Replacing Crude Oil: The 2006 Debate Revisited (coal oil in play)

Ed. Note: From time to time, MasterResource reaches back in the political economy of energy history to document bad governmental ideas. The example before is surprisingly recent–before the shale revolution destroyed the case for synthetic oil and gas (not to mention wind, solar, and even nuclear) as market-competitive.

“In March [2006], the [U.S. Department of] Energy Secretary, Samuel K. Bodman, said in a speech that making diesel fuel or jet fuel from coal was ‘one of the most exciting areas’ of research and could be crucial to the President’s [George W. Bush] goal of cutting oil imports.” (below)

Synthetic oil and gas: World War II, Korean War, postwar, 1970s. All projects a failure, completed or suspended-in-construction. But a last hurrah came in 2006, a period when none other than George W. Bush proclaimed in his state-of-the-union address that “America is addicted to oil.”

Such was before the real energy revolution, the exploration and production boom from new-generation technology with natural gas and then with oil, a story told in many articles and books (and at MasterResource).

Matthew Wald’s New York Times piece, “Search for New Oil Sources Leads to Processed Coal” (July 5, 2006), presenting the dream of coal-into-oil, is presented below:

The coal in the ground in Illinois alone has more energy than all the oil in Saudi Arabia. The technology to turn that coal into fuel for cars, homes and factories is proven. And at current prices, that process could be at the vanguard of a big, new industry.

Such promise has attracted entrepreneurs and government officials, including the Secretary of Energy, who want domestic substitutes for foreign oil.

But there is a big catch. Producing fuels from coal generates far more carbon dioxide, which contributes to global warming, than producing vehicle fuel from oil or using ordinary natural gas. And the projects now moving forward have no incentive to capture carbon dioxide beyond the limited amount that they can sell for industrial use.

Here in East Dubuque, Rentech Inc., a research-and-development company based in Denver, recently bought a plant that has been turning natural gas into fertilizer for forty years. Rentech sees a clear opportunity to do something different because natural gas prices have risen so high. In an important test case for those in the industry, it will take a plunge and revive a technology that exploits America’s cheap, abundant coal and converts it to expensive truck fuel.

“Otherwise, I don’t see us having a future,” John H. Diesch, the manager of the plant, said.

With today’s worries about the price and long-term availability of oil, experts like Bill Reinert, national manager for advanced technologies at Toyota, say that turning coal into transportation fuel could offer a bright future. “It’s a huge deal,” he said.

There are drawbacks; the technology requires a large capital investment, and a plant could be rendered useless by a collapse in oil prices. But interest was high even before the rise in oil prices; three years ago, the Energy Department ran a seminar on synthetic hydrocarbon liquids, and scores of researchers and oil company executives showed up. The agency that runs municipal buses in Washington, D.C., and other consumers expressed interest.

But the enthusiasm was not enough to overcome the fear of a drop in oil prices. Lately, however, the price of diesel fuel, which determines the value of this coal-based fuel, also called synfuel, has soared, as has the price of natural gas, which made plants like the one at East Dubuque ripe for change.

Most of the interest is in making diesel using a technology known as Fischer-Tropsch, for the German chemists who demonstrated it in the 1920’s. Daily consumption of diesel and heating oil, which is nearly identical, runs more than $400 million. The gasoline market is more than twice as large, but if companies like Rentech sated the demand for diesel, the process could be adapted to make gasoline.

The technology was used during World War II in Germany and then during the 1980’s by South Africa when the world shunned the apartheid regime there. Now Rentech is preparing to use an updated version.

Sasol, the company that has used the technology for decades in South Africa, is exploring potential uses around the world and is conducting a feasibility study with a Chinese partner of two big coal-to-liquids projects in western China. Last August, Syntroleum, based in Tulsa, agreed with Linc Energy, of Brisbane, Australia, to develop a coal-to-liquids plant in Queensland.

Other projects are in various stages of planning in this country, although the one here on the Mississippi River just south of the Wisconsin border has a head start.

But people who think this technology will find wide use presume some kind of environmental controls, which the Rentech plant, thus far, does not have. Some environment and energy experts doubt that the method is compatible with a world worried about global warming.

Unless the factory captures the carbon dioxide created during the process of turning coal into diesel fuel, the global warming impact of driving a mile would double.

“It’s a potential disaster for the environment if we move in the direction of trying to create a big synfuel program based on coal to run our transportation fleet,” said Daniel A. Lashof, of the Natural Resources Defense Council. “There’s a brown path and a green path to replacing oil, and Fischer-Tropsch fuel is definitely on the brown path.”

But the Energy Department sees potential. In March, the Energy Secretary, Samuel K. Bodman, said in a speech that making diesel fuel or jet fuel from coal was “one of the most exciting areas” of research and could be crucial to the President’s goal of cutting oil imports. He said that loan guarantees enacted in last summer’s energy bill might be used for Fischer-Tropsch diesel fuel.

