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Witness Panel 1
Dr. Clarence MillerOffice of Sequestration, Hydrogen, & Clean Coal Fuels, Office of Fossil Energy
Statement of Clarence L. Miller
Office of Sequestration, Hydrogen, & Clean Coal Fuels
Office of Fossil Energy
U.S. Department of Energy
Committee on Energy and Natural Resources
United States Senate
April 24, 2006
The United States’ future economic security will remain linked to an efficient transportation system of air, rail, and highway vehicles that depend on a continuous supply of affordable liquid fuels with characteristics enabling vehicle manufacturers to meet increasingly stringent environmental regulations. In the current supply/demand situation, the Nation’s transportation fuel requirements are met in part by crude oil and refined products from unstable regions of the world. Crude oil delivery and refining in the Untied States is concentrated in the Gulf Coast region, which presents concerns regarding destructive weather conditions. Additional challenges, including urban and regional air pollution, greenhouse gas emissions, and the availability and cost of transportation fuels, present unique issues that must be addressed to safeguard economic growth, social stability and public health.
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. There are preliminary analyses [Mitretek Technical Report 2005-08, “A Technoeconomic Analysis of a Wyoming Located Coal-To-Liquids Plan”] that indicate synthetic oil costs may drop into the $35 per barrel range after several initial higher cost plants are built. This estimate 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. However, no commercial U.S. plants have been built. The primary barrier to commercial introduction of the technology has been the volatility and uncertainty of world oil prices. The private sector financial markets are best positioned to evaluate whether, when, and how to build coal to liquids plants given this market uncertainty.
Coal is the most abundant fossil fuel resource in the United States. Recoverable coal reserves are estimated (as of January1, 2005) at 267 billion tons. As coal mining technology improves and additional geological information becomes available, this reserve estimate will grow, since it is based on current mining methods and the measured and indicated reserves within a total U. S. coal resource base estimated at nearly 4 trillion
tons. These coal resources are widely distributed throughout the United States with recoverable reserves located in 33 states.
Based on current annual production of nearly 1.1 billion short tons, the United States has an approximate 250-year supply. However, this estimate needs to be placed within the context of the projected use of domestic coal in the United States and how coal reserves and resources are defined and quantified. To the first point, the Energy Information Administration (EIA) projects a steady rise in coal consumption to 1.78 billion short tons by 2030 in its reference case forecast. The increase is largely due to the projected increase in new coal-fired power generating capacity, projected to increase at 1.7% per year through 2030. To the second point, the EIA estimates the "demonstrated coal reserve base" at 494 billion short tons. With anticipated advances in mining technology, there is the potential to access a significant portion of the reserve base, and support some degree of increased production of coal for a coal-to-liquids industry.
Background: Coal to Liquids Production
Production of liquid fuels from coal has a long history, and the significant advances made in technology over the past two decades make it a potential component of a strategy to increase domestic production of liquid fuels. In the early 1900’s coal was first reacted with hydrogen and process solvent at high temperature and pressure, and produced a coal-derived liquid or synthetic crude oil. This direct liquefaction approach was later improved and used by Germany in the second world war to fuel the Luftwaffe with high octane aviation gasoline. In the 1920’s two German scientists, Fischer and Tropsch, passed synthesis gas – consisting of carbon monoxide and hydrogen – over metallic catalysts and produced pure hydrocarbons. These hydrocarbons produced by the Fischer-Tropsch (FT) process proved to be excellent transportation fuels. This overall coal-to-liquids process, known as indirect liquefaction because it first involves complete breakdown of the coal to synthesis gas, was used commercially in the 1950’s by the South African Synthetic Oil Corporation (SASOL) to produce transportation fuels (gasoline and diesel) using synthesis gas produced by the gasification of coal. Since then, SASOL has built two large facilities that produce over 150,000 barrels per day of transportation fuels. The South African government enabled these plants to be built by providing a price floor safety net for SASOL’s coal liquids. In both cases, Nazi Germany and Apartheid South Africa, the primary motivation for government support of coal liquids was that the countries were not able to access world oil markets.
The U.S. Government – directly and through industrial partnerships and international cooperation – has for over 30 years supported R&D on both direct and indirect technology. The Government programs resulted in improved processes, catalysts and reactors. These indirect liquefaction of coal processes produce clean, zero sulfur liquid
fuels that are cleaner than required under the EPA Tier II fuel regulations. These fuels are compatible with petroleum fuels and can utilize the same distribution infrastructure. Because these fuels are essentially refined products, very little if any additional refinery capacity would be needed for their upgrading. Indirect liquefaction technology has a proven track record and is technically viable. Although SASOL has successful commercial plants in operation, the integration of modern entrained-flow coal gasification with advanced slurry-phase FT synthesis has not yet been demonstrated. Preliminary studies [Mitretek Technical Report 2005-08] indicate that first plant costs would have products in the $45 per barrel range, but no commercial U.S. plants have been built, making cost estimates difficult. Still more difficult to estimate is the cost of production for subsequent plants, but these studies indicate that coal liquids might eventually be produced in the $35 per barrel range if domestic construction experience is gained. However the principal market barrier discussed would remain. China, with an increasingly large appetite for liquid fuels, scarce supply of domestic petroleum and large coal resources, is reportedly moving toward commercialization of coal-to-liquids technologies. In the U.S. demonstration plant to produce liquid transportation fuels from anthracite waste was competitively selected in January 2003 under DOE’s Clean Coal Power Initiative. However, the project has been unable to obtain financing for the private sector cost share.
Opportunities and Impediments
As noted, the U.S. is endowed with over 267 billion tons of recoverable coal reserves, equivalent to 250 years supply at current usage rates. The opportunity exists to use coal-to-liquids (CTL) technologies to produce clean transportation fuels that could supplement petroleum supply if world petroleum prices remained elevated over the approximately 30-year time horizon required to pay back the significant initial capital investment.
Despite current world oil prices, there are significant existing impediments to deploying CTL technologies: first and foremost, the uncertainty and volatility of the world oil price; high capital investment for the plants; technical and economic risks associated with first-of-a-kind plants; environmental concerns associated with increase coal production and the coal to liquids industrial process; 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. Over the long term, the capital cost of the plants could be reduced by the experience gained in the actual construction and operation of commercial facilities. It is well documented that first-of-a-kind plants are always significantly more costly than subsequent or Nth plants. While coal liquids technology is proven, the domestic construction industry has an opportunity to reduce its costs with increased experience. Environmental concerns can be addressed by using clean coal technologies to reduce emissions of criteria pollutants, and in the future to capture and sequester carbon dioxide to limit greenhouse gas emissions. Siting issues can be mitigated by maximizing retrofit opportunities at existing coal-fired power plants.
