Liquid fuel conversion renews coal's promise
Firm to use proven, but costly, process as alternative to oil
Dennis Schroeder © News
rockymountainnews.com
[ Photo Caption ]
Guadalupe Sanchez works to clear the former site of Sand Creek Energy in Commerce City. Denver-based Rentech will build a pilot plant on the site to show its process to turn coal into liquid fuel. With the nation sitting on more than 250 years' worth of coal supply, the technology could have tremendous ramifications for Western states, including Colorado.
By Gargi Chakrabarty, Rocky Mountain News
March 18, 2006
Even before President Bush, in his State of the Union address, promised to break what he called the nation's "addiction to oil," many American companies already were working furiously to find alternatives to foreign oil.
And Denver-based Rentech Inc. aims to be at the forefront of a unique alternative technology.
The process would allow the company to convert gas - squeezed out of Colorado's abundant coal - into ultraclean diesel, naphtha and jet fuel.
That has never been done in the United States, and Rentech wants to be the first company to try. With the nation sitting on more than 250 years' worth of coal supply, the technology could have tremendous ramifications for Western states, including Colorado.
Rentech hired the consulting firm of former Energy Secretary Spencer Abraham last month to provide "strategic advice and assistance."
"The technology is truly efficient and economical," said Claude Corkadel, Rentech's vice president of strategic programs. "But the biggest thing is, our economic analysis shows this technology is better anytime crude oil is at $40 a barrel or higher."
Currently, crude price is hovering above $60 a barrel.
Rentech was founded in 1981 to explore alternative fuels. Its technology, which converts gas into liquid fuels, is not new.
The reaction, called Fischer- Tropsch, was invented by German scientists Franz Fischer and Hans Tropsch in 1926. It was used by the Germans, who had coal but little access to petroleum, to produce motor and aviation fuels during World War II.
After languishing for decades, it has found favor in recent years as geopolitical instability has pushed up crude prices.
In the U.S., three companies - Exxon Mobil, Conoco Phillips and Syntroleum - plan to use the Fischer-Tropsch technology at their demonstration plants. But all three intend to use natural gas instead of coal to produce the fuels.
Until now, only Sasol has used the technology, in South Africa, to convert gas derived from coal to produce diesel.
And now, Rentech wants to demonstrate the coal-to-liquids technology in Colorado. It is preparing a site in Commerce City to build a pilot plant. At a cost of $22 million to $25 million, the plant is scheduled to begin construction in August and start production next year.
The plant will demonstrate the coal-to-liquid-fuel process and will produce 10 to 15 barrels a day of fuel samples for potential customers such as the Defense Department and the state of California.
"Coal is a relatively inexpensive form of energy compared to petroleum, and the United States has abundant reserves of it," said Bob McCormick, a senior engineer at the National Renewable Energy Laboratory in Golden who is familiar with the coal-to-liquids technology. "There is benefit to converting coal to liquid fuels."
But McCormick doubts Rentech's economic analysis.
"I have not evaluated Rentech's technology, but $40 a barrel seems far-fetched to me," McCormick said.
That's because gasifying coal is costly and only a handful of companies such as General Electric and Shell are trying it on a commercial scale.
There also are concerns about the technology's energy balance.
McCormick argues that it takes more energy to produce the Fischer-Tropsch fuel from coal than the energy derived from it. But the same is true of petroleum, he adds.
David Pimentel, a professor at Cornell University widely known for his research in alternative fuels, favors Fischer- Tropsch diesel over ethanol or biodiesel. Both ethanol and biodiesel are derived from agricultural products such as corn or soybeans and blended with conventional fuel before use in cars or trucks.
"This is much better than importing oil from foreign countries," Pimentel said. "It is true it takes 2 btu to get 1 btu, but ethanol does the same. It is better than ethanol, whose environmental impacts are 10 times worse than turning coal to liquids."
A British thermal unit, or btu, is a unit of energy that can raise the temperature of 1 pound of water by 1 degree Fahrenheit.
Pimentel said corn - used to make ethanol - causes more soil erosion and uses more nitrogen fertilizer than other crops. Nitrogen fertilizers are typically produced from natural gas.
Also, the production of 1 gallon of ethanol requires 1,700 gallons of water and the process generates 12 gallons of waste. The coal-to-liquids technology would have none of these issues, he said.
Rentech seems to be on Wall Street's radar.
Its stock price has jumped fourfold in the past year, from $1.10 a share in March 2005 to more than $4.50 a share this week.
The company has yet to log a profit. For the quarter ended Dec. 31, 2005, Rentech posted a net loss of $5.7 million on revenues of $1.92 million. But the loss included $2.5 million of noncash charges.
It had cash on hand of about $29.5 million.
At the current rate, it will burn through its cash in five quarters unless there is fresh infusion of money or its revenues improve.
But Rentech executives are not worried.
"We have stayed alive for the past 25 years," said Claude Corkadel, Rentech's vice president of strategic programs. "Investors in the company are willing to take a risk because they have so much faith in the technology."
It helps that Rentech's technology qualifies for tax breaks under the Energy Act of 2005.
Rentech recently secured $35 million in debt financing. The proceeds would go toward its acquisition of an existing nitrogen fertilizer plant in East Dubuque, Ill. The $50 million deal has yet to be closed.
Rentech plans to switch the plant's fuel from natural gas to coal by 2009. Thereafter, it will use the Fischer-Tropsch technology to produce 1,750 barrels of fuel per day, 24 megawatts of electricity and 920 tons per day of ammonia fertilizer, all from coal.
"We have made full disclosures, and the investment community knows we don't have all the money and we are going to need the money," Corkadel said. "But they are right there with us, believing in this technology moving forward."
Renetch has the option to tap equity markets to raise additional money. It plans to raise another $800 million as disclosed in its recent filings with the Securities and Exchange Commission.
Rentch also has signed a licensing agreement to lend its technology to Medicine Bow Fuel & Power LLC, a subsidiary of Houston-based DKRW Advanced Fuels LLC. DKRW is planning to build a coal-to-liquids plant in Wyoming using coal from the Carbon Basin.
chakrabartyg@RockyMountainNews.com or 303-892-2976 |
