US Senate Committee Convenes Hearing on Coal-to-Liquids

25 April 2006

The US Senate Committee on Energy and Natural Resources held a full-committee hearing on the economic and environmental issues associated with coal-to-liquids processing, and on the implementation of the provisions of the Energy Policy Act of 2005 addressing CTL.

Testifying at the hearing were Dr. Clarence Miller, of the Department of Energy (DOE); Dr. Arie Geertsema, University of Kentucky; Dave Hawkins, NRDC; Hunt Ramsbottom, Rentech (the only Fischer-Tropsch vendor in this session); and James Roberts, Foundation Coal Corporation.

There are two basic processes for Coal-to-Liquids production: direct and indirect. In direct liquefaction, coal is first reacted with hydrogen and process solvent at high temperature and pressure to produced a coal-derived liquid or synthetic crude oil.

The indirect process—the Fischer-Tropsch process—first breaks down the coal into a synthesis gas high in carbon monoxide and hydrogen, and passes the syngas over metallic catalysts to produce pure hydrocarbons. The process is essentially the same for Gas-to-Liquids and Biomass-to-Liquids.

Hydrocarbons produced by the Fischer-Tropsch (FT) process are excellent transportation fuels, with high cetane numbers, low aromatics and ultra low-sulfur content. Although clean-burning in terms of criteria pollutants, however, they are still hydrocarbon fuels derived from fossil resources. Use of FT fuels thus doesn’t reduce CO₂ emissions relative to conventional petroleum fuels, and the production of FT fuels is, at best, equivalent in CO₂ output to conventional petroleum refining and at worst is much higher.

The US Government has supported R&D on both direct and indirect liquefaction technology for more than 30 years—reaching back to the time of the first oil crisis in the 1970s.

According to Clarence Miller, the Director of the Office of Sequestration, Hydrogen, & Clean Coal Fuels Office of Fossil Energy (part of the Department of Energy), the technology is ready, but the barrier to commercialization is the market.

Technology is now in hand for producing synthetic oil, and oil products from coal. Liquid fuels from coal are clean, refined products requiring little if any additional refinery processing, are fungible with petroleum products and, therefore, can use the existing fuels distribution and end-use infrastructure.

The greatest market barrier for CTL is the volatility and uncertainty of future world oil prices.

—Clarence Miller

According to some estimates cited by Miller, initial costs for CTL from first-of-a-kind plants will be around the $45 per barrel range. That cost per barrel could drop to $35 after several initial higher cost plants are built. The $35/barrel assumes near-zero atmospheric emissions of criteria pollutants, assumes reduced water use through air coolers instead of water cooling, and assumes carbon capture and sequestration.

Miller cited a number of other impediments to deploying CTL technologies in addition to uncertainty over oil prices:

• High capital investment for the plants;

• Technical and economic risks associated with first-of-a-kind plants;

• Environmental concerns associated with increased coal production and the coal to liquids industrial process, especially water demand (which will remain a key constraint in regions with limited water resources) and land impact;

• Public attitude to increased coal use;

• Siting and “not in my backyard” issues for new plants; and

• Increasing the supply of coal given a supply chain that is already stretched to capacity.

The technology that underlies CTL fuel production offers the potential for low emissions of criteria and toxic air pollutants, water quality, and solid wastes. Nonetheless, this promise of high performance needs to be verified during the design and initial operations of first-of-a-kind CTL plants and costs may be prohibitively expensive.

At present, no requirements exist in the United States to manage carbon emissions from fossil fuel sources. However, in full recognition of the importance of carbon management an extensive research and development program is underway to develop technology, processes and systems to capture and store the carbon dioxide produced during the conversion process.

The carbon dioxide could be stored in deep saline formations or sold for use in enhanced oil recovery operations. It is possible that CTL plant emissions and the emissions from utilization of CTL products would be comparable to those associated with the production and consumption of petroleum-based fuels.

—Clarence Miller

Whether the technology is ready or not, and regardless of whether or not the market is ready to take a 30-year gamble on oil prices to fund the development of CTL plants, David Hawkins, Director of the NRDC’s Climate Center, proposed that such development is a bad idea.

To assess the global warming implications of a large coal-to-liquids program we need to examine the total life-cycle or well-to-wheels emissions of these new fuels. Coal is a carbon-intensive fuel, containing double the amount of carbon per unit of energy compared to natural gas and about 50% more than petroleum.

When coal is converted to liquid fuels, two streams of CO₂ are produced: one at the coal-to-liquids production plant and the second from the exhausts of the vehicles that burn the fuel...with the technology in hand today and on the horizon it is difficult to see how a large coal-to-liquids program can be compatible with the low-CO₂-emitting transportation system we need to design to prevent global warming.

—David Hawkins

Hawkins also cited concerns about conventional pollution (Sulfur oxides, nitrogen oxides, particulate matter, mercury and other hazardous metals and organics); the mining, processing and transporting of coal; terrestrial habitats; water pollution; and air pollution.

The impacts that a large coal-to-liquids program could have on global warming pollution, conventional air pollution and damage from expanded coal production are substantial. Before deciding whether to invest scores, perhaps hundreds of billions of dollars in a new industry like coal-to-liquids, we need a much more serious assessment of whether this is an industry that should proceed at all.

Fortunately, the US can have a robust and effective program to reduce oil dependence without rushing into an embrace of coal-to-liquids technologies. A combination of efficiency, renewable fuels and potentially, plug-in hybrid vehicles can reduce our oil consumption more quickly, more cleanly and in larger amounts than coal-to-liquids even on the massive scale...

—David Hawkins

For his part, Hunt Ramsbottom, the CEO of Fischer-Tropsch company Rentech, noted that Rentech was in the process of developing a commercial-scale CTL plant due to go online by 2010—the converted East Dubuque plant. (Earlier post.) Rentech is also exploring developing a second CTL plant (Natchez; earlier post). That plant will, according to Ramsbottom, pursue 100% carbon capture.

There, we are pursuing opportunities for 100% capture and storage of carbon. Our carbon dioxide output would be pumped into nearby older oil well fields, both helping to produce additional oil by forcing out additional supplies and trapping the carbon underground.

—Hunt Ramsbottom

Rentech just completed a $113-million financing through an offering of common stock and convertible senior notes.