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. Significant water demand will remain a constraint on CTL fuel production, particularly in regions with limited water resources. Other key environmental issues are the impacts on land, land use and watersheds caused by coal mining and the traffic and local development associated with CTL plant construction and operations. These considerations may prevent the construction of CTL plants in particular areas. However, coal resources suitable for CTL fuel production are widely distributed throughout the United States. The impact of site-specific environmental constraints on the development of a
strategically significant CTL industry will depend in part on how environmental regulations are applied on local, regional, and national levels. Permitting delays should be anticipated, especially in view of the large size of and lack of experience in operating CTL plants. Even if the environmental risks are addressed, there is a very good possibility of public reluctance to accept the need for large new industrial facilities, particularly those using coal.
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.
The greatest market barrier for CTL is the volatility and uncertainty of future world oil prices. The private sector is best positioned to evaluate market or oil price risk and respond accordingly with an appropriate deployment strategy.
Although past department efforts and some Congressionally directed funding has focused on production of liquid fuels from coal, the FY 2007 Budget does not support these activities. Coal to liquids is a mature technology receiving funding from the private sector for evolutionary advances and incremental improvements and therefore not consistent with the Administration’s Research and Development Investment Criteria. Although the FY 2007 Budget does not directly support CTL technology, there are some overlapping activities directed at electricity and hydrogen generation that the private sector could apply to reducing production costs and technical risks, and improving environmental performance of coal to liquids plants. The FY 2007 Budget supports production of hydrogen from coal and some funding will be used for development of liquids that while not applicable for conventional internal combustion engines because their hydrogen content is too high, could be an efficient way to move fuel for hydrogen
applications through existing infrastructure. The FY 2007 Budget promotes the goal of reducing dependence on foreign sources of oil through development of technologies consistent with the Research and Development Investment Criteria, such as cellulosic ethanol, battery technology, and hydrogen, among others. Over the mid to long term, these technologies could reduce demand for conventional sources of petroleum and ease pressures on world oil prices.
The resource exists, current technology is available and it is possible that continued evolutionary R&D will produce advanced processes that will continue to modify the private sector’s analysis of whether the economic and environmental performance of the processes used in the implementation of a coal-to-liquids industry for the production of alternate fuels justify plant construction, in tandem with the primary consideration of petroleum market risk.
If economic, these fuels could contribute to reducing our dependence on oil imports and significantly contribute to the Nation’s energy security.
This completes my testimony, and I would be pleased to respond to your questions.
Witness Panel 2
Dr. Arie GeertsemaThe University of Kentucky, Center for Applied Energy Research
Senate Committee on Energy and Natural Resources
Testimony by Dr. Arie Geertsema
Director University of Kentucky Center for Applied Energy Research (CAER)
April 24, 2006.
Mr. Chairman and Members,
Thank you for the invitation to contribute to the discussion about gasification and coal to liquids (CTL) in the context of the Energy Policy Act of 2005.
By way of introduction, I present some of my background. I was with the South African company Sasol, the world’s only commercial coal-to-liquids company, for 20 years. I was the Works Manager at the original Sasol One plant for three years and then led the corporate R&D of Sasol for a decade until the end of 1997. Then followed a period in Australia working on natural gas conversion to liquid fuels (GTL) before I joined the CAER in the beginning of 2001. I am therefore very familiar with both the theory and practice of CTL and gasification technologies.
In this testimony I wish to share with you some of my views regarding the greater deployment of CTL technology and, more importantly, suggestions on how progress can be made to establish a viable and sustainable CTL industry in the USA. I do this on behalf of the CAER and also wish to note that I am a member of the executive panel for the Southern States Energy Board’s “The American Energy Security Study” where I am the representative of the Kentucky Office of Energy Policy, a co-sponsor of the study. I am also representing the University of Kentucky in the three-university “Coal Fuel Alliance”. I’ll later comment on both these activities.
I shall not dwell on the by now well-known compelling statistics regarding liquid fuels supply and projected demand coupled with strategic and security of supply considerations. I’d rather focus on CTL and gasification from a technology development and project execution perspective. I shall deal with CTL with emphasis on indirect (Fischer-Tropsch) rather than direct liquefaction.
In Attachment A, I present a brief review of aspects of the Sasol developments from which some pointers can be taken which have contributed to their known commercial success. Some of these aspects from especially the Sasol Two and Three experiences include:
- A national will to reduce the import of crude oil for transportation fuels existed
- The projects showed financial viability when started
- Government loan guarantees were provided
- A floor price mechanism (fuel prices are regulated in South Africa) was established
- Timing, in retrospect, was ideal
- Rapid repayment of loans occurred and the company has long been functioning financially independently in the private sector and there are and were very significant macro-economic benefits to the establishment of this industry
- Subsequent internationalization of the business and diversification strengthened profitability
- Many further growth opportunities were implemented, and a 34,000 bbl/d Gas-to-Liquids plant in Qatar is due to be inaugurated early in June 2006
- Ongoing significant investments in R&D are made and technology developments improved profitability. ($60 million for additional FT pilot units was announced this year.)
Reflecting on the above considerations, one notices that the Energy Policy Act of 2005 provides a framework for establishing conditions which reflect some of the mentioned Sasol success factors, such as loan guarantees and tax credits which will ease the financing of projects. The President clearly stated that the USA should move to a greater self-sufficiency regarding transportation fuels, with specific reference to coal derived fuels. Thus the strategic intent to promote CTL in the US is developing and is set to gain further momentum as is reflected by legislation introduced by various senators since the enactment of the Energy Policy Bill of 2005.
The latest DOE Fossil Energy budget contains some components for funding CTL related activities, like gasification, gas clean-up and CO2 capture with sequestration. However, CTL as such does not currently feature as a separate program. Although there are now commercial FT units, it is, in my opinion, justifiable to put CTL RD&D back into the DOE portfolio. The geopolitical and commercial circumstances now justify such a step. An increased level of funding at all levels of RD&D will greatly enhance future success, as will be discussed below. There has been support for projects of Syntroleum, Headwaters and WMPI (the latter two through the Clean Coal Power Initiative), some of which are still in negotiation. Demonstrations of this kind are appropriate but I believe a more broad-based program with a balance between enabling research, pilot units and demonstration facilities should be supported.
