Coal to liquids: getting greener?
GTForum takes a look at the latest developments in the CTL sector, focusing on recent technical progress and major projects.
Coal to liquids (CTL) is expected to grow over the coming decades, with implications for refiners, given that such projects can produce finished fuels as opposed to synthetic crude, through indirect liquefaction, which involves first converting the coal to syngas and then converting to fuel through the use of the Fischer-Tropsch process.
The US Department of Energy predicts in its International Energy Outlook that international CTL capacity could rise to 1.7mbpd under its reference case scenario by 2035 (with high and low oil price scenarios predicting 4.1mbpd and 0.4mbpd, respectively). Meanwhile the International Energy Agency (IEA) expects the average crude oil import price for its members to approach US$120/bbl (in year 2010 US$) in 2035 (over US$210/bbl in nominal terms).
CTL in the US
One of the most interesting recent developments to take place in the sector is the push for a US$2.7 billion CTL project in southwest Wyoming, which is being championed by DKRW Advanced Fuels. The project’s significance stems from the US’s position as the country with the largest coal reserves and the potential for further projects should the Wyoming venture prove a financial success. The plant, which is expected to begin production in 2015, will have the capacity to produce 10,600bpd of gasoline (Associated Press), with the gasoline to be purchased by a Vitol subsidiary.
The project operator, Medicine Bow Fuel & Power, a fully owned DKRW subsidiary, will sell the CO2 produced by the CTL process to a subsidiary of Denbury Resources for enhanced oil recovery. An air quality permit was granted in March and has survived a challenge before the Wyoming Supreme Court. Construction is expected to begin this year and DKRW has 180Mt of on-site coal reserves, or 360mbbl boe. “ We have received front-end engineering and design (FEED) work and are finalising the overall construction and procurement plan for the project,” said Robert Kelly, executive chairman, DRKW in a press release, dated December 1, 2011.
Sasol: An old hand at CTL
One name to watch when it comes to assessing the current appeal of CTL is South Africa’s Sasol. According to the IEA, Sasol had a CTL capacity of 160,000bpd in 2010. The company abandoned plans to build a US$10 billion CTL complex in China in September 2011 and appears to be shifting its focus to GTL projects, in Uzbekistan, the US and Canada. It also expects to complete its joint venture Escravos GTL project in Nigeria with Chevron, in 2013.
“Our strategic objective is to grow our global GTL portfolio and related upstream asset base. This is aligned to the growing emphasis internationally on gas as an energy source with lower GHG emissions than coal,” says the company in its 2011 annual report.
However, in the same document, Sasol states that its subsidiary, Sasol Synfuels International (SSI), “is conducting a pre-feasibility study into a CTL facility in India. The government has awarded the SSI and Tata Group joint venture long-term access to a portion of the Talcher coalfield in the state of Orissa.”
Some of the approaches currently explored with GTL projects can be applied to their CTL counterparts. For example, a modular approach is attractive for both types of projects, given lower initial capital requirements and more flexibility when it comes to increasing or decreasing scale in response to changes in the market or the project’s resource base. Australia’s Syngas says this approach is instrumental in its planned 15,000bpd CTL plant in Clinton, South Australia and 3,500bpd plants in Victoria and Queensland, according to its 2011 annual report.
On the technical side, SRI International has claimed that it has been able to more than halve the capital cost of CTL, slash its water consumption by over 70% and reduce its carbon footprint, through blending natural gas into the process. Conventionally, CTL plants blend oxygen, steam and coal at high temperatures and pressures, producing syngas (a mix of CO and H2), which is then used to produce liquid fuels via the Fischer-Tropsch process. The methane also lowers the heat absorbed by gasification, which can eliminate the use of oxy-fired combustion, SRI says. This means that the heat source could come from a “green” source, further reducing the carbon footprint of the overall process.
The company estimates that the process could produce jet fuel for US$2.82/gal without producing CO2 in the process, and predicts that a 100,000bpd plant could cost as little as US$3.2 billion, compared with around the US$6 billion seen today. However, this is short of the US$1.5 billion target set by the Pentagon’s Defence Advanced Research Projects Agency (DARPA), which has given SRI US$1.6 million in funding for the project, and SRI’s work has yet to move beyond laboratory scale demonstrations.
Even if SRI is successful in converting coal to liquids without producing CO2 emissions, the fuel would still generate emissions upon combustion. SRI indicates in a press release that it is looking to partially solve this issue through the use of biogas. Based on a series of analyses, the company claims that “if diesel were produced using biogas as the source of the methane, the resulting product would qualify as an alternative fuel under the revised Renewable Fuels Standard of the Energy Independence and Security Act of 2007.” This requires alternative fuels to result in a 50% reduction of greenhouse gas emissions compared with conventional fossil fuels.
“The critical aspect is the reduction of the CO2 in the conversion process because in the traditional process about two-thirds of the carbon in the coal ends up emitted as CO2. Our process now has zero CO2: all the carbon in the coal ends up in the transportation fuel. That’s the big advantage of our technology over conventional technology, ” says Robert Wilson, director of the chemical science and technology laboratory at SRI International.
Another company looking to lower the costs and environmental footprint of CTL is Accelergy, a Houston-based start-up which started producing liquid fuels in June 2011 at the Beijing Research Institute for Coal Chemistry. It also has signed agreements with the US Army Tank Automotive Research, Development and Engineering Centre (TARDEC) and the US Air Force. Accelergy is looking to incorporate a biofuels element, both through the use of traditional biomass and “algae biomass in a carbon capture and recycle system”. The company is looking to build a pilot facility in Pittsburgh, funded by a US$1.3 million grant received from the state government of Pennsylvania.
