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.