In the deployment of CTL there is often an urge to deal with a perceived lack of commercial progress by promoting more Research and Development. Any technology can be improved by doing more R&D, as has been proven. In this case, I believe the short term thrust should be to get facilities built and to establish an experience base for the production of products and to simultaneously embark on a more aggressive R&D program. There is much to be gained by establishing an active FT CTL program in the US again. There will be several substantial benefits from doing this:
- Currently the local human resources in this area, as in coal technology in general, are scarce. By encouraging industrial and DOE sponsored research, new human resources will be cultivated at undergraduate and graduate level. Prototype pilot plants can serve as valuable training grounds for operators and technicians and can also be used for component level development.
- The results from such R&D could be closely coupled to operating facilities to ensure relevance to optimize processes and products further.
- Studies to improve product performance can be done much more cheaply at a small pilot scale which needs to be a “proof of concept” type facility where products of different specifications could be produced for engine and turbine testing. Especially with the great interest from the DOD in “single battlefield” fuels, this could be an important asset.
The Energy Policy Act of 2005, Section 417, authorized $85 million for the universities of Purdue, Southern Illinois and Kentucky to pursue the development of FT CTL based on Illinois basin coal.
- These universities entered into a Memorandum of Understanding in October 2005 and have started collaborating with seed funds made available by the respective state governments. The name Coal Fuel Alliance (CFA) was chosen. A request for the appropriation of funds for the first year was submitted in March 2006 to the House Energy and Water Appropriations Subcommittee. Attachment B is a copy of this request. It outlines the rationale for the initiative with emphasis on the first year’s activities. A request of $14.5 million, which will be leveraged by contributions from the universities and states to make $18.1 million available, was submitted. The first step will be to establish a ½ bbl/d FT facility at CAER with a “mini-refinery” to produce products for engine testing. This is on the critical path to generate samples of different grades and qualities so that later, larger facilities can be designed more specifically to meet targeted specifications. These products will be tested in the engine testing facilities at Purdue. Collaboration with the DOD to make products in the “mini refinery” for their applications is envisaged.
- The CFA wishes to carry on “open” research, such as the CAER has done over many years. This implies not being locked in to a single technology or having constraining IP limitations, but rather to be available as a test bed for various technologies and companies.
- The CFA has been in discussions with DOE NETL officers to keep them informed of its plans. The CFA accepts that within the current NETL programs and budget there is not provision for the CFA activities but a profitable collaboration is foreseen in the near future as appropriations might be made to the CFA.
- The plans for the next few years have started to take shape although the CFA has not yet decided on details for the “test facility” as foreshadowed in the Act.
There are existing commercial technologies which could produce transportation fuels by using CTL. (This argument has been used in the past to terminate the DOE funded FT catalysis work.) However, FT technologies and applicable commercial experience are not necessarily readily available to all industrialists who wish to practice CTL. There are commercial reasons for this situation, which I do not want to go into now. I suggest that there will be great value in supporting a range of technological options for the various processes involved in CTL. For instance, various gasifier developments have been and are being supported. The same approach can be applied to CTL. By creating more options at the enabling, pilot and demonstration level, the market place and commercial realities can take implementation forward. Several factors are of importance and supported development of different approaches could help to address these matters:
- A CTL plant is comprised of a very complex integration of a number of major process blocks such as coal gasification, air separation (when an oxygen-blown gasifier is used), gas cleaning, FT synthesis and FT product refining to final products. There are also numerous infrastructural, environmental control, ash handling and steam/power system facilities which are essential. The full commercial integration of these process steps for CTL has so far only been done by Sasol. Building blocks at various levels of operational readiness are offered commercially but more experience with integrated facilities is needed to provide comfort to financiers. A so-called “wrap-around” package from a reputable company will greatly improve the bank-ability of CTL projects. In this phase of uncertainty, support and encouragement measures will be helpful.
- Recent estimates by the DOE, various consultants and Sasol indicate that the capital outlay for a CTL facility could be $60,000 per daily barrel or more provided it is of a meaningful size, preferably about 50,000 bbl/d or larger to get good economy of scale. These numbers are only indicative and the actual cost will vary with the location, site-specific conditions and other factors. This means that a 50,000bbl/d facility will cost at least $3 billion. It should however, be noted that there are cases when smaller plants would suit the needs of project developers or site specific circumstances better. By accepting a certain “dis-economy” of scale, (a higher capital cost per installed capacity), the overall project economics might still be attractive. There could for instance, be a justification for facilities of 5,000 to 10,000 bbl/d to produce products for certification by the military for special grades of fuel. There might also be developers who prefer modular decentralized facilities rather than large units.
- There are options for lowering the capital cost, such as using a brown field site or co-locating with facilities and sharing common infrastructure. Such cases are site specific and generic economic numbers can be misleading and should be avoided.
- The yield of liquid products in a CTL facility will depend on the quality of the coal and also how much coal will be used in a facility to co-produce the needed power for the plant, or to produce additional power for export. A typical figure is about 2 barrels per ton of coal. This implies that for a 100,000 bbl/d facility about 50,000 tons/day coal is required or about 18.3 million tons per year.
- It seems on paper that a combination of CTL with IGCC (co-production) can be more attractive than only CTL. A few considerations: Both CTL and IGCC plants should preferably be running at high stable production levels and are not easily and profitably suitable for short term “peaking” or load following adjustments. For IGCC the profitability is very dependent on the competitive price of power at the location of the plant. From an operational perspective, this adds one more level of complexity. However, for a CTL plant there is a substantial amount of power required within the plant and normally there will be on-site power generation using energy resources from the process. Therefore, expanding such power generation to a full-fledged IGCC facility should be considered on a case-by-case basis. Synergies could well make this more viable, albeit at a higher capital outlay.
- If one wishes to make a strategic impact, I consider about 1 million barrels/day as a meaningful initial target. (That is less than 5% of the current 21 million barrels of oil and fuel used in the US daily). For this the coal supply would require about a 20% increase above current coal consumption. The impact of such a growth in coal production has to be considered together with the ongoing projected growth in coal demand for electric power generation.
- Reliable production cost figures are hard to come by since such numbers are usually not provided in detail by operating companies and are very specific to a chosen set of circumstances. However, numbers recently made available by Sasol indicate a direct operating cost of $10/barrel. If a coal cost of $30/ton is added, that adds another $15/barrel. To this amount the financing costs need to be added, which depends very much on the particular project structure and financial arrangements. It is clear that this provides a wide margin to establish a feasible project, and viability is likely even at crude oil prices as low as $45-$50/barrel.
