Dan Liljenquist: The economic impact of high-ethanol blend fuels
Earlier this month, I wrote about the efforts of the Fuel Freedom Foundation to clear the regulatory hurdles so natural gas based high-ethanol blend fuels can compete with gasoline at the pump. With natural gas flowing from the ground in unprecedented quantities, with new technologies that can convert natural gas into pure ethanol and with over 70 million vehicles in the United States that could be converted to run on both gasoline and high-ethanol blend fuels for less than $300 per vehicle, the economic benefits of such a development would be both dramatic and lasting, turbocharging our sluggish economy and leaving consumers with more disposable income.
According to a 2013 McKinsey & Company report, the oil and gas industry in the United States currently generates $380 billion in economic activity each year and employs 2.8 million people. By 2020, McKinsey projects that the industry could more than double, adding 2 percent to 4 percent annual growth in GDP and creating an additional 1.7 million high-paying, permanent jobs. The tremendous international demand for oil is driving this surge in domestic energy production, with $100-plus per barrel prices making previously prohibitively expensive extraction techniques suddenly profitable.
This boom in oil production has also led to a glut of natural gas on the market. Oil wells are churning up so much natural gas that the market price for natural gas has fallen by nearly 70 percent over the last five years. For many oil producers, it is more economical to flare off natural gas at the well than it is to capture it. While cheap natural gas is causing resurgence in the domestic production of petrochemicals, fertilizers and synthetic resins, for which natural gas is a feedstock, converting natural gas into pure ethanol and using high-ethanol blend fuels to compete with gasoline could take our economy to new heights.
First, competition at the pump will bring greater stability to our economy. Natural gas based high-ethanol motor fuels can be produced entirely within the United States and in sufficient quantities to supplant gasoline completely if necessary. With a viable alternative to gasoline, our economy will be much less susceptible to disruption from conflicts in the Middle East or production cuts by OPEC.
Second, natural gas-based high-ethanol fuels will cost up to 25 percent less than gasoline on an energy equivalent basis. Competition at the pump will leave U.S. consumers with more money in our pockets, increasing real incomes.
Third, developing the supply chain for high-ethanol fuels will create significant economic activity. Oil wells will need to be retrofitted with new equipment to capture natural gas. Pipelines will need to be laid to deliver the natural gas to ethanol producers. Ethanol production facilities will need to be constructed. Gas stations will require retrofitting. Millions of vehicles will need to be converted to run on high-ethanol blend fuels. An entire industry will mature around natural gas based high-ethanol fuels, creating tens of thousands of new jobs.
Finally, by utilizing our vast natural gas resources to produce transportation fuels, the U.S. can reduce, and potentially eliminate, its decades-long energy trade imbalance. We could become truly energy independent.
I am persuaded that a new market for natural gas based high-ethanol blend fuels would have an incredible positive impact on our economy. It would also lead to significant environmental and national security benefits. I commend the visionary folks at the Fuel Freedom Foundation for the work they are doing to bring this new market to life. If they are successful in clearing the regulatory hurdles, I expect that high-ethanol blend fuels will become a reality.
Dan Liljenquist is a former state senator and U.S. Senate candidate.