IN THE PIPELINE: Coal-Based Liquid Fuel Gaining Interest
By DINAH WISENBERG BRIN
May 30, 2006 11:00 a.m.
of DOW JONES NEWSWIRES
PHILADELPHIA -- Coal's sooty, Industrial Age image may be giving way to an updated vision: coal transformed into clean-burning liquid fuel that can power military jets and, ultimately, reduce U.S. dependence on foreign oil.
With crude oil prices near $70 a barrel, U.S. military officials have stepped up the pace of research on alternative fuels, including jet fuel derived from coal, and are working with industry, other federal agencies, states and universities.
American companies are investing in coal-to-liquid fuel technologies for transportation as well.
"It's an economic security issue as well as a national security issue," U.S. Air Force Assistant Deputy Chief of Staff Michael Aimone said in an interview.
The Air Force, which accounts for more than half of total U.S. government fuel consumption and spends around $4.5 billion a year on jet fuel, intensified its focus on coal-derived liquid fuels after hurricanes Katrina and Rita "created such havoc in the energy markets," Aimone said.
The Air Force learned recently that its average fuel bill will increase by 57 cents a gallon as of June 1, and last June, before the hurricanes, the price rose 40 cents a gallon, he said.
Defense Secretary Donald Rumsfeld has mandated that each military service explore assured energy sources, domestic sources of energy that don't require foreign petroleum, Aimone said.
South African Precedent
The Air Force is preparing to conduct its first flight test with an alternative to standard jet fuel in September, when it plans to use a blend of conventional petroleum-based jet fuel and synthetic fuel derived from natural gas, not coal, to fly a B-52. That test is considered a key step in the military's coal-to-liquid effort, as the same process is used to make the fuel and the final product is similar, whether derived from natural gas or coal.
Syntroleum Corp. (SYNM) of Tulsa, Okla., is to provide the fuel for the test.
With jet fuel prices outpacing crude in recent years, alternatives may appeal to the commercial airline industry.
"The basic thinking is that the synthetic fuels become economically viable when oil prices reach $50 a barrel," said John Heimlich, chief economist with the Air Transport Association, the trade organization for the major U.S. airlines. With oil prices below that, purchasers are better off with standard jet fuel, he said.
The Defense Department has briefed the ATA and about its coal-to-liquid fuel effort.
"It's something we're monitoring," Heimlich said. "Any incremental supply, especially if economically viable and environmentally friendly, is something in which we're interested, but it's not necessarily a viable prospect anytime soon." South Africa already commercially produces an alternative jet fuel.
For the past seven years, aircraft flying from Johannesburg International Airport have used a semi-synthetic blend of 50% jet fuel from coal produced at a Sasol Ltd. (SSL, SOL.JO) coal-to-liquids refinery, and 50% derived from traditional crude oil refining, Sasol says.
"Sasol has clearly demonstrated that synthetic jet fuel can be produced from coal; it has been proven in commercial use," a company representative said via e-mail. Sasol hopes to win final approval for use of 100% synthetic fuel, also derived from coal, this year.
The South African company said tests conducted in conjunction with the U.S. Department of Defense "confirmed the clean-burning and thermal stability of our jet fuel." Last fall, Sasol said it was in the early stages of evaluating coal-to-liquids opportunities in the U.S.
Exploring Alternatives
In the last century, the Nazi military relied heavily on synthetic fuel derived from coal, and U.S. Gen. George S. Patton syphoned some of it to continue the march to Germany, according to the Department of Energy. The U.S. government showed interest in coal-to-liquid fuel during the 20th century but it was never fully developed.
The U.S. military today is exploring more than one method of transforming coal into liquid fuel. The Fischer-Tropsch process, which Sasol uses, transforms a synthesis gas made from coal or other feedstock into liquid fuel.
The fuel for the B-52 flight test is manufactured with that process, using a natural gas feedstock. This resulting fuel has no sulfur content and burns much more cleanly than diesel or regular jet fuel, Aimone said.
New plants that might be built to meet demand for such jet fuel could generate profitable byproducts, such as carbon dioxide and electricity, Aimone said.
WMPI PTY LLC of Gilberton, Pa., is working to develop the nation's first waste coal-to-clean fuels complex in the anthracite fields of Pennsylvania. The company aims to break ground this year on the plant, which would turn waste coal into zero-sulfur diesel fuel or jet fuel.
The project has received commitments for $100 million in DOE grants and $47 million in state tax credits, contingent on other financing. Pennsylvania Gov. Edward D. Rendell created a consortium last fall to buy diesel fuel from the plant and agreed to purchase the fuel for state vehicles. DOD officials have expressed interest in the facility.
WMPI President John Rich Jr. said he is negotiating license agreements to use Sasol's Fischer-Tropsch process, Royal Dutch Shell PLC's (RDSA) Shell Global Solutions' gasification technology and another key technology from Chevron Corp.'s (CVX) and ABB Lummus Global's Chevron Lummus Global LLC.
Pioneering Pennsylvania
Separately, a subsidiary of DKRW Advanced Fuels LLC of Houston recently signed an agreement to use General Electric Co.'s (GE) coal gasification technology for a proposed coal-to-liquids faciltiy in Medicine Bow, Wyo. The plant aims to pipe diesel and other fuels to energy companies in the region. DKRW also agreed to buy coal from Arch Coal Inc. (ACI) and to license RENTECH Inc.'s (RTK) Fischer-Tropsch technology.
Edward Lowe, general manager of gasification for GE Infrastructure Technology LLC's energy business, said in a March statement that while GE's gasification technology is being used in more than 60 plants worldwide, "this will be the first application of our technology for making transportation fuel from coal."
Coal also can be turned to liquid fuel by dissolving it and refining the resulting thick liquid like traditional crude oil.
A Penn State University researcher, funded by the Air Force and the Department of Energy, is developing two processes that he claims are different from conventional coal liquefaction methods and says he has powered a helicopter jet engine with a fuel derived at least 50% from bituminous coal. That fuel could be produced in existing, slightly modified oil refineries, Prof. Harold H. Schobert said. The fuel, produced at a pilot plant run by Intertek Group PLC's (ITRK.LN) Intertek PARC Technical Services in Harmarville, Pa., contains lower levels of aromatics like benzene and toluene than conventional jet fuel, and is almost free of sulfur, according to Schobert.
Penn State plans to host a jet fuels summit on June 7 and has received indications of interest from two major oil companies and a jet engine manufacturer, said Schobert.
The state of Montana, which sits on 120 billion tons of coal, is pursuing development of coal-to-liquids technology as well. The state's Web site, which says a barrel of synthetic fuel costs about $35 to produce, estimates that if the federal government became meaningfully invested in the concept, the U.S. could have a strong synthetic fuel industry by the next decade.
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