Environmental considerations favor FT CTL. It can be stated that CTL can truly be a Clean Coal Technology when modern commercially available processes are implemented. Furthermore:
- FT diesel is a premium product; even better in environmental performance that CARB diesel and it can sustainably demand a substantially higher price (conservatively about $8/barrel) than crude oil. This differential between CTL diesel and regular diesel above crude oil prices should be calculated into viability analyses. The product qualities of FT diesel are well known. The FT process requires total sulfur removal from syngas (the sulfur is taken out of the process as elemental sulfur, as sulfuric acid or as fertilizer grade ammonium sulphate) and therefore the diesel is essentially sulfur free.
- The CO2 produced in a CTL plant can be readily captured for sequestration (as is done in the Great Plains synthetic natural gas facility in North Dakota).
- FT CTL diesel is compatible with current diesels and can readily be blended into the existing infrastructure. For niche applications, like for special military fuels, certification would be required which could require hundreds of thousands of gallons of products.
A recent project has been initiated through the Southern States Energy Board (SSEB). It is called “The American Energy Security Study”. This study has the support from the member states of the SSEB together with a number of other stakeholders. It will deal with strategic matters and present a plan to establish energy security and independence through the production of liquid fuels from various resources, including CTL. It will indicate measures for the rapid deployment of selected options to provide indigenous fuel supplies. Policy issues will be considered with macro-economic impact analyses. An analysis of the relative economics of CTL facilities as a function of the capacity of plants will be presented. The report is due to be available by the middle of the year. It is anticipated that this study will be a powerful tool to help shaping the path forward to greater fuel self-sufficiency.
Numerous design case studies have been performed over the years to evaluate the viability of CTL technologies. With no CTL facilities erected after the Sasol Three in the early 1980’s, these estimates are often on the basis of expected performance rather than on proven performance. This can be overcome by involving reputable engineering companies with relevant experience in the field to do a detailed level design to form the basis for a definitive cost and economic evaluation. Such studies can cost tens of million of dollars, depending on the size and scope of the project. These costs will come down in due time as more plants will be built and initial support from governments would assist in expediting earlier deployment of CTL.
Establishing a major project requires getting appropriate partners together. This typically takes a long time for large projects. The team could typically include the owner of the coal resources, the company which has the ability to operate the facility (preferably an owner-operator), a reputable engineering contractor and certainly a strong input to deal with financial, legal and permitting aspects at all levels of government. In this regard the government can and does facilitate some of these steps, but in practice it does not (normally) erect or own such a commercial facility. Under the current circumstances I would expect that such teams will start forming soon to take CTL forward. Indications from the DOD that they might provide product off-take agreements will assist in this process.
In conclusion I observe the following:
1. At current crude oil prices and even if prices drop by as much as $20/bbl, I believe that large CTL plants can be economically viable propositions in the US.
2. The basic diesel fuels from CTL are fungible and should be able to be introduced into the market without disruptions.
3. The initiatives created by the Energy Policy Act of 2005 set the stage for encouraging CTL and gasification deployment and the momentum to firm up the support mechanisms for potential such projects should be maintained.
4. Close collaboration between DOD and DOE to establish facilities for producing fuels of different grades for testing and certification should be encouraged and initial smaller plants could be supported to get the quantities needed for certifying, for instance, jet fuels.
5. The DOE budget should be strengthened to again support aspects of FT CTL technology development in parallel with the current gasification developments.
6. CTL has been done and can be done in the US.
Attachment A: Aspects of the Sasol History
Sasol is a private sector company which is very profitable and has produced over 1.5 billion barrels of fuel from coal, as well as more than 200 chemical products marketed internationally since its inception in 1950. Its shares are traded at various stock exchanges including the NYSE.
At the outset it is useful to give some background to the technology loosely called CTL (Coal to Liquids). Recovering liquids from coal dates back to the mid 1850’s when coal was heated and the vapors released from such heating were collected and used as the basic building blocks for chemical products. There was also early work to directly produce liquids from coal in high pressure equipment with the addition of hydrogen in the presence of a catalyst. This technology became known as the Direct Liquefaction or Direct Hydrogenation of coal. It was used before and during WW II in Germany and produced the largest part of the liquid fuels produced in Germany at that time. This technology experienced resurgence in the post 1973 “Energy Crisis” years and in the US a number of facilities at the pilot level were built and operated. One was the H-Coal plant, for which the initial R&D work was done at CAER. Also in many other countries there was interest in this route, but as oil prices dropped, the momentum was lost. The overall conclusion for this technology is still that it is a very expensive and mechanically complex way of making fuels from coal. China is currently the only country pushing this route by constructing a 20,000 barrel/day facility.
A second way of producing fuels and chemicals from coal is called Indirect Liquefaction. This starts by gasifying coal which involves reacting coal with steam and oxygen under pressure to produce a mixture of gases called synthesis gas or syngas, which is composed mainly of carbon monoxide and hydrogen. It was established in the 1920’s that syngas can be converted to a range of liquids and this process is named the Fischer-Tropsch (FT) process after its inventors. Thus in this two-step process of gasification followed by FT synthesis, one can get good yields of liquids from coal. This is the technology practiced by Sasol and is currently considered to be the most viable approach to produce liquid fuels from coal. The fuels from this process can be fully compatible with oil derived fuels (South African motorists do not notice any difference whether they use FT fuels or crude oil derived fuels and some of the fuels used at Johannesburg International Airport are 50/50 crude/FT blends).
The Sasol story started long before the UN imposed sanctions on South Africa and Sasol started production already in 1955. The Sasol Two facility was initiated on economic considerations after energy prices increased in 1974 and Sasol Three was started as a twin plant to Sasol Two when the flow of oil from Iran was disrupted. This was a strategic supply consideration. When these two plants were commissioned in the early 1980’s, crude oil prices were at record levels and the capital repayment was thus accelerated with a favorable effect on interest payments. At that time the liquid synfuels contributed about 40% of South Africa’s domestic consumption of gasoline and diesel. That figure has by now decreased as a percentage to about 28%, due to the market growth and due to the fact that a large number of chemicals are taken from the fuel streams to be sold profitably as high purity chemicals.
The original nameplate capacity for each of Sasol Two and Three was 50,000 barrels per day and the combined production is now about 150,000 barrels per day, based on ongoing process improvements and optimization. The invested capital for the two plants was about $6 billion in dollars of the day in about 1980. It was the largest construction project in the world at that time on one site and it was completed on schedule and on budget with Fluor out of Irvine, CA as the managing engineering contractor. The national interest and support for the Sasol project was significant. When Sasol shares were issued in 1979 and the shares listed on the Johannesburg stock exchange to draw capital from the stock market to contribute to the financing of the projects, the share issue was over-subscribed by 31 times, mostly by South African investors.
