HOSTETTER: Fill 'er up with coal?

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By Ralph Hostetter

Coal liquefaction has been around for a long time. Although relatively unfamiliar in the American energy vocabulary, it dates back to 1923, when German scientists developed the Fisher-Tropsch process for converting coal into the liquid fuels of gasoline and diesel.

The process was used extensively by Nazi Germany during World War II. It came into its most extensive use when South Africa faced a world oil embargo during that nation's political practice of racial apartheid in the latter part of the last century. The government of South Africa formed the South African Synthetic Oil Ltd. Corp., which has become known as Sasol.

The Sasol operation at its peak, during the apartheid embargo years, was producing as much as 70 percent of South Africa's liquid fuel needs. Prices at the pump were competitive with world prices for imported oil. As demand grew for increased production of synthetic fuels, Sasol built a much larger facility at Secunda. Sasol today converts 120,000 metric tons of coal per day to 150,000 barrels of oil at a ratio of 1.25 barrels of oil per ton of coal. It is predicted Sasol will produce 200,000 barrels daily by the year 2016.

Coal represents some 95 percent of all U.S. fossil fuel reserves. The nation has 275 billion tons of recoverable coal, 25 percent of the world's estimated coal resources. The United States mines more than 1 billion tons of coal per year as compared to the 4 billion tons the remainder of the world produces.

Less expensive coal is normally used in coal liquefaction. Coal costs in June of 2008 ranged in price from $14 per ton for Powder River Basin, 8,800 British thermal unit coal, to $54 per ton for Uinta Basin, 8,700-BTU coal. The $14 per ton coal would be adequate for coal liquefaction.

The cost ratio of 1.25 barrels per ton of coal at a cost of $14 to $54 per ton would prove very advantageous with oil at $119 per barrel on Aug. 11, 2008. The profitability of liquefaction would be in line with Sasol profits in South Africa - so great that excess profit taxes were assessed.

The United States consumes more than 20 million barrels of oil per day, of which 12 million are imported. Some say the imported oil amounts to 14 million barrels per day or 70 percent of America's needs - and the imported figure rises daily. The cost to the United States of some $700 billion is the largest transfer of wealth from one nation to another in all history. This is more than the annual cost of the combined wars of Iraq and Afghanistan.

Numerous U.S. corporations are taking up positions in the coal-to-liquid field. Among those that have developed coal or gas-to-liquid at the pilot plant or commercial stages are: Shell, Rentech, StatoilHydro, Syntroleum and Exxon, with combined capacity of 60,000 barrels per day. These plants are located in South Africa, Malaysia and New Zealand.

American Clean Coal Fuels in its Illinois clean fuels plant is developing a 30,000 barrel per day biomass and coal-to-liquid operation with the addition of a carbon capture and sequestration project in Oakland, Ill. Baard Energy at its Ohio River Clean Fuels project is building a 53,000 barrel per day coal-and-biomass-to-liquid operation. Rentech is building a 29,000 barrel per day coal-to-liquid operation at its Natchez, Miss., site.

DKRW is constructing a 20,000 barrel per day coal-to-liquid plant with carbon capture and sequestration in Medicine Bow, Wyo.

The U.S. Department of Energy predicts that consumption of coal-to-liquid fuels will increase to 3.7 million barrels per day by the year 2030.

Synthetic fuels are very attractive when compared to competing technologies such as biofuels and ethanol and, in particular, they offer no competition to the food markets.

Coal, the raw material, is available in abundance and in quantities that will meet current demands for centuries to come. Coal can produce gasoline, diesel and kerosene directly and its use in motor vehicles does not require addition of costly technologies of reforming or cracking. Coal, direct to liquid, is readily adaptable to all new standard-design automobiles. There is no need to convert current cars to the use of synthetic fuel. Coal to liquid fits present methods of delivery to distribution points for filling the fuel tanks of automobiles and trucks.

With gasoline at $4-plus per gallon, the American public is clamoring for alternative sources of energy. Coal to liquid provides an exceptional example of an alternative energy source. The best news of all is the cost of producing synthetic fuels. Rentech of Denver, Colo., a principal producer of synthetic fuels, performed a "scoping" study for the State of Wyoming in 2005. Based upon those figures, synthetic fuel production - including both capital and operating costs - using Powder River Basin coal at $30 per ton plus 10 percent interest would be $1.85 a gallon.

By increasing the present mining of 1 billion tons of coal per year by another billion tons, with the conversion into synthetic fuels at the ratio of 1.25 barrels per ton, the U.S. could reduce imports of crude oil by 15 percent, or reduce import costs by $100 billion per year.

E. Ralph Hostetter, a prominent businessman and publisher, is an award-winning columnist and vice chairman of the Free Congress Foundation board of directors.