May 17, 2007

How Competitive Is Coal-To-Liquids Conversion?

Lynne Kiesling

As economic growth continues to drive up demand for petroleum-based energy, foreign supplies are fraught with geopolitical costs, and concerns about the environmental effects of fuel use increase, energy prices rise and we naturally seek out alternatives to the oil we've become accustomed to using over the past century. One potentially attractive option is the transformation of our plentiful domestic coal supply into liquid fuels. While coal is still carbon-based and thus does not represent a "paradigm shift" to a new platform in energy production, researching and potentially commercializing coal-to-liquids (CTL) could provide a transition bridge technology (much like the changes in internal combustion technology that I mentioned earlier this week).

CTL production of synthetic liquid fuel is one type of "clean coal" technology; clean coal technology was the subject of several sections of the Energy Policy Act of 2005. EPAct section 369 promotes efforts to commercialize domestic unconventional fuels, including CTL. EPAct also has provisions (specifically, sections 401, 403, 437, 962, and 1812) pertaining to feasibility studies and research funding for the Clean Coal Power Initiative. The Fossil Energy division of the Department of Energy has a page summarizing the clean coal provisions of EPAct 2005 and its progress toward meeting them.

There are plenty of benefits to doing this: using domestic fuel, using a fuel that is relatively inexpensive as the price of oil rises faster than the price of coal (which, by the way, has itself increased 25% over the past decade, or 2.5% per year on average, just below the average GDP growth rate). One other benefit is that CTL technologies use cogeneration/combined heat and power (CHP) technology in production, enabling the capture and recycling of waste heat and gases. With respect specifically to electricity generation, CHP can achieve fuel efficiency levels around 80%, while a conventional large-scale coal-fired generation plant has fuel efficiency levels around 33%. Thus with CHP you get more output from a given BTUs worth of fuel because less is wasted, and you also reduce pollution emissions (including CO2, if you want to consider that a pollutant) in the process. However, most petroleum refining (and petrochemical) production also use CHP processes, so that's not necessarily an incremental benefit relative to existing petroleum product manufacturing processes.

The costs are just what you would expect from a new technology on the steep part of the development curve: production costs are high because of the novelty and insufficient production to achieve scale economies, high fixed costs, investment risk, market risk, etc. Also, it is an energy technology that still produces pollution emissions, although its pollution profile differs from, and may be less than, oil consumption equivalents.

This recent presentation from the DOE's Lowell Miller contains a lot of useful information about the current state of CTL technology, its domestic and international implementation and planning, and the economic factors affecting its commercial viability. Mr. Miller estimates that capital costs for a 50,000 barrels/day CTL plant would be $3.5-4 billion. In separate testimony before the Senate Energy & Natural Resources Committee in April 2006, Mr. Miller estimates that at that scale, production costs for CTL synthetic fuel could fall to $35/barrel; note that a rule-of-thumb number for comparison with petroleum-based fuels is around $5/barrel, so CTL's production costs would still be 7 times that. In both documents Mr. Miller estimates that CTL could be commercially viable when oil prices are in the $45-60/barrel range. However, as a new technology, CTL could not achieve that $35/barrel cost at this point, and still needs some pilot testing and smaller-scale implementation tests (he suggests at the 10,000-20,000 barrel plant size).

China is the global leader in CTL production; Mr. Miller's presentation shows that China already has several CTL plants in construction (although South Africa is the only country with one in actual operation). China's interest is no great surprise, given the constraints on their growth that energy supplies (and environmental concerns) could provide. As noted in the Energy Information Administration's International Energy Outlook:

With a substantial portion of the increase in China’s demand for both oil and natural gas projected to be met by imports, the Chinese government is actively promoting the development of a large coal-to-liquids industry. Initial production of coal-based synthetic liquids in China is scheduled to commence in mid-2007 with the completion of the country’s first coal-to-liquids plant, located in the Inner Mongolia Autonomous Region. It is being built by the Shenhua Coal Liquefaction Corporation and will have an initial capacity of approximately 60,000 barrels per day. In another development, China’s Shenhua and Ningxia Coal Groups have initiated a feasibility study regarding the construction of two 80,000 barrel per day plants to be sited in the Ningxia Autonomous Region and the Shaanxi Province.

Another informative analysis of CTL is Congressional testimony from RAND's James Bartis, who estimates capital costs of a first-of-its-kind CTL plant at $3 billion.

In short, there is no silver bullet for the complex challenge of meeting energy demand and geopolitical interests while not impeding economic growth or environmental quality, but CTL technologies do have some promise as a way to use our existing, abundant domestic fuel sources to balance all of those tradeoffs, in the long-run transition from carbon energy platforms to non-carbon platforms.