The South African Government, which facilitated the establishment of Sasol through the Industrial Development Corporation, provided loan guarantees and a floor price mechanism, was put in place which also required that Sasol repaid the government if crude oil prices exceeded a pre-determined level. All government loans and support were fully repaid in due time and there was no net cost to the taxpayer. No support has been in place for a long time. The economic benefits and multiplier effect of having such facilities are obvious and the savings in foreign exchange was and is a great benefit to the economy.
Another important factor was the favorable exchange rate at that time as well as the fact that internationally construction was in a lull, which led to favorable contract prices. The fact that Sasol Three was a replicate of Sasol Two saved $500 million in having the same design and letting the same crews do the job twice.
A factor in Sasol’s favor is that it owns large amounts of coal (relatively high ash sub-bituminous coal) and the facilities are located directly adjacent to the coal fields. At the current exchange rate the coal is supplied to the CTL plants at commercially comparable rates of about $22/ton.
There were many factors that contributed to this success story. It is not possible to schedule such circumstances but under the current and projected high oil prices the stage, also in the US, is set for learning from these experiences and establishing CTL facilities based on numerous improvements which were made over the years.
Testimony to the House Committee on Appropriations
Subcommittee on Energy and Water Development Appropriations
United States House of Representatives
Submitted on behalf of the Coal Fuel Alliance by:
University of Kentucky (Dr. Ari Geertsema, Director, Center for Applied Energy Research), Southern Illinois University Carbondale (Dr. John Mead, Director, Coal Research Center), and Purdue University (Dr. Tom Sparrow, Director, Coal Transformation Laboratory, The Energy Center)
March 16, 2006
This testimony is provided on behalf of the member universities of the Coal Fuel Alliance –University of Kentucky, Purdue University and Southern Illinois University. The universities’ combined testimony is provided in response to Section 417 of the 2005 Energy Policy Act, which requested the US Department of Energy to pursue, in collaboration with our institutions, technologies for the conversion of Illinois Basin coals to transportation fuels. Section 417 authorized an amount of $85 million over a four-year period to carry out the principal aim of the Act – to produce test quantities of synthetic fuels for evaluation in civilian and military applications. We are requesting that $14.5 million be appropriated for the first year’s activities to kick-start the establishment and expansion of capabilities at the participating universities.
Our request is supported by the Governors, the state legislatures, and the congressional delegations of the states of Illinois, Indiana, and Kentucky. Together, the states have provided $400K in funding to initiate the work pending congressional action on this request. Senior officers at DOE’s National Energy Technology Laboratory have been provided information on CFA’s planned activities for carrying out Congress’ intent in passing Section 417 of the Act.
Facts and Rationale
The rationale for supporting the expanded use of coal as a means to replace crude oil for transportation fuels is well known. America does not have an energy shortage so much as a shortage of liquid fuels. The nation is becoming increasingly dependent on imported oil, now at 60% of requirements, and taken principally from unstable regions of the world. The conversion of coal to liquid fuels will lead to greater energy independence, contribute to the nation’s security, allow for the development of new industries, and provide new incentives for coal mining. The DOD has a keen interest in securing alternatives to petroleum for reliable supplies of battlefield fuels, and this effort is well aligned with that objective. Also, the fuels produced by Fischer-Tropsch coal-to-liquids (CTL) technology are environmentally superior, such as ultra-clean diesel and jet fuel of interest to the aviation, heavy equipment and trucking industries.
The geological deposit known as the “Illinois Coal Basin” (Illinois, Indiana and Kentucky) has more untapped energy potential than the combined oil reserves of Saudi Arabia and Kuwait. These coals are suitable feed stocks for the production of transportation fuels.
Barriers to Deployment
While the prospect of CTL technologies is alluring, the deployment of pioneering technologies bring with them financial, construction, operating and technical risks not normally associated with proven technologies. Risk can be reduced and deployment stimulated by providing price supports, product take-off agreements, tax breaks, and financing incentives for early adopters. Risk can also be reduced by making “learning investments” for research, development and demonstration (RD+D) to reduce the technical hurdles of new energy technologies.
It is for this latter purpose that the Coal Fuel Alliance members entered into a Memorandum of Understanding in November 2005 – to provide a base of “enabling research” and development (RD), and to support demonstrations and deployment (+D) of the technology at commercially-meaningful scale. It is an accepted premise that with successive deployments of a new technology there comes with it learning. Described as learning-by-doing (for producers) and learning-by-using (for product users), the assumption is that experience leads to reductions in cost or other improvements. There are a number of technical issues which, if addressed in creative ways, can alleviate some of the risks associated with the adoption of CTL technology.
The universities will expand existing and establish new capabilities in the area of CTL, including improvements in facilities and development of human capital. The universities intend to collaboratively concentrate resources, create a critical mass of expertise, and provide a focal point for RD+D on fuels derived from Illinois Basin coals. The effort will address unmet needs for CTL, emphasizing carefully applied and developmental needs. The effort will provide open-access facilities for scientific and engineering development, and for producing test quantities of fuel products for evaluation by Alliance members as well as military and industrial partners. An organizational and programmatic structure will be put in place to minimize duplication, exploit the capabilities of each university, and coordinate the effort to maximize synergies.
The Universities will work together to build up human capital – the future generation of skilled energy technologists, engineers and operating personnel – that will be needed to sustain a CTL industry. Due to the cyclical interest in CTL, the scientific and engineering capabilities previously devoted to energy programs of the 1980’s and 90’s have dissipated. A new generation of technologists needs to be nurtured. One of the best ways of creating this skills base is to stimulate and fund RD+D at appropriate institutions which have the facilities to teach and train students in the practical applications. The relevance of training can thus be assured while the stimulus of a creative environment will lead to further technological innovations.
The three universities have excellent and complementary capabilities, and the division of labor between them will be highly integrated. While all tasks will be carried out by interdisciplinary teams of researchers, each university brings special competencies to the effort. UK has a long and proven track record in Fischer-Tropsch synfuels catalysis, Purdue in engine testing, and SIU in advanced coal technologies. SIU intends to construct/operate bench and process development units for gas cleanup and conditioning. They also will develop a modular, bench-scale fast-screening experimental facility – the so-called “Innovations Lab” - for studies of gas conversion. UK intends to build/operate a larger, continuous and integrated pilot plant for syngas conversion and product workup. The facility will produce larger quantities of refined products for testing and evaluation (up to ½ barrel, about 20 gallons per day). The know-how, show-how associated with these facilities at SIU and UK is expected to be a key benefit in that they can be used as test beds for new concepts at a level of expenditure that is affordable. Purdue will develop advanced fuel characterization, process simulation and quantitative modeling capabilities related to syngas conversion and product work-up. The work will also involve the substantive capabilities of Purdue’s engine test facilities - supported by Cummins, Rolls Royce and Caterpillar. Their role will be critical in testing, validating and improving fuel quality, performance and acceptability for end-users. Purdue, SIU and UK will also contribute to environmental, economic and policy analyses as related to CTL.
