Montana governor promotes synfuel while considering other options

Washington (Platts)--13Oct2005

Western governors and federal and state officials will gather Oct 18-19 in
Bozeman, Mont., at a meeting hosted by Montana Gov. Brian Schweitzer to look
at energy growth in the West.

The workshop will help Montana form a solid, long-term energy vision,
proponents say, and participants will discuss energy production, renewable
energy, conservation, transmission issues and environmental concerns.

For the past several months, Schweitzer has been encouraging the development
of Montana coal-derived synthetic fuels to replace gasoline, diesel and even
jet fuel to ease the nation's reliance on foreign oil. "These are
clean-burning, high-performing fuels that require no engine modifications," a
synfuel fact sheet on the governor's website said. 

If even a small amount of Montana's 120-bil tons of coal reserves is converted
into synfuel, "we could greatly reduce the oil we now import from foreign
regimes" and supply the U.S. armed forces, the largest consumer of foreign
oil, with domestically produced fuel.   

Although the process to create synfuel has been around for decades, it was not
economically viable as long as oil cost less than $35/barrel, the cost to
produce a barrel of synfuel. That dynamic has changed in the past few months.
Adding to the economic benefits are 80% loan guarantees for certain coal
liquefaction projects in the new energy act and Internal Revenue Service
Section 29 tax credits for synfuel plants. 

Schweitzer cites a South African plant that produces 200,000 barrels/day of
gasoline and diesel, but the US industry is just getting started and won't be
strong until the next decade. Additionally, he said new synfuel plants are
going up in Qatar, China and Malaysia.   

Too many questions unanswered

However, the Northern Plains Resource Council has its doubts about the
proposed Fischer-Tropsch coal-to-liquids plant. To address some of the
questions, members of the group were meeting with state officials Wednesday. 

Members raised concerns about the proposed plant on the Otter Creek in
southeastern Montana in a position paper and analysis. The organization is
skeptical of the plan Schweitzer is proposing -- a plant to be built in
modules over time that would eventually produce 150,000 barrels/day of
synthetic diesel at a cost of $7.2-bill. The facility would use about 6,000
acre feet/yr of water. 

There has never been a plant operating on that scale, and the NPRC is worried
about water usage in the agricultural state. NPRC questions if there would be
enough water available in the agricultural area for farmers and the plant.
Other worries are the infrastructure the plant would require, such as a
pipeline, power lines and possibly a railroad.

And NPRC is concerned about pollution from the plant. In the analysis, NPRC
said the South African plant "emits huge quantities of a long list of
airborne, liquid and solid wastes." Sasol, the owner, is converting the
operation to a natural gas feedstock, NPRC said, although it will still use
1.7-mil tons/yr of coal to power the three units. 

NPRC concluded that Schweitzer should "promote local biofuel plants and
small-scale wind and solar projects in rural communities" to develop energy
resources and bring prosperity to rural areas. 

Charlotte Wright, charlotte_wright@platts.com

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