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Using Natural Gas to Lower Fuel Costs

With low-cost, abundant natural gas now available in the United States and the promise of new fuel and vehicle technologies on the rise, an opportunity may soon exist for industry (and consumers) to expand the use of natural gas in the form of a liquid fuel for passenger cars and trucks.

In new research, RFF’s Arthur Fraas, Winston Harrington, and Richard Morgenstern find that replacing some of the domestic gasoline currently used for these vehicles with natural gas–based liquid fuels could bring economic and energy security benefits. In particular, after accounting for differences in refining, energy density, in-use fuel economy, transport, and related costs—but assuming that the same road taxes are in place as for conventional gasoline rather than the lower taxes currently enjoyed by biofuels—they find that natural gas–based ethanol (especially E85) could yield significant fuel cost savings.

Even when looking at different markets across the nation, E85 stands out as a potential winner. For example, the current price gap between E85 and E10 (which is currently marketed as conventional gasoline in most states) ranges between 31 and 59 cents per gasoline gallon equivalent, but it increases to 52 to 83 cents by 2015 (Figure 1).

Figure 1. 2012 and 2015 Prices of E10 and E85 Gas in Select Cities

Figure 1. 2012 and 2015 Prices of E10 and E85 Gas in Select Cities

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At present, E85 is limited to the more than 10 million flexible-fuel vehicles certified by the US Environmental Protection Agency. Based on the available information, the authors used a price range of $320 to $1,300 per kit to illustrate the payback period for conversion of the current fleet to E85 flexible-fuel vehicles. Figure 2 shows that when the conversion cost is low, the payback period is usually less than two years. When conversion costs are higher, the payback period is three to five years. Similarly, vehicles with higher miles per gallon (mpg) also have a longer payback period because they use less fuel.

Figure 2. Payback Period for E85 Conversion Kits in Select Cities

Figure 2. Payback Period for E85 Conversion Kits in Select Cities

About Peter Nelson

Pete Nelson is Resources for the Future's Communications Director and co-managing editor of Common Resources. Pete has over twenty years' experience writing about and researching environmental and natural resource policy issues. He was a founder of the environmental news service Greenwire and served as its first editor-in-chief. More recently, he served as Communications Director for the National Commission on the BP Deepwater Horizon Disaster and Offshore Drilling created by President Obama after the 2010 Gulf oil spill.

Views expressed above are those of the author. Resources for the Future does not take institutional positions on legislative or policy questions. All information contained on Common Resources is intended for informational and educational purposes and may only be used for these purposes. Please see RFF's Terms of Use for further information.

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