Section 417 of the 2005 EPAct provides for the improvement of CTL facilities at the universities and development and operation of a demonstration-scale Products Test Facility – both directed at producing test quantities of fuel products for evaluation by the military, and the auto, trucking and aviation industries. Funding in the early years is requested to pursue development of capabilities at the universities. These include: 1. an integrated F-T and mini-refinery for product work-up to finished fuels (diesel, jet fuel, etc.); 2. advanced characterization facilities for analysis of interim F-T products and finished fuels; 3. engine testing and fuel evaluation capabilities for fuels specification and certification; and 4. “open-access” facilities which are not reliant on the proprietary technologies of current vendors.
CFA has reserved budget resources for the larger Products Test Facility. Details of that facility will be determined as the project progresses. CFA, however, is cognizant that there are efforts by DOD and DOE to construct alternate CTL demonstration facilities. It is not the Alliance’s intention to duplicate such facilities should they come to fruition earlier. Instead, we emphasize that our initial efforts will be complementary to and supportive of these alternatives, and will provide capabilities the other projects can’t provide.
The Year 1 request is for an amount of $14.5M to be leveraged by the universities and states by an additional 20 percent cost share for a total combined year-1 effort of $18.1M.
Mr. Hunt RamsbottomRentech, Inc.
Before the United States Senate
Committee on Energy and Natural Resources
Testimony of D. Hunt Ramsbottom
President and CEO of Rentech, Inc.
Monday, April 24, 2006
Thank you, Mr. Chairman. Distinguished Senators and guests, I’m Hunt Ramsbottom and I’m the President and CEO of Rentech, Inc. We are a publicly held, Denver-based firm and we are listed on the American Stock Exchange. For 23 years, Rentech has engaged in research and development , focusing on enhancing the production of ultra-clean fuels made from natural gas and coal, through a chemical process known as Fischer-Tropsch. We hold 20 U.S. patents and 4 foreign patents.
The History of Rentech and CTL
I’m here today to share how, right now, we are moving to establish a commercial coals-to-liquid – CTL – industry. The basic chemistry behind our fuel products ahs been known for 7 decades. The basic technology has been developed and used extensively in other countries. We have tested our Rentech innovations in the lab and in pilot programs, and deployed small-scale production.
We now have developed our technology around Coals-to-Liquids – or CTL – gasification, and for Rentech, the future of CTL in the United States is no longer a theoretical, what-if, conversation. We plan to have a fully commercial, fully operational CTL plant up and running by 2010.
Even before that, we will be operating our Process Demonstration Unit (PDU). By the first quarter of 2007, we will have that up and running in Colorado. It will produce 10 barrels per day of our fuel basis for demonstration and analysis by potential end users. And it will allow us to optimize our technology for variations in coal and other factors.
East Dubuque, Illinois: The First CTL Clean-Fuels Plant in the U.S.
Within the next month, Rentech will announce the purchase a fertilizer plant in East Dubuque, Illinois, and we plant to convert it in phases to CTL poly-generation over the next 3 to 4 years. By poly-generation, I mean that we will ultimately produce 3 products: ultra-clean transportation fuels, ammonia fertilizer and electricity.
The plant currently makes ammonia fertilizer from natural gas, and it already incorporates basic technologies that are critical to successfully implementing CTL. The conversion will include changing the feedstock from natural gas to Illinois coal. It will also entail adding a gasification unit to produce synthesis gas; adding a Rentech Reactor so that we can produce the basis of our ultra-clean fuels; and a finishing plant to produce the final fuel products. We chose our final planned product mix carefully.
Fertilizer will still be made in large quantities. As I’m sure all of you know from our friends in the farm states, domestic fertilizer plants are shutting down rapidly because of high natural gas prices -- the current primary feedstock for fertilizer. Since 1999, the US has switched from producing all its own fertilizer to becoming a net importer. We will demonstrate that fertilizer production can still be a thriving domestic industry using clean coal technologies.
Electricity will be produced in small quantities, primarily for the plant’s own use. A small surplus, however, will be provided to the local grid.
Rentech’s Ultra-Clean Fuels
But the real innovation at East Dubuque will be the production of our ultra-clean fuels. I’m passing around a sample of Rentech’s ultra-clean diesel. Please look at it closely -- it is very different than the diesel made from petroleum. This is clear, refined to a high degree of purity, and has almost no particulates – which is what causes the belching cloud you see when a diesel truck or bus starts to accelerate. When the Air Force tested our fuels and similar fuels made by competitors, the tests showed reductions in particulates of up to and over 80%.
The Rentech fuel is also extremely low in sulfur – less than 1 part per million, far under the new EPA standard of 15 ppm. The finished fuel can be used with no engine modifications in any standard diesel engine – including trucks, buses and barges. It can even be processed into jet fuel. Under our timeline, the East Dubuque plant will be first commercial scale plant in the U.S. to produce quantities of this fuel –about 2000 barrels per day in 2010.
You should also smell the product. It has none of the typical odor of diesel. There are two other critical differences between this and typical diesel. Our fuel has a shelf-life of at least 8 years, rather than 3-4 months for petroleum diesel – meaning that for the strategic reserve, for emergency first-responders, and the military, our fuel has incredible advantages. Next, our fuel is biodegradable. If it spills, it does not cause irreparable damage to waterways or wells.
Let me take a moment to highlight the environmental policies that we intend to pursue. Rentech is committed to being environmentally friendly – and both our production and fuels have environmental benefits.
As we manufacture our fuel, we remove most of the harmful regulated pollutants in the gasification stage. Sulfur and mercury come out as elements – they do not go up a smokestack to be scrubbed out, and do not leak into the environment. Once conversion is complete, regulated criteria pollutant emissions will be reduced about 33%. Some carbon dioxide emissions will be sequestered in products – in the fertilizer and in items like bottled sodas. Our fuel itself runs cleaner than traditional diesel, and as I mentioned earlier, it is much more stable and biodegradable. I would like to enter for the record an analysis that shows the environmental benefits of our CTL process.
