Fuels to Drive Our Future (1990) / Chapter Skim
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3. Production Costs for Alternative Liquid Fuels Sources
3. Production Costs for Alternative Liquid Fuels Sources
Pages 40-56
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From page 40... ...
STRUCTURE OF THE ANALYSIS Cost analysis of transportation fuels manufactured from alternative energy resources relies on estimates of resource costs, technological assessments of the specific production processes, and assumptions about the economic environment. Together these considerations form the basis for estimating the total cost of producing and using the alternatives.
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From page 41... ...
For each technology the cost per equivalent oil barrel, in 1988 dollars, is calculated as the summary cost measure, based on the assumed oil price environment. This calculation begins with the crude oil price, here defined as the average price of crude oil imported into the United States.
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From page 42... ...
The procedure outlined above provides an estimate of the cost per equivalent crude oil barrel based on a given crude oil price. Two different modes of analysis are used to select the crude oil price, referred to as endogenous price determination and exogenous price determination.
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From page 43... ...
More precisely, the crude oil price is chosen such that the calculated cost per equivalent oil barrel is exactly equal to the crude oil price: No profits would be earned above the normal cost of capital or discount rate. Using this procedure, electricity, natural gas, and corn prices are also chosen to be consistent with the crude oil price and the cost of the specific product.
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From page 44... ...
These processes could become economically viable with significant technological advances and a high world oil price. All other technologies have oil equivalent costs exceeding $50/barrel and will be less economical unless significant cost reductions are realized.
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From page 45... ...
Major costs incurred in producing fuel from alternative energy resources include those for capital, feedstock, and O&M (Figure 3-2~. The incremental cost of purchasing a methanol- or CNG-fueled vehicle, spread over the life of the vehicle, is also shown as a positive component of the oil equivalent cost.
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From page 46... ...
The greatest sensitivity occurs for those technologies that require the largest per-barrel investment cost (see Appendix D, Figure D-1~. Cost estimates for two crude oil prices, $20/barrel and $40/barrel, indicate that crude oil equivalent costs of the various technologies do depend on crude oil price but that the sensitivity is relatively small (Figure 3-4~.
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From page 47... ...
FIGURE 3-3 Role of discount rate on cost for endogenous energy prices. NG > Methanol Coal > Methanol UCG > Methanol Wood > Methanol NG, MTG Coal, MTG NG, Shell MDS Compressed NG Corn ~ Ethanol Oil Shale Tar Sands, Pyrolysis Tar Sands, Extraction Direct Liquefaction ~~ ~ ;3s ~~s,s~ s a.
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From page 48... ...
The net effect of these two factors will determine the overall oil equivalent cost. Sensitivity of costs to natural gas prices were calculated by reducing the natural gas price by $2/million British thermal units at each oil price (Figure 3-5~.
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From page 49... ...
This range of automobile efficiency variations leads to a $14/barrel variation in crude oil equivalent cost of methanol. The investment cost of a methanol production facility is increased by 25 percent and decreased by 20 percent for the third set of sensitivity tests.
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From page 50... ...
Endogenous crude oil price is assumed, but natural gas price is varied independently to assess sensitivity specifically to the price of gas, even though natural gas and oil prices are likely to be linked. The cost estimates at the far left in Figures 3-S and 3-9 are based on U.S.
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From page 51... ...
For these two groups crude oil equivalent costs range from $26/barrel, were natural gas priced as low as $1/Mcf and the real discount rate at 10 percent, to $43/barrel for a natural gas price of $3/Mcf and discount rate of capital of 15 percent. The final two groups represent investment costs 75 percent above U.S.
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From page 52... ...
rate of 5 percent is shown in addition to that of a value of 10 percent to illustrate values that might be obtained if, for example, the Australian government promoted development through low-interest loans or loan guarantees. For these two groups crude oil equivalent costs range from $27/barrel, were natural gas priced as low as $1/Mcf and the cost of capital subsidized (5 percent)
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From page 53... ...
Environmental issues are addressed in Chapter 5. On the other hand, many of the processes provide a product similar to crude oil.
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From page 54... ...
The octane number of natural gas and methanol is higher than for gasoline, permitting optimized engines for these fuels to have higher compression ratios and better thermodynamic efficiency. Multifuel engines, however, need to be operable on the lower-octane gasoline.
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From page 55... ...
Distribution of methanol by barge, rail car, and tank truck, rather than pipeline, is quite feasible at similar or increased cost per gallon. Natural gas distribution for CNG may not be a problem because there is currently excess natural gas pipeline capacity.
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From page 56... ...
CONCLUSIONS The results of the preceding analysis for producing liquid fuels from alternative energy resources suggest that none of these alternatives can be expected to provide transportation liquids at as low a cost as is currently possible by refining crude oil. Even if crude oil prices were to increase by 50 percent above current levels, only a few of these options would be economically viable.
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