Consol Certain of Plant's Viability: ; One of the Northern Panhandle Project's Advantages is Its Relatively Small Size
By: iStockAnalyst Thursday, July 31, 2008 10:51 PM
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By GEORGE HOHMANN
A Consol Energy Inc. executive said the company is sure a $800 million coal-to-gasoline plant to be built in Marshall County will be economically viable.
"We're highly confident that the plant will be viable under any conceivable future energy price scenario," said Paul Spurgeon, Consol's vice president of power development and coal conversion projects.
Gov. Joe Manchin, Consol and Synthesis Energy Systems Inc. announced Monday that the companies have formed a joint venture to build a coal-to-gasoline plant - the state's first - at Benwood.
Worries about the long-term economic viability of coal-to- liquids projects have caused other plans to falter. Oil priced at $125 barrel makes many projects viable. But investors fret that the price could decline, turning billion-dollar investments into white elephants.
Jeffrey Jarrett, the U.S. Department of Energy's former assistant secretary for fossil energy, told a group of executives here last year that a single coal-to-liquids plant that would produce fuel competitive with $50-a-barrel oil would probably cost $8 billion. He asked who would want to invest in a plant that would be stranded if oil fell below $50 a barrel.
"The big state-owned oil companies can put a coal-to-liquids plant out of business just for grins," he said.
Spurgeon declined to talk about the specific economics of the Benwood project but did explain some of the features he said make it viable.
One of the project's advantages is its small size. The estimated $800 million cost is a fraction of the multi-billion-dollar price tag associated with other coal-to-liquids projects.
But Spurgeon said the most important factor working in the Benwood project's favor is the fact it will use a mix of raw coal and residual coal as a feedstock.
Both the raw coal and the residual coal will initially come from the preparation plant that serves Consol's Shoemaker Mine.
When the coal comes out of the ground in raw form, it goes into a preparation plant. There are two waste streams from that plant: A very coarse material that's typically disposed of in a gob pile or used to build a dam, and material known in the business as "fines."
The Benwood project can use both waste products but because the heat content is higher in the fines, "we'll be using primarily the fines," Spurgeon said. Because it is waste, "it doesn't cost us anything," he said. "So our fuel cost will be much lower than other plants you've been reading about."
The Benwood project can use coal waste because Synthesis Energy Systems' proprietary U-GAS gasifier "can gasify coal in a very high- ash feedstock, up to about 40 percent, whereas other technologies that operate at a higher temperature require a very low-ash coal," Spurgeon said.
"We're going to use it (fines) directly out of the preparation plant for as long as the mine is operating," he said. "After the mine closes, we can go back and get many years of fine waste that's impounded in the hollows all over the state.
"Right now the plant is designed for 70 percent raw coal, 30 percent fines," he said. "But we have the option of pelletizing the fines. The pellets would be a quarter-inch in size. It's very common to make pellets. We will determine in our engineering studies how much we can increase the use of fines, because that's essentially free fuel."
Which is why the economics of this project works better than projects that use washed coal, he said.
The Shoemaker Mine is just 1 1/2 miles away and Consol's McElroy Mine also is nearby. That means transportation costs will be minimal, which "is another reason this plant is more economically viable," he said.
The U-GAS gasifier operates at a lower temperature than other processes.
"It doesn't melt the ash in the coal," Spurgeon said. "If you melt the ash, that takes a lot of energy and makes the gasifier inefficient. A big advantage of the U-GAS gasifier is the low temperature. The $4 billion to $5 billion projects that get most of the publicity are melting the ash. They therefore require low-ash, washed coal that costs $80 to $100 a ton. They produce more but are not as efficient.
"Ours is efficient and is also a smaller scale. We don't have much flat land in West Virginia. Our project will fit on 65 acres, although we will have just over 100 acres. So we can easily fit this plant on the Benwood site and have room to expand."
Because of the project's relatively small scale, modular construction can be used for some of the key components.
"Some bigger plants have to be largely fabricated on site because you can't transport some of the huge vessels needed on a barge or a rail car," Spurgeon said.
