by Michael E. Webber Thursday, January 5, 2012
Amid all the attention to the converging of three energy-related crises — climate change, resource depletion and international extremism funded by the energy trade — a surprising energy choice keeps rearing its head: coal. That especially includes liquid fuels made from coal, which can be a substitute for gasoline, jet fuel and just about any other transportation fuel on which we currently rely.
Think tanks, defense specialists, policymakers and others seeking a domestic antidote to our energy woes have been calling for coal-to-liquids (CTL) as an alternative to oil since the energy crises of the 1970s. The challenge is stark: In the United States, we use about 20 million barrels of petroleum every day, of which we import about 14 million barrels — the amount we need just to satisfy our thirst for transportation fuels. That equates to 140 billion gallons of gasoline and 40 billion gallons of diesel from petroleum sources each year. America’s “oil problem” is thus another way of describing our “transportation problem.” Despite all of our efforts to date, no domestic, sustainable, scalable, affordable and environmentally friendly alternative for transportation fuels has emerged. So, is it time to give CTL a chance?
CTL may be the panacea for our transportation problems. Or, it might be just another bad idea. The jury is still out on whether it is a viable fuel that makes sense given our carbon-constrained world. There is a lot of good news, a lot of bad news and a highly uncertain outlook because of looming policy decisions that have not been finalized.
There is a lot to love about coal. It is abundant, we have a lot of experience with it and we continue to improve the technology used to create energy from it.
The United States has the world’s largest reserves of coal — an estimated 250 billion tons — a fact that has created an alluring vision of a domestic, everlasting (or at least for the next 250 years) source of energy. We have been using it for 150 years to power everything from early steam engines to today’s electrical grids. Today, we produce more than a billion tons of coal annually to fuel more than half our electricity. Because of its abundance and our familiarity with coal’s production and use, we should have confidence that we can put it to work today as a liquid fuel without waiting decades for breakthroughs as we would for other fuels or vehicles that don’t run on any fossil fuel.
Additionally, coal has significant price advantages compared to other fuels,such as oil, natural gas and biofuels. Not only is coal cheaper per unit of energy, its price is also much less volatile (largely because it is produced and consumed domestically), which makes planning and forecasting straightforward and efficient from a business perspective.
Although coal is often treated as an outdated or obsolete fuel that symbolizes an old-fashioned, dirtier time, its use continually improves. Traditional, older-styled pulverized coal power plants operate today with a typical efficiency of 30 to 35 percent, meaning if we start with 100 units of fuel coming into a power plant, we lose about two-thirds of its energy content to waste heat, and only get one-third out in the form of electricity. Modern ultra-supercritical pulverized coal power plants are much better, however, with 40 to 45 percent efficiency, and with advanced techniques, they can achieve up to 70 percent efficiency. And thus, dirty old coal can outperform even the sexiest, shiniest, new state-of-the-art natural gas combined-cycle power plants that get 50 to 55 percent efficiency.
Coal’s use today is much cleaner and more efficient than ever before, and it will continue on that trend. The invention and installation of scrubbers to remove solids, sulfur oxides, nitrogen oxides and other byproducts from coal emissions continually get better, for example, especially when combined with cap-andtrade regulations that align market incentives with environmental objectives. (No such regulations are in place for carbon in the United States yet, but they have been under discussion in Congress for a couple of years, and Europe already has such regulations.) The ability to clean up smokestacks with these scrubbers provides reason for optimism that carbon capture and sequestration — viewed as keys to a coal renaissance — can be figured out.
This experience with coal power, though obviously different from CTL, is useful history when looking forward.
Nonetheless, CTL is a different animal. CTL fuels are of excellent quality and are relatively clean. Unlike coalfired power plants, where coal’s combustion emits pollutants, CTL fuels are as clean or cleaner at their end use as today’s liquid fuels. But the process by which the fuels are made can be very carbon-intensive — in fact, more so than any other fuel — and that has many people concerned.
Coal-based fuels are formed from coal gasification (creating synthetic gas from coal) followed by a series of steps to remove pollutants, synthesize the fuels and then separate out the liquids in a process known as Fischer-Tropsch. CTL fuels have several advantages over other alternative fuels. They burn well and store a lot of energy in a small amount of mass (that is, they have excellent energy density). CTL fuels are also well-suited for aviation applications because they have conveniently extreme freezing and boiling points: They will work in planes without freezing while flying at high altitudes and won’t evaporate while sitting on the tarmac in Iraq. All of these parameters are deal-breakers for other alternative fuels, including hydrogen, most biofuels and electricity. And because of the process by which CTL fuels are made, they have lower sulfur content than gasoline or jet fuel, and thus burn cleaner.