Natchez, Mississippi: A Possible Second Plant
Our commitment to being environmentally-friendly brings me to our second proposed plant in Natchez, Mississippi, which would produce 11,000 barrels per day. 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.
As you can see, Rentech is aggressively pursuing commercial deployment. We have worked extremely hard to get over the significant financial hurdles that building – or as we are doing, converting – a plant takes. That is especially true of a first-of-its-kind-in-the-US plant.
What the Government Can Do
We are planning to make full use of the EPACT 2005 incentives designed to jump-start this critical clean-fuel industry. Let me note that the States are also lending their assistance. The State of Illinois has been extraordinarily helpful – they helped us to complete feasibility studies, engineering studies and provided grants to assist with conversion to coal. The State of Mississippi has also been exceptionally supportive of the possibility of our second plant being located in Natchez, and they just passed a $15 million bond bill for the proposal.
Federal Loan Guarantees
What you have been doing at the federal level, though, is absolutely vital to our efforts. We intend to seek the DOE self-pay loan guarantees for our conversion closing, planned for the first quarter of 2007. We understand that DOE’s implementation has begun and we commend the Department and the Secretary of Energy for quickly moving to implement the authorized programs. The self-pay guarantees are integral to our financing of the East Dubuque conversion, so we appreciate and hope you will continue your efforts to ensure that the DOE loan programs are fully funded and implemented expeditiously.
Industrial Gasification Investment Tax Credit
To meet our aggressive timeline, we also will apply for the industrial gasification investment tax credit provided by the Energy Bill. The recent initiative by Senators Grassley and Baucus to raise the current $350M cap to $850 million is very helpful. If Congress is serious about trying to reduce our dependence on foreign oil import then allow me to offer an observation. Maintaining the current cap of $350M could slow the rollout of industrial gasification using coal to the point where the US winds up losing more industry. Even an $850M cap will assist the development and deployment of only 6-7 plants– hardly the creation of a full-fledged industry. At $75 per barrel, the price of oil last Friday, the U.S. is paying $850 million to foreign countries for oil every two days. To create a real incentive, it might be better to lift the caps altogether.
Fuel Excise Tax Credit
There is another way for the federal government to help, by making the 50 cent-per-gallon fuel excise tax credit provided in the Highway Bill available to CTL fuels. To do that, you could extend the expiration of the current credit from 2009, when no CTL plants will yet be operational in the U.S., to at least 2014. Senator Bunning, I recognize your unique position a member of both the Senate Energy and Natural Resources Committee and the Senate Finance Committee, so any supportive words that you can pass on to other members of the Finance Committee would certainly be appreciated.
Department of Defense Fuel Use
There are other ways that the government could catalyze commercial deployment of the CTL industry. Use by the military as diesel and jet fuel under long-term contracts could assist with financing the first plants – but it is going to take a realistic assessment based on the actual costs of production. Historically, the cost of generating fuel from CTL in the US has been the major stumbling block to commercialization. Until recently the costs were not competitive with petroleum. Now they are. Today, fuels from CTL technology can be produced – finished – for $36 to $42 per barrel. That’s the equivalent to purchasing raw crude at prices of $30 to $35 per barrel. EIA’s AEO 2006 projected long-term oil costs at $50 and above. The same forecast shows CTL production growing to 700,000 barrels per day by 2030. But the first plants must be financed and built, paving the way for the industry to flourish and add to the nation’s energy security.
I think the great potential of CTL is using American resources, American know-how, and American innovation to create both energy independence and American jobs. It’s a big vision, but it starts with small steps. As I close, I’d like to let you know how Rentech is moving to commercial deployment.
We intend to operate the first U.S. commercial-scale plant through the conversion I have outlined of the fertilizer plant in East Dubuque. We are pursuing a second larger scale plant in Natchez, Mississippi – the Natchez Adams Strategic Fuels Center. We were invited by the local community to consider the possibility after Hurricane Katrina when Mississippi ran disastrously low on diesel. At Natchez, we can use two feedstocks -- both coal and petroleum coke, a byproduct of the local petroleum industry. And as I have mentioned, there is the very real possibility of capturing and storing 100% of the carbon dioxide emissions through enhanced oil recovery in nearby oil fields. To our knowledge, this would be the first large-scale U.S. commercial capture and storage of man-made carbon emissions. Carbon dioxide injection is already being used in this oil-producing basin, but additional supplies are need.
We are also exploring with several coal companies to create a replicable, iterative plant model that could be located at the mouths of mines. There, we would size a basic plant model that could be expanded. For twenty years, Rentech has researched and optimized our technology. We have refined our process to make it more effective and more environmentally-friendly. Now we are commercializing it.
We aren’t asking the government to subsidize the industry. We urgently need your help, though, to get a CTL clean-fuel manufacturing industry launched with private-sector funding. A robust clean-fuels sector is important so that we can meet our national energy needs, foster greater energy independence, and preserve a full measure of our energy security. At Rentech, we are ready. We are using American innovation to produce environmentally-friendly, energy-rich fuels to build America’s future. And we are doing it using America’s greatest natural energy resource, coal.
Thank you for all that you have done to allow a jump-start of CTL in the Energy Policy Act of 2005, including the tax incentive. We intend to make use of your help to do just that – jump-start full scale utilization of CTL, and jump-start a new clean fuel manufacturing industry. Thank you as well for your time today.
Mr. James RobertsCEOFoundation Coal Corporation
TESTIMONY FOR J. F. ROBERTS BEFORE SENATE COMMITTEE ON ENERGY AND NATURAL RESOURCES – MONDAY, APRIL 24, 2006 – COAL GASIFICATION AND LIQUEFACTION TECHNOLOGY
Thank you, Mr. Chairman. I’m James F. Roberts, President and CEO of Foundation Coal Corporation, one of the leading coal producers in the United States. I’m appearing this afternoon on behalf of the National Mining Association, which I presently serve as Vice Chairman.
NMA and its members applaud you and your colleagues for hosting this very timely and constructive hearing. We are confident that coal gasification can make America stronger through cleaner and more efficient use of its unrivalled coal reserves – leading to clean, high quality transportation fuel, an abundant feedstock to produce ethanol and affordable energy to power our industrial facilities.
Coal is meeting America’s immediate energy needs and is poised to play a major role in the development of long-term technologies in a hydrogen-based economy, such as fuel cells. In short, coal is the energy of America’s past, present and future.
It is about our nation’s energy future that I am most concerned.
Increasingly today, energy security has come to be viewed not just as one among many national goals but as a vital national imperative. Across the world, energy has become the linchpin of economic competitiveness, forcing the U.S. and its industrial competitors to strategically reassess their energy supplies and resources.
