Coal-to-liquids as a case study of how excessive optimism is our enemy

14 FEBRUARY 2011
by Fabius Maxim us tags: coal , coal to liquids

Summary: Confidence provides strengths for a society, but only w hen coupled w ith clear vision. Unfortunately modern America too-often sees the future only in terms of doomsters pessimism and advocates optimism. Here w e have a case study of the latter. In the run-up to the 2008 oil price spike optimists had ex treme confidence in sev eral adv anced technologies as new energy sources. Some ex amples popular in 2006 were cellulosic ethanol (e.g., from algae or switchgrass), solar, wind, ocean wav es, and conv erting coal to liquid fuels (CTL). This confidence short-circuited our natural fear of oil depletion, which otherwise might hav e sparked comprehensiv e efforts to prepare for an era of high oil prices. This is another contrast with China, which has a powerful and multifaceted long-term program to prepare for peak oil. Sev eral y ears later we can better assess the accuracy of these hopes. Here we look at CTL. The elements of the CTL story hav e prov ed to be either false or ov erstated. Contents 1 . CTL is an energy source! No, its not. 2. We hav e v ast reserv es of cheap coal, sufficient to last centuries. No we dont. 3. We should imitate the big China CTL program. Ex cept there is none. 4. Companies can run CTL plants as an economic alternativ e to oil at $60/barrel (nope). 5. Conclusions 6. For more information Tomorrows post discusses the missing element in many optimistic reports about energy : time. Building new energy sources on a large scale (a serious fraction of total energy use) takes decades after the successful lab work, pilot plants, and then demonstration plants. (1) CT L is an energy source! No its not. This is a common mistake of non-ex pert enthusiasts writing about energy . CTL refines a primary energy source (coal) into a liquid fuel a clean fuel able to power ex isting v ehicals (just as fuel cells conv ert hy drogen into electricity , natural gas being the usual energy source). The cost of CTLs liquid fuel product consists of mining and transporting the coal plus the CTL refining process. These costs include: the capital costs of building the mines and refineries plus the transportation connecting them (e.g., railroads or slurry pipelines); taking in to account their ex pected lifetimes;

Follow Fabius

the cost of operating these facilities.

Follow Fabius Maximus

Get every new post delivered to your Inbox.

The mix of capital and operating costs makes it difficult to compare energy sources. Some hav e mostly capital costs (shallow land wells of light sweet oil, solar). Some hav e mostly operating costs (surface mined coal). Some hav e large costs for both (e.g., shale oil aka kerogen). Adv ocates of CTL often 1,942 other followers misrepresent its cost by looking only at the capitalJoin costs (there is more information about CTLs capital costs than its operating costs). This is especially misleading when comparing CTL to sources such as Enter your email address deepsea oil, which has relativ ely low operating costs. Sign me up (2) We hav e v ast reserv es of cheap coal, sufficient to last hundreds of y ears
Pow ered by WordPress.com Probably not. These estimates ignored the basic relationship of mineral deposits: the inv erse

relationship of ore quality and quantity . High quality ores are less plentiful than low grades (details here). In other words, there are v ast reserv es when measured in tons. But what of their energy content? We see this in the US mining of coal. Production of anthracite peaked in 1 91 8; by 21 1 8 we may mining coal with the BTU content of biodegradable Kittle Litter. There hav e been sev eral studies ev aluating the actual ex tent of coal reserv es in terms of their energy content (not v olume or weight): The Peak in U.S. Coal Production, Gregson V aux , 27 May 2004 Coal of the Future (Supply prospects for thermal coal by 2030-2050), Energy Edge Limited, Prepared for the European Commission DG Joint Research Centre Institute for Energy (JRC IFE), February 2007 Coal: Resources and Future Production, Energy Watch Group, March 2007 (47 pages, PDF) Coal: Research and Dev elopment to Support National Energy Policy , National Academies, June 2007 The major study showing reserv es are ov erstated: Coal: Research and Dev elopment to Support National Energy Policy , National Academies, June 2007 Key paragraph: Present estimates of coal reserv es which take into account location, quality , recov erability , and transportation issues are based upon methods that hav e not been updated since their inception in 1 97 4, and much of the input data were compiled in the early 1 97 0s. Recent programs to assess coal recov erability in limited areas using updated methods indicate that only a small fraction of prev iously estimated reserv es are actually recov erable. Such findings emphasize the need for a reinv igorated coal reserv e assessment program using modern methods and technologies.

What does this mean? Lower quality ore, thinner coal beds, at deeper depths = higher costs, affecting the economics of CTL. (3) We should im itate the big China CT L program ! Not really . China planned by 2020 to build CTL plants producing one million barrels/day (for

comparison, today the US imports roughly ten million barrels/day ). In 2006 China had 27 CTL projects of v ary ing sizes under construction or in planning totally 31 million tonnes/y ear (plus 30 coal to methanol plants and other coal-to-chemical plants). During the past y ears China slowed its program, fearing to ov erex tend their coal and fresh water resources (5+ gallons per barrel output), plus env ironmental concerns (especially CTL waste products). For ex ample, from Reuters, 28 August 2008: China has ordered the suspension of all but two coal-to-oil projects in the country , said the Ningx ia Dev elopment and Reform Commission, in northwest Chinas Ningx ia Autonomous Region. The ex ceptions to the suspension are a project due for launch in {Ordos} Inner Mongolia this y ear by Shenhua Group, Chinas largest coal producer, and a second {in Ningx ia} belonging to Shenhuas Ningx ia Coal Industry Group and South Africas Sasol Ltd (SOLJ.J), the commission said on its website. The National Dev elopment and Reform Commission, Chinas top economic planning agency , recently issued a circular asking local gov ernments to tighten administration of coal-to-oil projects, it said. China should find the most suitable way of dev eloping coal-to-oil operations v ia demonstration projects before mov ing on to the nex t step, the statement said.

