My article on Coal to Liquids processes: status and outlook

Coal liquefaction to produce clean fuels: Status and outlook

Coal to Liquids plants are encountering opposition in the U.S. primarily for environmental reasons. Permits are being delayed as the request for environmental impact studies increases.

By Gustavo Coronel | August 14, 2013

South Africa’s Sasol energy company has produced coal to liquid (CTL) fuels since 1955
The energy used for transport is over 90 percent generated by oil, while the global amount of vehicles is increasing. The U.S. has 770 autos per 1000 people and China some 100 autos per 1000 people, a figure that might double by 2050. This means a rising demand for oil, forcing oil importing nations to search for alternative sources of energy. The search for new sources of energy that can meet the demand of the transport sector essentially considers four basic factors: 1) the status of the technology; 2) the impact on the environment; 3) the financial feasibility; and, 4) national concerns over energy security.
One of the alternatives being examined with increasing attention is Coal Liquefaction, a process that can convert low quality coal into ultra clean fuels. A 2008 report made by Rand Corporation for the U.S. Air Force, states that “a domestic coal to liquids, CTL, industry could produce as much as three million barrels per day of transportation fuels by 2030.” “Having such an industry,” adds the report, “would yield important energy security benefits, most notably a lowering of world oil prices and a decrease in wealth transfers from oil users to oil producers”. This report concludes that it makes sense for the United States to pursue an insurance or hedge strategy that promotes the early construction and operation of a limited number of commercial CTL plants.

Potential of coal to liquid fuels in the U.S.

The Rand Corporation report cited above has modeled the impact of a 3 million barrel per day CTL industry in the country. Since the U.S. has the largest coal reserves in the world, some 270 billion tons, dedicating only a small percentage of these reserves to coal liquefaction would be equivalent to establishing liquid hydrocarbon reserves on the order of 100 billion barrels. Developing large scale production of liquid fuels from coal, says the report, would provide the country with significant savings from imports, among several other benefits.

A general evaluation of the process

1. Technology

Currently there are two proven ways to convert coal into clean fuels. One is the Direct coal liquefaction process, which converts coal to liquids by dissolving coal in a solvent at high temperature and pressure. This process is highly efficient, but the liquid products require further refining (‘hydrocracking’ or adding hydrogen over a catalyst) to achieve high grade fuel characteristics. The other is the Indirect coal liquefaction, which first gasifies the coal with steam to form a ‘syngas’ (a mixture of hydrogen and carbon monoxide). The sulfur is removed from this gas and the mixture adjusted according to the desired product. The syngas is then condensed over a catalyst – the ‘Fischer-Tropsch’ process – to produce high quality, ultra-clean products.

2. Impact on the Environment

The method by which carbon dioxide emissions can be minimized when using these processes is Carbon Capture and Storage, CCS. It can cut these emissions by over 90 percent. By means of this method carbon dioxide that could be released into the atmosphere is captured and injected into deeper geological formations. It is estimated that during this century CCS could contribute up to 55 percent of the carbon dioxide mitigation efforts in the U.S.

3. Financial feasibility

Currently the barrel of oil equivalent from coal liquefaction processes can be produced for around $10.00, due to the relatively low price of coal. The International Energy Agency, IEA, reports on a study on coal liquefaction in Illinois that concluded the commercial CTL plants using U.S. Midwestern bituminous coal can be economically very attractive. The investment cost of a CTL plant with a production capacity of 50,000 b/d of diesel and gasoline has been estimated by the World Coal Institute at around $ 4.1 billion (US$ 2006). The coal preparation and gasification in the CTL process account for almost 50% of the total investment, the rest being the cost of the Gas to Liquids process.
A comparison of the capital investment required to install a new barrel of clean fuel from diverse sources is estimated by the World Coal Association below.

Energy Source	Capital Cost Investment In Thousands of Dollars Per Daily Barrel of Capacity
Heavy Oil	20-30,000
Coal to Liquids	50-70,000
Oil Sands	60-80,000
Biomass	110-145,000
Shale Oil	120-140,000

At current prices of oil of $90-100 per barrel, coal liquefaction processes are clearly competitive. The break even oil price is estimated at around $45 per barrel.

