step in the process was to perform a cost
tradeoff analysis between the methanol vehicle and its gasoline
counterpart. Use of M100 in an optimized engine concept will
allow use of a smaller, lighter engine which delivers the same
ower as the engine it replaces. This has two important
implications. First, in addition to the weight saved in the
engine, use of a lighter engine has a compounding effect on the
vehicle. Portions of the body structure. and the suspension can
be made lighter, especially if the engine/vehicle design is
done as an entire system, such as is the case for a new
engine/vehicle combination. Once this design process is
complete, the resulting vehicle will have better performance
since it will have equivalent power and weigh less than the
vehicle it replaces. This leads to the second implication.
Even further reductions in weight are possible if the engine is
resized for equivalent performance, since a smaller engine can
be used. Use of a smaller engine of lower power will allow
powertrain. weight and cost savings because the power
transmitted will be reduced.

(1) Responses by Helen Petrauskas, Ford Motor Company, and
Robert Frotsch, General Motors Corporation, to questions
at the Joint Hearing by the Subcommittees on Fossil and

Synthetic Fuels and Energy Conservation and Power, April
25, 1984.

~A4-



Retail Price of Methanol and the Gasoline-Equivalent Price

The cost of moving fuel methanol from port to pump
includes several components: distribution, service station
markup, and state and federal taxes. Attachment 2 contains a
discussion of EPA's estimates of these costs which are 20 to 22
cents per gallon making the retail price of methanol fuel
produced in large volumes 55 to 57 cents per gallon.

Figure 1 illustrates the various components that make up
the overall price that the consumer would likely pay at the
pump for fuel methanol under the proposed program.” It is
important to again emphasize that these economics are dependent
on a market demand certainty for the fuel methanol and on a
large volume of fuel.

Methanol has one-half the energy on a per gallon basis as
compared to gasoline, primarily because half of the methanol
molecule is oxygen which has no ener value. Accordingly,
methanol vehicles always yield lower miles per gallon values
compared to gasoline. But from an energy conservation and cost
viewpoint, energy efficiency is the more important criterion,
and methanol can be a more energy efficient fuel than
gasoline. Attachment 2 also contains a discussion of the fuel
efficiency increases that can be expected from optimized,
dedicated methanol vehicles and concludes such vehicles can be
up to 30 percent more energy efficient than comparable gasoline
vehicles.

Flexible-fueled methanol vehicles are projected to achieve
efficiency improvements of 5 percent relative to gasoline.
Thus, such vehicles would require 1.90 gallons of methanol to
travel the same distance as a gasoline fueled vehicle on one
gallon of gasoline. For a 30 percent more energy efficient
vehicle, only 1.54 gallons of methanol would be needed per
gallon of gasoline. Therefore, the gasoline-equivalent
methanol retail price is simply the methanol retail price,
multiplied by the ratio that accounts for the number of gallons
needed for a methanol vehicle to travel the same distance as a
gasoline vehicle on a gallon of gasoline. For a 5 percent
efficiency improvement the ratio is 1.90; for a 30 percent
efficiency improvement the ratio is 1.54. As shown in Table 3,
the gasoline-equivalent methanol retail price for a 5 percent
efficiency improvement methanol vehicle would be $1.05 to $1.09
per gallon. The gasoline-equivalent methanol retail price for
a 30 percent better efficiency methanol vehicle would be $0.85
to $0.88 per gallon. :

-10-