On 4 February 201 0 the second project was put on hold. Many pilot plants and a few demonstration plants remain either under construction or in operation (see lists here and here). The situation is similar in the US. Work on small scale projects; talk about large projects for the future. CTL adv ocates often create a misleading impression by listing CTL projects without distinguishing between pilot plants, demonstration plants, and commercial plants (each larger than the preceding step). (4) Com panies can run CT L plants as an econom ic alternativ e to oil at $60/barrel Probably not. Comparing CTL to other energy sources especially unconv entionals (e.g., heav y oil or CTL) or alternativ es (e.g., solar, wind) is difficult due to their v ery different characteristics: capital costs, operating costs, lifespan of equipment, and performance (e.g., reliability , av ailability ). Worse, most of the analy sis tends to be by adv ocates whose enthusiasm often trumps the need for accurate accounting. This is perhaps the primary reason energy research tends to be of such low utility , ev en when done by ex perts (and more so when by informed amateurs, such as Dav id Archibald here). The promise can be seen in this: Baseline Technical and Economic Assessment of a. Commercial Scale Fischer- Tropsch Liquids Facility , National Renewable Energy Laboratory , 9 April 2007 . As usual, reality is disappointing compared to the dream. In January Sasol cancelled a 2009 memorandum of intent to build a 80 thousand bpd CTL plant in Indonesia. It required oil prices of $90/bbl for a 1 0% return, and $1 1 0/bbl for a 1 5% return. The capital (construction cost) was $1 25 thousand per barrel-day (source: CTL cancellation raises further strategy questions, Merrill Ly nch, 1 9 January 201 1 ). We can compare this with two Chinas CTL plants rev iewed at the April 201 0 World CTL Conference in Beijing. Chinas largest CTL plant, in Ordos (Inner Mongolia), produces 25 thousand bpd. It started production in 2008, costing $3 billion ($1 50 thousand per barrel-day ). The start-up ramp has been

rough, running at 7 0% capacity in early 201 0. Y itai Coal to Liquid Company has a 4 thousand bpd demonstration plant in Dalu (Inner Mongolia) started operation in 2009. It cost $300 million ($205 thousand per barrel-day ). The cost of building a CTL plant would, of course, be more in the US than in Indonesia or China. Higher labor costs, more env ironmental protection and safety equipment. Operating costs for China plants are not publicly av ailable (i.e., Iv e not found any ), but their costs are (or were) subsidized. For ex ample, low-interest loans, plus reduced rates for water, coal, and electricity . Update: For comparison with a currently operating alternativ e (surface mining bitumen), Canada Oil Sands Trust say s that as of Q4 201 0 their production cost is $37 /barrel, plus another $7 /barrel in roy alties to the Crown and $1 0/barrel in non-production costs (including administration and interest) for a total of $54/barrel in operating costs (not including the capital cost). The $60 number is only operating costs, not including capital costs. Most of the bitumen deposits are deep underground, and the technology to tap them is still under dev elopment. Conclusions CTL has great promise to prov ide liquid fuels after conv entional oil production peaks, allowing the world economy to grow. It will probably not comprise a large fraction of oil consumption. Construction of the required mines, transportation, and CTL refineries takes too long, and global coal reserv es might not suffice by the time so many plants were built in 20-50 y ears. Most importantly , it will not be cheap oil. Its one part of the solution for the nex t sev eral generations. Not the largest part, and certainly not a panacea. (5) For m ore inform ation Studies and reports about coal and CTL: 1 . NERL Worldwide Gasification Database , National Energy Technology Laboratory 2. The Role of Sy nthetic Fuel In World War II Germany , Peter W. Beckwe, Air Univ ersity Rev iew, July -August 1 981 3. The first major study questioning the actual ex tent of coal reserv es: The Peak in U.S. Coal Production, Gregson V aux , 27 May 2004 4. The Future of Coal, B. Kav alov and S. D. Petev es, Prepared for European Commission DG Joint Research Centre Institute for Energy (JRC IFE), February 2007 5. More ev idence that reserv es are ov erstated: COAL OF THE FUTURE (SUPPLY PROSPECTS FOR THERMAL COAL BY 2030-2050), Energy Edge Limited, Prepared for the European Commission DG Joint Research Centre Institute for Energy (JRC IFE), February 2007 6. More ev idence that reserv es are ov erstated: Coal: Resources and Future Production, Energy Watch Group, March 2007 (47 pages, PDF) 7 . The Future of Coal an interdisciplinary MIT study , MIT, March 2007 8. The major study showing reserv es are ov erstated: Coal: Research and Dev elopment to Support

National Energy Policy , National Academies, June 2007 9. Coal-to-Liquids in the United States Status and Roadmap, National Energy Technology Laboratory , June 2008 1 7 CTL plants in early stages (planning or engineering)