Natural gas prices in the United States have dropped almost 50 percent over the last decade thanks to the shale gas revolution. Oil prices, on the other hand, have more than doubled during that time. The change in the relative prices of these two fuels—combined with significant advances in both fuel and vehicle technologies—creates an opportunity to expand the use of natural gas in the light-duty fleet of cars and trucks and lower prices at the pump. Ethanol, methanol, compressed natural gas (CNG), and liquid petroleum gas (LPG) are four natural gas–based fuels that may be able to do just that.
Although these fuels could yield significant cost savings relative to conventional gasoline in the light-duty fleet, the principal beneficiaries of these fuel and technology trends are currently limited to the estimated 250,000 owners of CNG- and LPG-capable vehicles.
Another 10 million flex-fuel vehicles on the road today are capable of burning E85, a blend of 85 percent ethanol and 15 percent gasoline. Although E85 is not currently cheaper on an energy-equivalent basis at the pump than conventional gasoline in most areas, newly developed technologies offer the promise that low-cost, natural gas–derived ethanol can be produced in the future.
In our recent research, we compared the costs of E85 produced using these new technologies with conventional gasoline, estimating the volume of fuel required to propel a vehicle the same distance (expressed in gasoline gallon equivalents). For the most favorable case, E85 could be produced and sold for $0.31 to $0.59 per gasoline gallon equivalent below the current price of gasoline in selected urban areas across the United States. This amounts to annual savings ranging from $157 to $439 for a vehicle driven 15,000 miles per year, depending on a range of assumptions. Based on 2015 fuel price projections by the US Energy Information Administration, these savings could increase substantially in later years.