The Benwood project will produce about 720,000 metric tons of methanol a year or 100 million gallons of 87-octane gasoline a year - or a combination of the two products.
Spurgeon explained that the U-GAS technology heats up the coal but controls the oxygen, "so instead of burning it for heat, we change coal from a solid to a gas. The gas still has a lot of things in it, many of which you want to remove.
"The next phase is clean up. You take the sulfur in the form of hydrogen sulfide; carbon dioxide; and particulates out," he said.
The plant will produce an estimated 50,000 tons of sulfur a year, which will be sold.
Carbon dioxide is a greenhouse gas. Consol and Synthesis Energy Systems have said the plant design will include a plan for carbon sequestration, which is the process of trapping carbon dioxide and pumping it underground.
"We haven't drilled the site" to determine the geology, Sturgeon said. However, "we know from the West Virginia Geological Survey and from oil drilling in the area that we have good geology for sequestration in deep saline aquifers.
"We also know there's likely to be significant natural gas reserves in Devonian Age shales in the area below the plant. So as part of this next stage of engineering, we'll determine more specifically the details about how we handle carbon dioxide. We think sequestering it or using it to help produce natural gas in these deep formations is what we'll be doing with the CO2."
After the clean-up phase of the process, "we're left with carbon monoxide and hydrogen," he said. "We take them and add a chemical catalyst and make raw methanol."
The raw methanol can be converted into chemical-grade methanol or, using technology from ExxonMobil, converted into gasoline.
Chemical companies use methanol to make formaldehyde and acetic acid, which is mainly used to make insulation.
"There's a DuPont plant in Parkersburg, which is fairly close, that uses methanol," Spurgeon said. "And there are quite a number of formaldehyde plants in the east that could take this product by barge or rail. The market in the United States is about 8 million metric tons (a year). It's virtually all imported now. We've lost methanol capacity in this country and this is another advantage to having this plant in this area."
If the output were converted into gasoline, it could produce 100 million gallons a year.
"That market is huge, so this is a drop in the bucket," Spurgeon said. "We would sell the gasoline wholesale to a local distributor. It would be blended in a vast ocean of regular gasoline for sale to retailers."
Consol and Synthesis Energy Systems are currently negotiating with ExxonMobil to license that company's methanol-to-gasoline technology. "We expect to reach an agreement with ExxonMobil for a license very shortly," Sturgeon said.
Asked for more details about the Benwood project's operating costs, Sturgeon said, "I hesitate to give you a precise number, but we expect our operating costs to be below any conceivable future price of gasoline or methanol.
"But we do have $800 million we have to amortize," he said. "We will have power costs, and 60 or so full-time employees. We'll have to buy raw coal, to the extent we use it. So we do have some costs, of course. But we believe our costs will be low enough."
Monday's announcement goes a long way toward making good on Gov. Manchin's December 2005 vow to have a coal liquefaction plant built in the state "by the end of my first term," which is January 2009.
At the Bluefield Coal Show last September, Manchin said, "The nation needs to put a (price) floor on oil of say $50 a barrel. If oil artificially drops to $30 or $35 a barrel because the cartel is trying to drive out coal-to-liquids plants, then the federal government steps in and a credit is given. If oil spikes to $70 or $75 a barrel, you can have a debit. We know this works. We're not asking for a subsidy. We're asking for stability."
Manchin's call hasn't gained traction in Washington, D.C.
The Governor's office said Monday that Consol, Synthesis Energy Systems, the state and the Regional Economic Development Partnership had signed a memorandum of understanding under which the state and the partnership will provide financing and tax incentives to the project over a 10-year period.
Neither Don Rigby, executive director of the Regional Economic Development Partnership, nor Spurgeon were willing to disclose memorandum details on Wednesday. But when asked about financing, Spurgeon said:
"We will finance this primarily with bank debt. That will be the proof - if we can get financing. So far we have indications we can. As a consequence, we're not asking the government for floor prices or loan guarantees or anything like that."
Contact writer George Hohmann at business@dailymail.com or (304) 348-4836.
Originally published by DAILY MAIL BUSINESS EDITOR.
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