Liquid coal touted as good fuel bet if ethanol fails

Bruce Nichols, Reuters 12 Feb 08;

HOUSTON (Reuters) - Refining coal into liquids is the next logical step should it become clear that corn-based ethanol is not the solution to the transportation fuel problem, the developer of a coal-to-liquids plant said on Tuesday.

"Does it make sense to burn your food supply ... to make what is in our estimation an inferior transportation fuel?" Robert Kelly, chairman of DKRW Advanced Fuels LLC, told a questioner at Cambridge Energy Research Associates' 2008 conference.

"We've got a huge amount of coal here," Kelly said after a breakfast presentation, noting U.S. coal reserves are among the world's largest. "It is a huge fuel source for the next 50 years if we do it responsibly."

"It's new. We haven't done one in the U.S. at major commercial scale. It's a long development cycle," Kelly said, responding to a questioner who asked why, if coal to liquids is such a good idea, there are not more plants already.

"When we're successful, I think you'll see a lot more," Kelly predicted.

Ethanol is a good oxygenate to improve octane when added to gasoline, but it is not a complete substitute, Kelly argued. It has about 75 percent of the heat content of gasoline, which means it does not add to fuel efficiency, he said.

Liquefied coal, as produced by the Medicine Bow facility planned in southeast Wyoming by DKRW and its partners, will be high in heat content, low in sulfur, relatively low in carbon dioxide emissions and competitive in the marketplace.

Coal-to-liquid fuels can compete in the market without the government subsidies that have boosted ethanol, Kelly said. He argued government should not favor one technology over another.

"Our view is the market ought to decide," he said, adding his plant will make a return on investment of 15 percent with oil at $60 to $70 a barrel and does not hit zero return until oil falls to $27.

DKRW Advanced Fuels, in partnership with Arch Coal Inc and with technologies licensed by General Electric, Exxon Mobil and UOP LLC, plans to start construction on Medicine Bow next year, he said.

The start of commercial operations is targeted for 2013, Kelly said. When operational, plans call for the $2.5 billion plant to use 8,000 tons of coal mined on site to make 18,800 barrels of gasoline every day.

The carbon dioxide produced will be sold for enhanced oil recovery in the region, where CO2 currently is in short supply and oil field needs are significant, he said. After being used to boost oil output, the CO2 will stay underground, he said.

DKRW chose to build a plant that makes gasoline rather than natural gas, which other coal plants make, because motor fuel has higher potential value in the marketplace. "You can get a much better swing in product pricing," he said.