Fixing High Oil Prices

Fixing High Oil Prices

Location: New York
Author: Ken Silverstein, EnergyBiz Insider, Editor-in-Chief
Date: Thursday, August 21, 2008

High oil prices can be remedied by conservation, exploration and innovation. Not one of these options is without fault but each is necessary: The United States is increasing its dependence on foreign oil and all this at a time when its own production is down sharply for the previous two decades by 40 percent.

To battle those elements, the big oil companies along with private developers are working on a series of technologies that turn coal into liquids. The idea is to take an abundant resource such as coal and gasify it -- a process that cleanses it of its impurities. That byproduct can then supplement the use of crude oil, which would lessen the country's dependence on foreign oil supplies and help ease prices. In fact, developers of the technology say that a barrel of coal-to-liquids is about $50 compared to a barrel of crude oil that now stands at roughly $120 a barrel.

The latest such pursuit is in West Virginia where Pittsburgh-based CONSOL Energy and Houston-based Synthesis Energy Systems are developing an $800 million coal-to-liquid plant. The facility, which would use both waste coal and raw coal as a feedstock, is expected to be erected at a site where CONSOL currently mines high-sulfur coal. The end product could then transported by barge via the Ohio River located nearby.

"This project has the potential to transform West Virginia from a major coal producing state to a national energy center as well," says CONSOL's CEO Brett Harvey, who adds the plant should be operational in 2012. "By converting some of our region's abundant, high-Btu coal into gases and liquids, not only will we create economic value for the state, but we will help West Virginia become the linchpin of American energy security."

Several other coal liquefaction plants are now being built around the country in such places as Colorado, Illinois, Ohio, Pennsylvania, Mississippi and Wyoming. Denver-based Rentech has a project in East Dubuque, Illinois, which it expects to be the first commercial coal-to-liquids plant in the United States by 2010. It now has a demo plant in Colorado that produces small quantities of coal-based oil a day.

Indeed, the market for such invention has never been better. It's a combination of record-high oil prices and global pressures to curb global warming that is forcing industries to pursue cleaner burning energy alternatives. Government analysts say that the United States will get 1.7 million barrels of transportation fuel per day from coal by 2030. The coal industry says it will be more, around 2.6 million barrels per day.

Coal liquefaction is a technology that takes a solid such as coal and breaks it down to form a fuel oil. To do so, it removes all the toxins such as mercury, sulfur and heavy metals. But the process does nothing to reduce carbon dioxide, which is why some environmental groups are objecting to its potential proliferation. Even more, about 40 percent of the energy is lost in the conversion process.

Confidence Rising

Currently, South Africa's Sasol Co. is the only group with commercially available technologies on the market. Its plants have been around since 1955 and now produce as much as 150,000 barrels a day of oil from coal. This technology came of age during the apartheid era when the world had embargoed South Africa and it was forced to come up with new methods to replenish its oil needs. Sasol's three plants meet 40 percent of the oil demand in the country.

In the case of the West Virginia facility, the coal will be converted to syngas that will be used to produce high-quality methanol. That byproduct will then serve as a feedstock for both the state's chemical industry and the nation's transportation industry, which can transform it to gasoline using a proprietary technology developed by ExxonMobil. Altogether, the plant expects to convert the methanol into 100 million gallons of gasoline each year -- with no taxpayer money at risk, although a local non-profit is providing some financing incentives. "We're highly confident that the plant will be viable under any conceivable future energy price scenario," says Paul Spurgeon, CONSOL's vice president of power development and coal conversion projects, in an interview with the Charleston Daily Mail.

To be sure, it's not cheap to take coal and turn it into oil. The cost on the front end is high. That's because all the contaminants must be cleansed from the solid product before it can be gasified and converted to oil. Investors, who can expect to spend about $1 billion on such facilities, are understandably fearful of risking their money if the price of gasoline would precipitously drop.

Experts peg that benchmark at about $50 a barrel. With today's prices at $120 a barrel, however, coal liquefaction projects are looking more attractive -- a fundamental helped along by the fact that refineries worldwide are operating at capacity. Meanwhile, tougher environmental regulations have forced developers to look for newer ways to run power plants and to move cars, trucks and buses.

In Alaska, federal and state officials are planning to build a liquefaction plant that would turn coal and biomass into a fuel that befits transportation and electric generation. Unlike the West Virginia facility that would use a technology developed by an oil company, this one would employ the Fischer-Tropsch process invented by the Germans in the 1920s and now used by Sasol. Basically, the process involves gasifying the coal and converting it to a liquid at high temperatures.

The global community has been forced to seek alternatives to oil. Coal-to-liquids provides such an option. Hurdles abound, but if the price of oil stays high, investors will come forward. It is effective innovation and a concept that takes an abundant natural resource and coverts it to a cleaner burning fuel.