In a way, we have all been here before. The call for greater energy security through lessening our dependence on foreign energy has resounded several times in recent decades. The call was first heard during the Arab oil embargo in 1973, when President Nixon launched Project Independence. It was echoed subsequently during the Ford, Carter and Reagan presidencies and during both Bush presidencies
Unfortunately our repeated failure to break what President Bush so correctly called our addiction to foreign oil raises doubt amongst many of us that we will succeed this time. And yet never before has the price of failure been as great as it is today.
We have so far avoided the dire consequences of our dependence on imported energy largely because the relatively low price of oil shielded us from them. However, at today’s prices – let alone at projected prices – it is unlikely our economy will remain unscathed for much longer. We literally can no longer afford the complacency of past decades. The argument for concerted, bipartisan action to strengthen energy security is greater now than ever before.
Increasingly, a secure America in the 21st century will mean energy security. This brings us to the nation’s abundant and affordable coal reserves – and the purpose of this hearing.
America’s coal reserves can provide us with an invaluable hedge against our growing addiction to imported energy, and provide a significant source of fuel for a growing economy. Congress acknowledged this fact in the Energy Policy Act of 2005, which encourages the development of alternative fuels such as coal-to-liquid transportation fuels and coal-derived natural gas substitutes.
But while Congress was far-sighted last year in appreciating the need for more sustained and determined action to decrease our reliance on foreign energy, the response it proposed – while necessary – is not nearly sufficient to the challenge we now face. Consider the following circumstances that argue strongly for greater reliance on domestic fuels such as coal.
First, the U.S. is projected to import a greater share of its growing oil needs. While our daily oil requirements are projected to increase from 20 million barrels a day currently to 28 million by 2030, our domestic oil supply is projected to flatten after a modest rise to a mere 10 million barrels per day. The result, according to The Energy Information Administration (EIA), is that net imports will make up 62% of our total oil supply.
Bear in mind this is a very conservative estimate, as EIA assumes a percentage of U.S. projected oil imports will be satisfied by liquefied coal fuel. Absent large scale development of this fuel source, net imports will be significantly higher. And as I believe others here will testify, this development is unlikely to materialize without additional incentives.
Second, the oil we import will continue to come from unfriendly or unstable regimes – simply because these regimes have the oil we use. Our reliance on the Middle East alone obligates the U.S. to maintain and deploy armed forces at enormous cost. Oil imports from the region also force the U.S. to shoulder the burden of an enormous trade deficit as well.
Third, energy has clearly become a central objective in the geopolitical struggle to secure global raw material supplies. China’s energy demands alone are having – and will continue to have – a significant impact on global oil prices. The Congressional Budget Office recently estimated if China continues its current rate of growth, its unquenchable thirst for oil will force US consumers to pay another 38 cents per gallon of gas in five years.
In other words, no matter the perspective from which we examine our dependence on foreign oil, the unavoidable truth is that it makes our nation less secure.
There is one consolation from the high oil and natural gas prices we are continuing to pay. It is the compelling incentives we now have to act decisively by developing energy alternatives from coal gasification – and from coal liquefaction. At even the most conservative levels projected, oil prices are expected to be high enough to make this technology economic to implement and the fuel it yields economic to produce.
Certainly EIA believes so. In its most recent energy outlook, EIA projects that coal-derived fuels will constitute 8% of our expected oil import requirements by 2030. But NMA believes this projection, much like the Energy Act of 2005, is too timid a response given the more urgent circumstances the nation now faces. A more appropriate target, we believe, comes from the Southern States Energy Board, which expects alternative fuels such as liquefied coal to replace approximately 5% of imported oil each year for 20 years beginning no later than 2010.
This estimate stems not only from the rising prices of oil, but also from the abundant supply of secure coal within our own borders. U.S. recoverable coal reserves of 275 billion tons is the energy equivalent of 550 billion barrels of oil. To put this enormous strategic resource into perspective, Illinois’s coal reserves alone boast a greater BTU content than all the oil in Iran, Iraq, Kuwait and Saudi Arabia.
This is a resource that no foreign government can nationalize – that requires no costly armed forces to protect – and no exploration budget to locate.
Nor does coal-to-liquids technology require R&D funding. The requisite gasification and liquefaction technology has been in use for decades in oil-deprived countries with coal reserves. In South Africa, for example, liquefied coal has furnished as much as 60% of that country’s transportation fuels.
Finally – and particularly appropriate for Earth Day this weekend – the high-grade diesel fuel produced from coal gasification is very clean. The low particulate, low mercury and almost zero sulfur emission profile of gasified coal will mean reduced tailpipe emissions, cleaner-running mass transit systems and no measurable toxic pollutants. Moreover, the coal-to-liquid (CTL) process can capture carbon dioxide for use in enhanced oil and coal bed methane recovery, or for sequestration deep underground. The fuel will be produced domestically under the most comprehensive environmental laws in the world.
The strategic justification, the supply of coal required and the technology for using it cleanly are all in place to put the U.S. on the path toward greater energy independence. We lack only the will – the determination to make this objective a strategic imperative commensurate to the gathering risk we face from our growing dependence on imported energy.
One sign of this determination would be a commitment from Congress to provide the financial assistance required to cover the front-end engineering and design costs of building coal liquefaction plants. For despite higher global prices for oil and gas today, there is no guarantee that tomorrow the relatively small number of producing countries will not manipulate the price of their resources long enough to discourage private sector investment in alternative fuels. The government’s participation will therefore be critical for offsetting this risk of marketplace manipulation by jump-starting domestic production on the scale we will need.
This is simply an acknowledgement that private sector financing in the face of such risks is unavailable for costly, unconventional technologies that have not been widely used in the U.S.
Certainly China appreciates the need for public sector participation. Like the U.S., China boasts enormous coal reserves – second only to our own. Like the U.S., it too satisfies most of its energy needs with imported oil, again second only to the U.S. – and consequently it also faces a growing oil import bill in the years ahead.
But unlike the U.S., China eschews incremental solutions in favor of bold ones. It plans to secure its future prosperity by investing some $30 billion in coal gasification and liquefaction technology. It understands that government participation is the only way to insulate its fledgling liquefaction industry against a concerted effort by OPEC to destroy it.
China has evidently concluded that a different world calls for different approaches.
I urge this committee to think not about the similarities between the oil issues today and those of past years, but about the differences that mark today’s energy situation from that of the past. And from these differences, I hope you will draw the conclusion that we too must act differently than we have in the past.
Thank you, again, for this opportunity. I’m happy to answer any questions you may have.