More good news about CTL is that this technology has been demonstrated over many decades. It does not require a long period of aggressive research and development funding and scientific breakthroughs to be feasible. In fact, CTL fuels are already used in the B-52 in 50/50 blends (half CTL, half petroleum-based jet fuel). These fuels were developed in the 1920s, demonstrated in the 1940s, and used by Germany during World War II (because of oil blockades) and by South Africa over the last few decades (because of oil embargoes). Today, there are dozens of Fischer-Tropsch plants worldwide, with capacity to produce hundreds of millions of barrels per year of liquids, gases and chemicals, although mostly from natural gas instead of coal. Still, they prove the point.
The experiences of Germany and South Africa are quite revealing. They demonstrate that CTL can be an effective alternative to petroleum, but at the same time, countries only seem to pursue it as a last resort, when they cannot get petroleum and have no other fuel option.
As much as there is to love about CTL, there is also a lot to hate about it. We don’t know if the supply is as abundant as we are led to believe; costs are higher than oil and gas; and then there are the environmental issues.
Despite confident claims that we have enough coal to last hundreds of years, the resource information is drastically out of date. According to the National Academy of Sciences, coal reserve estimates for the United States “are based upon methods that have not been reviewed or revised since their inception in 1974, and many of the input data were compiled in the early 1970s.” In addition, updated assessments (when they have been performed) indicate that only a small fraction of our reserves is economically recoverable. The conclusion: At current use, we definitely have sufficient coal for 20 to 25 years, probably have sufficient coal for 100 years, but we cannot confirm coal availability for the next 250 years as advertised. These estimates become further confused if CTL becomes a high-growth market, as it would accelerate the decline of reserves.
Another drawback to CTL is that it is currently expensive. In the energy industry, there is a running joke that the price at which CTL becomes economical is the price of oil plus $10 per barrel. So as the price of oil moves up and down, the threshold for CTL profitability moves up and down with it, yet remains always out of reach — invoking images of cruel Greek gods keeping a cool, refreshing river always inches away from the mouth of a thirsty Tantalus. It remains unclear whether CTL works without government subsidies, a complaint that the traditional energy industry condescendingly hurls at renewable energies with a rhythmic refrain. And the initial capital costs of CTL technologies — to the tune of billions of dollars — can be intimidating.
Also, despite new technology such as scrubbers, CTL still carries most of the environmental baggage of traditional coal production. Coal mining itself disturbs land and ecology significantly. Currently there are 1.7 million hectares (a bit more than the size of Connecticut) under permit to produce just over a billion short tons of coal annually. Surface mining is on the rise again, taking place in the form of mountaintop-removal in the East and strip mining in the West. Most of the growth in surface mining is from increasing demand for low-sulfur Western coal. The December 2008 coal sludge spill in Tennessee that buried more than 120 hectares of land is a stark reminder of the environmental blight that coal can induce.
In addition, CTL is water-intensive. Traditional coal-fired power plants are also very water-intensive, as they shed about a third of their energy through waste heat in cooling water. While most of that cooling water is returned to its source, these plants still consume about one-quarter to one gallon of water for every kilowatt-hour of electricity that is produced. CTL, however, requires between six and 10 barrels of water for every barrel of fuel that is produced, all of which is consumed for the chemical processes. This water usage is much higher than conventional gasoline, which consumes only about one to two and a half barrels of water per barrel of fuel, a little worse than electricity, but much better than irrigated first-generation biofuels, which are the poster child for bad water behavior because they can require more than a thousand barrels of water to produce a single barrel of fuel. Consequently, like biofuels, water scarcity can be a limiting factor for CTL production.
Furthermore, coal’s carbon footprint is at best even with conventional gasoline, and is even more carbon-intensive than coal-fired power or unconventional petroleum production, such as oil from the Canadian tar sands. It more than doubles the lifecycle greenhouse gas emissions of today’s gasoline based on energy content. In the end, CTL will never be carbon-neutral because carbon capture and storage does not work in car tailpipes. However, CTL might have similar carbon emissions as conventional petroleum if we could install carbon capture and storage at the CTL plant, which in the current regulatory environment might be the only way a CTL plant is allowed to operate.
