Getting Burned
Andrew T. Gillies, 09.05.07, 5:50 PM ET
forbes.com
Washington, D.C. -
As the table below indicates, Wall Street has cooled on the coal business lately. Particularly hard hit, in share price terms at least, have been two concerns, Headwaters and Rentech, specializing in turning coal into liquid fuel.
At a Wednesday hearing on Capitol Hill, those two companies pleaded for Washington to nurture the fledgling coal-to-liquid industry.
“Oil price volatility continues to discourage potential [coal-to-liquid] investors,” Robert Freerks, Rentech’s (amex: RTK - news - people ) director of product development, told the House Committee on Science and Technology’s Subcommittee on Energy and Environment. “Congress should enact policy to help reduce risk and encourage investment in these plants.”
“Until we get the first few plants built, there’s tremendous resistance from the private capital market,” agreed John Ward, Headwaters' (nyse: HW - news - people ) vice president for marketing and government affairs (note: half of Headwaters’ sales come from residential construction materials).
As we’ve observed elsewhere, (See: "Its Not Easy Being Green"], Washington tends to stand by long-shot energy technologies, even after the stock market has given them the thumbs-down. But the members at today’s hearing weren’t an easy audience.
Some background: coal-to-liquid (CTL) technology has been around since the 1920s and was honed by Germans as they struggled to find petroleum substitutes during the Second World War. CTL begins with the feedstock (coal), which is subjected to intense heat and pressure to create a gas comprised of hydrogen and carbon monoxide. The gas gets cleaned of impurities (mercury, sulfur), then gets put through a catalytic chemical reaction, known as Fischer-Tropsch, to make it into liquid fuel.
Over the decades, the advance of CTL technology has staggered forward, periodically tripped up by declines in oil prices. In 2000, Congress designated domestically produced Fischer-Tropsch fuels as an “alternative fuel.” The Energy Policy Act of 2005 added tax credits, loan guarantees and other incentives for CTL. And as we reported (See: "Coal's Many Friends"), recent high oil prices have prompted congressional proposals for CTL mandates, one worth as much as $8 billion.
At today’s hearing, however, the coal crowd caught flak from the left and right. “Perhaps I could be convinced that coal-to-liquid is a good idea for transportation purposes, but I come with great skepticism about whether it could work or whether it’s desirable,” said ranking subcommittee member Rep. Bob Inglis, R-S.C.
“Why don’t you just burn the coal?” carped Roscoe Bartlett, R-Md. “There’s no better way to get energy out of any product than simply to burn it.”
Fellow panelists also took shots at CTL. David Hawkins, director of the Natural Resources Defense Council’s Climate Center, pointed out that even if 85% of the greenhouse gas from CTL production could be captured and stashed below ground, that would mean a 20% increase over greenhouse gas emissions from conventional fuels.
“Coal-to-liquid is just a dead end, from a climate perspective,” added Joseph Romm, a senior fellow at the liberal-leaning Center for American Progress. “Liquid coal will not have a future in this country, no matter how much money Congress squanders on it.”
To be sure, Headwaters and Rentech’s reps gave as good as they got, arguing CTL could serve as a transition to nascent energy sources like hydrogen and biomass. They also vigorously framed the issue as one of economics and national security. “Some of the dollars we now send overseas to buy oil would be kept at home to develop American jobs utilizing American energy resources,” argued Headwaters’ Ward.
Those arguments seemed to please some members, particularly those who acknowledged having CTL operations in their states. But the debate left others unsatisfied. “I’ve got, like, 100 more questions,” said Rep. Baron Hill (D-Ind.) after five minutes of questioning the panel.
Here’s a question--given recent market weakness, is the coal biz a stock buy now? In a note to clients today, Arlington investment bank Friedman, Billings, Ramsey warned of headline risk through October as Congress takes up coal-related topics such as climate change and mountaintop-removal mining techniques. In the table below, certain stocks look cheap relative to valuation history. But buyers may want to wait a few months.
[Tabele won't format -- use link above] |
