Magazine article National Defense

Energy Markets

Magazine article National Defense

Energy Markets

Article excerpt

'Coal-to-liquids' promise big profits, but obstacles remain

Thanks to the rapid rise in the price of oil, projects to develop syndietic fuels have stopped waiting for U.S. government funding and are moving forward.

As the government's largest consumer of fossil fuels, the Air Force announced its intent to increase the use of synthetic fuel, which is mainly made from coal. So far, however, the military's coal-to-liquids efforts have slowed down. Congress failed to audiorize much of the needed funds and the White House has yet to allow die Air Force to enter long-term contracts with synthetic fuel manufacturers.

Private industry, on the other hand, has made strides in launching coal-to-liquids projects and in capturing and recycling carbon dioxide.

Coal-based fuel entrepreneurs will still require governmental guidance, and will need to agree to invest in carbon capture technologies that will make the conversion of coal into liquids no more emitting in carbon than current oil refining processes.

Companies believe that the investment in carbon capture technology can be recouped by recycling the byproduct for downstream domestic industries. This is contrasted with the cosdy sequestering of carbon into the ground, an option diat will be both economical and safe only for oil and gas drilling and coal mining operations.

Coal-to-liquids programs can serve as the best vehicle for accelerated development of carbon capture, storage and recycling technologies, even without a large Air Force contract as the main driver. A barrel of synthetic fuel can be made for about $40, and capture might add another $20. Even after the price of a barrel of oil comes back down - Lehman Brothers is predicting about $95 by end of the year - synthetic fuels will remain a sound investment.

Energy entrepreneurs are now free to stop waiting for Congress and instead they are lining up billions of dollars in financing to build coal-to-liquids plants to supply the commercial market. And the Pentagon may soon be able to buy synthetic fuels this way.

Baard Energy announced earlier this year diat it has raised private funds and won state assistance to build coal-to-liquids and biomass plants in Ohio. Baard was one of the companies maneuvering for an Air Force contract but lost patience with Washington. Another firm, DKRW, associated with Arch Coal, announced it will build a coal-to-liquids plant in Wyoming that will make gasoline and jet fuel.

The Crow Nation announced it is partnering with an outside investor to build a coal-to-liquids plant on its lands in Billings, Mont. Those three projects alone represent private investments of almost $15 billion. Other coal-to-liquids plants already have been announced for Canada, India and China. Royal Dutch Shell and the South African SASOL are behind many of the projects abroad.

Hawkins & Doyle, a venture capital firm, known for its "clean" technology research, reported this summer that even though coal is die largest source of carbon dioxide emissions, it will remain a key fuel for generating electricity.

As a result, a "massive investment opportunity" exists as new technology is developed and employed to make coal-fired power plants run cleaner, and as coal starts to be used to make liquid fuels in support of nations' quest to be energy independent," the company said. The firm foresees a $170 billion market for clean-coal utility plants and atmospheric control technology in the next two decades, and also predicts a $60 billion annual "unconventional" liquid fuels market, primarily from coal, developing by 2030.

Energy entrepreneurs with outside financing, as well as cash-flush energy companies that can self-finance, still face at least two major challenges. First, they will need to get their potential legal liabilities mapped out under a new regime that all of them recognize. Second, they will need to guarantee Washington that they can produce liquids from coal without emitting more C02 than liquids from crude. …

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