A different approach
The IEA notes that coal mining productivity (average production per employee per hour) has “declined substantially over the past five years in major producing countries such as Australia and the US”, driven by a shift to deeper mines, thinner seams and increased overburden. It also expects total US coal production to decline over the 2015–2035 period, with a shift away from the Appalachian region, partly due to environmental concerns.
Given this trend, the future of obtaining liquid fuels from coal may lie in projects that combine underground coal gasification (UGG) with GTL technology. By gasifying the coal in situ, many of the costs and safety issues associated with conventional mining can be avoided. However, current projects are only operating on a pilot scale and have been impeded by concerns over aquifer pollution and surface subsidence, coupled with the lack of suitable UCG regulations, according to the IEA Clean Coal Centre, which told GTForum that currently Australia’s Linc Energy is the first company to combine the Fischer-Tropsch process with UCG, to produce liquid fuels from underground coal deposits without conventional mining.
Linc owns the only commercial UCG facility the world. Located in Angren, Uzbekistan, it has been producing 1Mm3pd of UCG syngas for power generation since 1961. In 2011, it marked 50 years of continuous operation. Linc has built and commissioned a UCG demonstration facility in Queensland, Australia, with GTL Fischer-Tropsch processing and a research laboratory. Linc recently announced the completion and start-up of a fifth gasifier at its UCG to GTL demonstration facility, in a newsletter for investors. The company has also established a memorandum of understanding with BP Australia, under which BP will take a minimum of 70% of produced synthetic fuels from the facility.
All that glitters is not gold…
One company that perhaps serves as a cautionary tale for those looking for a quick breakthrough in this technically challenging sector is Bixby Energy. It drew attention back in 2010, with its claim to have developed a commercially available system for converting coal to synthetic gas, but a statement issued by the Securities and Exchange Commission alleges that “Bixby’s former CEO Robert Walker and former CFO Dennis DeSender made repeated misstatements both verbally and in writing to investors about the company’s core product… They told investors that Bixby’s coal gasification machine was proven and operating when in fact it had substantial technological defects, did not function properly, and was at risk of self-destruction.”
A December 14 press release from the US Attorney’s Office states that Bixby “has admitted defrauding investors of between US$2.5 and US$7 million”. After several unidentified employees were forced to leave Bixby, “the company agreed to co-operate fully with the government’s investigation…The investigation into this matter continues.”
A Bixby spokesperson gave no comment when asked about the financial health of the company. An article in the Star Tribune said that Bixby’s Ordos unit in China produced synthetic gas three months behind schedule and the gas is being flared, not sold commercially. Bixby told GTForum: “Our unit is complete and installed and able to flare gas but the insulated equipment that the customer needs to have in place is not able to take that gas and deliver it to its use.”
The bottom line
For data on the current cost of CTL with or without CCS, GTForumturned to a 2011 paper authored by Hari Chandan Mantripragada and Edward Rubin and published in Energy Policy. This puts the specific capital cost of CTL at US$91,900 per barrel per day (bpd) of design capacity, rising to US$93,100 per bpd if CCS is used. This compares with the US$32,000 per bpd estimated by SRI. The paper puts the cost of liquid product from conventional CTL at US$76.1/bbl, rising to US$88.4/bbl, under a US$25/t CO2 regime, compared with US$81.8/bbl for CTL using CCS. The authors of the paper note that another approach, using the plant to produce both electricity and liquid fuels from coal (co-production), results in a higher specific capacity cost (US$117,100/bbl), but lower costs per liquid product (US$58.5/bbl at US$0/t CO2 and without CCS).
The IEA notes that CTL is economic in the US$60–100/bbl range and under all three of its energy scenarios to 2035. It also states that estimates for specific capital costs tend to range between US$80,000/bbl and US$120,000/bbl in its latest World Energy Outlook. Under its ‘new policies scenario’, it predicts that worldwide CTL capacity will grow to 1.2mbpd by 2035, with China making the largest single contribution followed by South Africa, the US, Australia and Indonesia. As far as China is concerned, the IEA expects the country’s CTL industry to consume around 15Mta of coal in 2015 rising to 50Mta in 2035, “as higher oil prices make new investments in this technology more profitable.” This latter figure is equivalent to roughly 2% of China’s predicted primary coal demand in 2035.
What are the implications of CTL for refiners?
The overall impact on the refining sector, through greater use of CTL is hard to assess. CTL products boast close to zero sulphur content and are low in both particulates and nitrogen oxides (on combustion). (World Coal Institute). This suggests that if the ongoing global push for tighter air quality continues, some of the cost advantage held by conventional refineries could be eroded.
This may be partially offset by the fact that by meeting demand for refined products through the use of coal, CTL projects will work to reduce apparent crude demand. Given the relatively modest scale of capacity growth predicted by the EIA, CTL could be argued to be rather modest as far as traditional refiners are concerned.
The currently high cost of CTL matters, given today’s economic climate and the fact that oil prices above US$100/bbl have been historically linked with recession in the US and the antagonistic relationship between high energy prices and disposable income (and by extension, employment). While the production of liquid fuels from coal cannot fully mitigate the negative effects of a shift to lower-quality fossil fuel resources, it may play a role in extending the period over which society can transition towards more sustainable energy sources.
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