Washington (Platts)--20May2009

Meeting US power and fuels needs through coal or biomass would not be
competitive at the current prices for oil, but in combination, the two could
produce a viable alternative fuel by 2020, according to a report the National
Research Council of the National Academies of Science released Wednesday.

Reaching that point, however, will take much research and significant
investments, along with moving relatively quickly to develop the fuels and
carbon dioxide capture and sequestration technology. Nevertheless, the study
said that the combined fuel would cost more to produce than the current price
of oil.

If the CO2 produced is sequestered, emissions of the combined fuel over
its life cycle could be close to zero, researchers said.

These combined plants are not yet available in the US, but several are
operating in Europe as demonstration plants. By 2035, the US could produce 2.5
million barrels/d of gasoline equivalent from the combined sources, provided
CCS is active by 2015 and the first combined plants are built by 2020, the
study said.

For coal alone to meet US power needs at the current level of demand and
to provide coal-to-liquid fuel for transportation, suppliers would face
"significant increases in coal mining," according to the report.

Additionally, the US must make "substantial investments in research,
development and commercial demonstration projects" to produce the CTL fuels in
"an environmentally conscious way and at a level that could impact US
dependence on imported oil," the report said. Coal-derived fuel would be
competitive if crude oil prices were to stay at $60-$70/b. A carbon price
would add to the cost.

The US transportation sector consumes 14 million b/d of oil, but if US
coal mining increased by 50%, an additional 580 million st/year would be
mined, producing up to 3 million b/d of fuel annually. To reach this capacity,
two or three new CTL plants would need to be built each year for the next 20
years, the report said.

Without geologic sequestration of the carbon dioxide produced from coal
processing, the lifetime CO2 emissions would be roughly double that of oil.
With CCS, the CO2 emissions would be about equal to oil, the report said.

--Charlotte Wright, charlotte_wright@platts.com