The outlook on CTL going forward is completely uncertain, especially from a policy standpoint. Consequently, the future of coal is hard to predict. Thoughtful projections of total coal use in the United States vary widely, from a possible increase of 70 percent between 2005 and 2030, to a possible decrease of 30 percent over the same time span.
This spread has industry-wide ramifications for anyone who needs to produce, transport or use coal. For example, if investors wish to build a CTL plant, the relative health and growth of other coal sectors will affect their fuel prices, the cost of environmental controls and the availability of carbon capture equipment — all of which makes it difficult to determine the mix of price points that will yield a sustainable business model.
From a business point of view, CTL only makes sense with carbon capture and storage installed, which at least currently can only happen in power plants, not on tailpipes. Whether carbon capture and storage is installed on power plants will be determined by whether coal grows or shrinks as a primary energy source for the electricity sector. As such, CTL is tied to the whims and vagaries of coal in general.
These varying projections are driven by key uncertainties in energy and carbon policy; whether carbon capture and storage becomes viable; and the availability of affordable, scalable, reliable and sustainable alternative resources. The truth is, if domestic, environmentally friendly alternatives already existed at the right volumes, performance and price, then we would not be talking about CTL at all. In fact, it is essentially the failure of alternatives to date that keeps CTL alive as a topic of discussion.
Carbon policy and energy policy in particular appear to be at a crossroads. Energy policies that push for domestic fuels make CTL attractive. But climate policies that seek to reduce carbon make CTL unattractive. And so these different policy directions can collide with each other.
This conflict is already playing out with the U.S. Air Force, which is motivated to solve the energy crisis largely because it is the world’s largest single energy customer, with a total demand of more than 3 billion gallons of jet fuel per year. The Air Force has a goal to fuel 50 percent of its fleet with domestically produced fuels by 2016, and its requirements are very strict: The fleet needs liquid fuels that meet high standards for density, performance and availability. In many respects, the Air Force is the leader for the energy transition. If it can solve its energy problem, then it might just solve the world’s energy problem.
Because CTL fuels perform so well, are domestic and are already flight-rated, they are a natural choice for the Air Force. However, the Energy Independence and Security Act of 2007 has lifecycle greenhouse gas emissions limits for fuels purchased by the government (other than for experimental or testing purposes), which essentially blocks CTL as an option for now. (This legislation has problems in that it calls for standard fuels in 2005 to be the benchmark year. Since that time, the United States has already increased its use of fuels from tar sands and heavy oil, so it is possible we are in violation of the law today anyway.) So we are back to the drawing board, and it is not clear which policy thrusts will win out.
In addition to unclear policy futures, CTL’s technical future is uncertain as well. Will carbon capture and storage work? Will renewable sources displace coal? These external factors become just as important to the success of CTL as the CTL itself.
Even if these policy and technical hurdles are cleared, it is not obvious that current infrastructure constraints can be overcome. For example, unlike some biofuels, CTL fuels are compatible with existing pipelines, distribution systems, gas tanks/nozzles, filling stations and the transportation fleet. But they still might be constricted by railways. Today, two-thirds of coal is transported by railroads, and those railroads are operating at capacity. Furthermore, the United States has lost 50 percent of its railroads since the 1950s. For cities like Austin, Texas, for example, which imports a significant amount of coal from Wyoming for its power generation, three-quarters of its fuel costs are related to transportation.
Refinery complexes along the Gulf Coast seeking to make CTL to plug into the national distribution network of pipelines would face similar issues. Thus the question remains: If the nation really wants to pursue large-scale CTL production as a part of its suite of energy solutions, can infrastructure ramp up at the pace of market adoption?
When it comes to solving our energy problem, coal is the elephant in the energy room. The strengths of CTL are its abundance and its compatibility with existing energy systems, which help address our economic and security concerns about liquid fuels. But coal’s severe environmental impacts and carbon emissions become a critical constraint to its widespread adoption. If we can produce CTL cleanly — in all senses of the word — then we can go a long way toward solving our energy problem.
In the end, our energy transition will be determined by whether we replace coal with something better, or find a way to fix coal’s problems.
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