4. Energy Security

Countries with significant reserves of coal that are required to import petroleum products are especially good candidates to develop coal liquefaction processes. The U.S., Germany, Australia and China are examples of countries where these processes might offer both financial and energy security benefits. The concern for energy security is probably most acute in China. As a result of their eager search for alternatives to imported petroleum, China now has the second largest CTL plant in the world, Erdos CTL, a coal liquefaction plant at Ejin Hoo Banner, Inner Mongolia, which has been in operation since 2010. The complex has a capacity of 20,000 barrels per day and is owned by Shensua Coal Liquefaction Corp., which employs its own, direct coal liquefaction technology.
The most successful example of a country that has developed an important CTL sector coal to liquids processes is South Africa. This country has been producing liquid fuels from coal for almost 60 years. One third of its gasoline and diesel requirements now come from coal. Sasol, a company previously owned by the state but now gone private is the owner of the Secunda Complex, the largest Coal to Liquid, CTL, plant in the world, producing about 160,000 barrels per day of clean fuels. This activity provides about two percent of South Africa’s GDP and saves the country about $4 billion per year in foreign exchange. Sasol is planning to expand Seconda’s capacity by another 30,000 b/d and has also proposed to build the 80,000 b/d CTL Mafutha plant. Such an expansion would serve to meet up to half of South Africa’s liquid fuels demand.

The outlook for CTL plants in the U.S.

Coal to Liquids plants are encountering opposition in the U.S. primarily for environmental reasons. Permits are being delayed as the request for environmental impact studies increases. However, some progress is being made. Late in 2012 DKRW Advanced Fuels LLC (DKRW) announced that its wholly owned subsidiary, Medicine Bow Fuel & Power LLC (MBFP), had entered into a contract with the Sinopec Engineering Group (SEG), a Chinese company. Using bituminous coal from southern Wyoming, the Medicine Bow facility will produce 11,600 barrels per day of very low sulfur gasoline. The market for this output is already assured. In what is good news from the environmental angle, it was also announced that the project will capture 92% of the CO2 generated throughout the development process and provide the liquefied CO2 for use in the enhanced oil recovery market in the Rocky Mountain region. Denbury Resources Inc., one of the leading producers of natural carbon dioxide utilized for CO2‐enhanced oil recovery in the United States, has agreed to purchase all of the carbon dioxide captured by the plant.
At a 2008 meeting in Washington, D.C., the Department of Energy made a presentation in which they stated that Coal to Liquids process were already economically viable and that the country could reduce both oil imports and overall emissions of Carbon Dioxide, while converting coal into aviation fuel, motor vehicle fuel, home heating oil, and boiler fuel.
Legislation on this subject has been proposed in the recent past. In May 2011, Representatives Capito, Critz, Buchshon, Terry and Rahall introduced a Bill in the U.S. House to require the inclusion of coal-derived fuel at certain volumes in aviation fuel, motor vehicle fuel, home heating oil and boiler fuel. In support of this bill, Rep. Mark Kritz said: “Coal is, and must continue to be, an important part of our nation’s energy portfolio. We have invested heavily into coal-to-liquids technology – we know it works – and using clean coal-derived fuels will increase our energy supply and reduce our dependence on foreign oil”.
Although the rate of progress of these processes has been slow so far, mostly due to environmental considerations and the relatively recent boom in shale gas, the existence of significant reserves of U.S. coal, the proven technologies already existing, energy security considerations and comparatively favorable economic parameters leave little doubt that CTL plants will eventually play an important role in achieving American energy independence.

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Gustavo Coronel, who served on the board of directors of Petróleos de Venezuela (PdVSA), has had a long and distinguished career in the international petroleum industry, including in the USA, Europe, Venezuela and Indonesia. He is an author, public policy expert and contributor to SFPPR News & Analysis.