In Des Plaines, Ill., near Chicago, a new company called GreatPoint Energy has developed, on a laboratory scale, a vastly improved process for turning coal into natural gas.

The promise and the pitfalls are similar for both GreatPoint and Rentech. Measured in the standard energy unit of a million British thermal units, or B.T.U.’s, coal sells for $1 or so, natural gas around $7. Diesel fuel is around $23. As with all energy conversions, turning coal into natural gas or diesel fuel means losing something in translation — specifically, energy — but if the price difference is big enough, the energy loss is not something that investors will worry about.

But it also means carbon emissions, which causes concern to environmentalists. Carbon is released in converting coal into an energy-rich gas made up of carbon monoxide and hydrogen, and then converting the gas into something more useful. Rentech wants to turn it into liquid fuel. GreatPoint wants to rearrange the molecules into natural gas.

But coal is cheap and the energy possibilities are endless. For example, at the Rentech plant, a substation on the east side of the plant that currently pulls in electricity will send it out instead. And, uniquely in this country, the plant will take coal and produce diesel fuel, which sells for more than $100 a barrel.

The cost to convert the coal is $25 a barrel, the company says, a price that oil seems unlikely to fall to in the near future. So Rentech is discussing a second plant in Natchez, Miss., and participating in a third proposed project in Carbon County in Wyoming.

The plant here will “bring back an industry that’s shutting down,” Hunt Ramsbottom, the company chairman, said of the fertilizer business. “The goal is fuels, but to get the plant up and running, fertilizer is a good backstop.”

And it is all local. The coal will come from southern Illinois, by barge or rail. The diesel can go straight to terminals or truckstops in the area, said Mr. Diesch, the plant manager, and the fertilizer to local farms. An odd advantage is that today, most coal-burning power plants in the area use coal hauled from Wyoming, because its sulfur content is lower; burning high-sulfur coal encourages acid rain. But if the coal is gasified, rather than burned, filtering out the sulfur is relatively easy, and the sulfur changes from a pollutant to a salable product.

Emissions of traditional pollutants — that is, the ones the government regulates, and not carbon dioxide — will be lower with coal than they were with natural gas, he said. Outsiders are interested, but skeptical, because of the carbon problem. “It might serve our goals in terms of reducing oil dependence,” said Phil Sharp, a former congressman from Indiana and now head of Resources for the Future, a nonprofit research organization in Washington. But “they should take into account that we are headed to a carbon-constrained economy.”

Robert Williams, a senior research scientist at Princeton, said “it’s a step backward” to operate a plant like Rentech’s without capturing the carbon. “It almost doubles the emission rate,” he said.

Mr. Ramsbottom also sees the carbon dioxide problem. “The worldwide production of Fischer-Tropsch fuels is going to ramp up dramatically, and carbon sequestration is on everybody’s mind,” he said. But the geology of this part of Illinois is not suitable for sequestering the carbon dioxide from these plants. Building a pipeline would be expensive and difficult to justify while carbon emissions are not taxed, experts say.

GreatPoint has a different plan: move the plant where it can sell the carbon.

Andrew Perlman, the company’s chief executive, thinks it has value. “Not only is it capturable, one of biggest advantages of the system is, we can locate our plant near a natural gas pipeline, in places where we can sell that carbon dioxide for a profit, using existing technology,” he said. Oil producers inject carbon dioxide into old oil fields, to force oil to the surface.

Backers also hope that methanization, the process GreatPoint uses, will succeed in part because it fits in with existing energy infrastructures, like gas pipelines and coal mines. If it did, it could have a profound impact on the balance of natural gas imports, lessening or eliminating the need for liquefied natural gas ports. Like Fischer-Tropsch diesel, methanization is not a new idea; one plant in North Dakota does it now, using a technology paid for under the Carter-era Synthetic Fuels Corporation.

But GreatPoint is going about it in a new way, in which far less energy is lost in the transition. There is a potential to make fuels from gasification better than ordinary fuels. Robert Williams, a senior research scientist at Princeton University, points out that crop wastes and wood chips can also be gasified, producing carbon monoxide and hydrogen.

Normally, biomass is thought of as carbon-neutral, because for each plant cut down for gasification, another grows and absorbs carbon from the atmosphere. But if biomass is gasified and the carbon dioxide sequestered by being pumped into the ground in the expectation that it will stay there, then atmospheric carbon actually declines for every gallon produced.

From a greenhouse perspective, that is more attractive than what Rentech does now with the carbon dioxide from its plant here. It is sold to soft-drink bottlers. That keeps the gas sequestered until someone burps.

Silly in retrospect, isn’t it?

But remember that the market picks winners, leaving losers for the government. That, 15 years later, here we are propping up wind and solar for grid electricity; electric battery vehicles; mass carbon capture and storage; and biofuels and wood chips as oil and gas substitutes.

I must be wrong about all this. Or maybe not ….