Posted by lkiesling at May 17, 2007 9:39 AM | TrackBack

Gas to Liquid (GTL) diesel (one of the products of the CTL process) is supposed to be great stuff. They have it in Sweeden, and the cetane number is the best on the market, much better than the crap diesel you get in the US. As a result, the Swedes can drive higher performing diesel vehicles than those available in the US. Also, GTL diesel has no sulfur, which has enourmous emissions benefits. Devices like particulate filters and NOx traps work better if sulfur is not present in the fuel.

Most GTL diesel is made from natural gas, and new GTL plants are coming on line in the middle east to make use of what is now waste gas. This might be as interesting a story as CTL, turning low value product into something with a higher value and making it available in larger markets.

Posted by: Buzzcut at May 17, 2007 11:33 AM

CTL has been visited many times before. I was involved in it myself while working towards my PhD from 1978 to 1983 (which many may remember as a good then horrible time for the oil companies). While the conclusion that liquid fuels from coal would cost about seven times that of oil is a reasonable one, the pollution problem is glossed over. Left out of this discussion are the horrendous quantities of solid waste, much of it heavy metals, that would result from using coals. Just wait, the environmental consequences are greater than anything except perhaps oil shale.

Posted by: Lucy Hair at May 17, 2007 12:07 PM

Lucy's right to a degree.

The process which converts coal to gasoline generated expensive fuels, it was tested against a benchmark of bbls of oil that cost about $10. Now we're looking at a cost equality between coal-fuels and oil. Granted that the demand from developing nations is just going to go up, getting in the coal-based fuel game now only makes economic sense. It's far more reasonable than ethanol.

Posted by: DocattheAutopsy at May 17, 2007 2:13 PM

Would not the left over solid waste still be useable as bunker fuel for power stations and the like?

Posted by: davod at May 17, 2007 2:53 PM

The most frequent estimate that I've seen for our coal reserves at present usage rates is 250 years. If we start using those reserves for oil then it is quite logical to assume halving that number to approximately 100 to 125 years. If that's the best we can do, I don't think the effort and money spent is worth it.
Spend it on fuel cells (hydrogen probably) which give the most promise at the least cost, monetarily and environmentally.

Posted by: Paul Engel at May 17, 2007 3:05 PM

Paul Engel:

Idiot, where will the hydrogen come from? The hydrogen fairy? Hydrogen is not an energy *source* as there are no hydrogen wells or hydrogen mines, at least not on Earth. Hydrogen is an energy *medium* or *store* and must be created, or rather composed into a usable form, using another energy source.

Hydrogen may indeed be useful but it will *not* eliminate the need for current and new energy sources like coal, oil, nuclear, and if you like, solar, wind, hydro, etc.

Even at 100 years (and real estimates are far higher - the 250 number is, IIRC, for total current US energy use), that's 100 years to develop fusion, satellite power, etc. 100 years of not being slaves to OPEC. Incidentally, 100 years of good jobs in coal country, if you cared about creating jobs for poor people in coal country, and sales of tech to other countries with coal. And, for a long time there has been more coal than anyone needs - this would create more demand, and in all likelihood, would lead to market forces which would end up with us finding more coal.

And as for solid waste - far less troublesome than liquid or gaseous waste. Much easier to contain and store. Bury it right in the depleted coal seams. Believe it or not, it won't hurt anything. The coal that was there didn't, right?

That's assuming you haven't reduced it further by getting valuable mercury, uranium, etc., from it (which is far better than putting that in the atmosphere). The aggressive chemical processing of coal could actually reduce the amount of mining in other areas, and could increase our reserves of valuable minerals like uranium, which could also be used for power, of course.

I believe the estimate is that a given amount of coal has more potential energy in its (minute) uranium content than in the fuel value of the coal. This technology is worth pursuing for that reason alone. If nothing else, it would be nice to replace all existing coal-burning power generation with power from CTL - cleaner and you get the by-products for other uses than air pollution. All you "greenies" who want to be more "efficient" should realize this.

One only hopes that oil shale, tar sands, etc., are as promising. We will see in the end, if these efforts are not choked off by people with no answers but lots of "passion."

Posted by: nichevo at May 17, 2007 4:18 PM


Name calling is a way to get yourself banned from commenting here. Please refrain in the future. Thank you.

Posted by: Lynne at May 17, 2007 4:53 PM

I enjoyed reading this article. Unfortunately, these two hotlinks didn't work. Could you please send them to me:

testimony from Rand's James Bartis

Presentation by DOE's Lowell Miller


Posted by: David Timberlake at May 26, 2007 7:45 PM

David, I've repaired the two links.

Posted by: Mike at May 26, 2007 9:12 PM
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