Liquid fuel from coal

19 December 2008

Dr Julie Styles
Science, Technology, Environment and Resources Section

Contents

Introduction    
Coal-to-liquids technology    
Current and proposed coal-to-liquids projects    
Future prospects    
     

Introduction

Australia has an estimated six per cent of the world’s recoverable resources of black coal, and also accounts for about six per cent of current world coal production.[1] Much of this is exported: indeed, Australia is the world’s biggest coal exporter. In resources, it ranks sixth behind the USA (31 per cent), Russia (21 per cent), China (13 per cent), India (eight per cent) and South Africa (seven per cent).[2] It is estimated that at current rates of production, Australia has enough black coal to last about 180 years.[3] Black coal represents about half of Australia’s total coal reserves: it also has about 25 per cent of the world’s recoverable resources of brown coal.[4] On the other hand, Australia is a net importer of crude oil and refined oil products, with domestic production of crude oil and liquefied petroleum gas (LPG) meeting only about 53 per cent of domestic consumption.[5] These factors, together with a desire for increased domestic energy security, and protection from economic instabilities affecting global oil prices and supply, lead to the question of whether Australia should consider developing a coal-derived transport fuel industry to meet domestic demands.

This paper provides information on production of liquid fuel from coal and its potential as an alternative to petroleum-based transport fuels in Australia. Presented first is information on liquid fuel production from coal including environmental aspects, followed by an overview of the status of the industry worldwide, and future prospects.

Coal-to-liquids technology

Production of liquid fuel from coal, known as coal-to-liquids (CTL) technology, involves either direct or indirect liquefaction. CTL can utilise either black or brown coal.

The direct process has not yet been commercially proven, but potentially provides a lower cost path with fewer steps and associated technologies. It involves dissolving the coal in a solvent at high temperature and pressure, followed by hydrogenation (adding hydrogen) with a catalyst, and further refining to produce high-grade clean fuel suitable for use in transport.

The indirect process first requires gasification of the coal. Though the technology is still advancing, gasification is a well established process commonly used to improve efficiency of coal-fired power plants. The gasification is typically carried out with steam and controlled amounts of oxygen at high temperature and pressure, to produce a clean-burning fuel known as ‘syngas’ (mostly hydrogen and carbon monoxide). Essentially all the hydrocarbons are gasified, and the remaining inorganic material forms a non-hazardous slag that can be used as road base or other building material. Ash, sulphur compounds and other contaminants are removed from the syngas stream and sulphur is isolated and recovered for safe disposal.[6] The syngas is then condensed over a catalyst in what is known as the ‘Fischer-Tropsch’ process to produce high-grade clean liquid fuel.

Whether a direct or indirect process is used, the resulting synthetic transport fuels are cleaner burning than diesel and petrol, with no sulphur emissions, and lower nitrous oxide (NOx), particulate matter (PM), hydrocarbon (HC), and carbon monoxide (CO) emissions, as shown in figure 1. Pollutant emission reductions are even greater when vehicle engines are optimised for synthetic fuels. Note that these are tailpipe emissions, which do not include emissions during extraction, processing and transport of the coal and its products.

Figure 1: Emissions reductions from synthetic fuels

Figure 1: Emissions reductions from synthetic fuels

Source: World Coal Institute, Coal: liquid fuels, 2006, p. 20, accessed on 16 December 2008.

End-products of CTL or coal gasification include synthetic diesel, synthetic petroleum, synthetic waxes, lubricants, chemical feedstocks, hydrogen, methanol and dimethyl ether.[7]

One of the benefits of CTL is that the CO2 emissions are more readily and cheaply captured from CTL plants than from conventional coal-fired power stations. The captured CO2 can be transported and injected into underground storage reservoirs (a procedure known as ‘carbon capture and storage’—CCS—or ‘geosequestration’).[8] Without CCS the carbon footprint of CTL is at least 150–175 per cent higher than that of conventional petrol/diesel production from oil.[9] The International Energy Agency Coal Industry Advisory Board supports development of CTL plants with CCS because:

…they have the potential to bear the higher cost of CCS and establish a CO2 transport and storage infrastructure that can subsequently be applied to power generation facilities.[10]

With CCS, life cycle CO2 emissions of transport fuel from coal can be reduced by about 20 per cent compared to conventional fuel production from oil.[11] Life cycle emissions include emissions during extraction, processing and transport of primary energy products (upstream emissions), as well as emissions from combustion of the end product (tailpipe emissions). A recent study noted that:

well-to-tank [upstream] emissions of CTL surpass those of conventional diesel by a factor of eight. As a consequence, carbon capture and storage is widely perceived as a precondition for CTL commercialisation in a carbon-constrained world.[12]

Since hydrogen gas is a primary product of coal gasification, this provides a relatively straightforward path to generation of hydrogen for transport fuel, which in the long term may be the cleanest transport fuel option. Hydrogen gas releases no CO2 or toxic substances when burned. Studies have shown that coal gasification is the lowest cost source for hydrogen production.[13] The other primary gasification product, carbon monoxide, which is toxic, can be readily oxidised to CO2 for capture, transport and storage. Therefore, depending on the implementation and efficiency of CCS, coal-based hydrogen production with CCS could in theory represent a desirable low emissions and greenhouse-friendly option for transport fuel. However, the technologies for CCS and hydrogen fuel have yet to be demonstrated at commercial scale.[14]

The process of coal gasification can also be used to manufacture other high value commercial chemical products such as urea—used as a fertiliser—and alternative liquid fuels such as methanol. Cogeneration of electricity with CTL in a combined facility is another option that may add value. The potentially high returns generated from these products may provide the impetus for accelerated development and deployment of CCS technology. Whether there are sufficient incentives for investment in CCS will largely depend on the impact on the market of the proposed emissions trading scheme and other schemes for the encouragement of clean coal technology and alternative energy sources.[15]

According to the International Energy Agency (IEA), CTL conversion is viable at oil prices above around US$40/barrel.[16] Studies in the US suggest liquid fuel production from coal in combination with electricity production would be competitive with fuel from oil at oil prices between US$27 and US$45 per barrel, including the costs of incorporating CCS.[17]

The high capital costs, however, present an impediment to investors. As shown in figure 2, coal-to-liquids plants are significantly more costly to build than conventional oil refineries, though cheaper than investment costs for some other alternative fuel sources. The figure shows the estimated range of capital investment cost for construction of facilities for fuel production from various unconventional sources compared to a conventional oil refinery. It indicates that the cost of a CTL plant ranges from about $50 000 to $70 000 per daily barrel of capacity. This would, for example, amount to $5–$7 billion for a plant with a 100 000 barrel per day (bpd) capacity (Australia consumes about 625 000 bpd of petrol and diesel[18]). For the same 100 000 bpd capacity, an oil refinery would cost $1–$2 billion, while a biomass-to-liquids or shale oil processing facility would each cost about $10–$14 billion.

Figure 2: Unconventional petroleum liquids capital cost investment (thousand $ per daily barrel of capacity)

Figure 2: Unconventional petroleum liquids capital cost investment (thousand $ per daily barrel of capacity)

Source: World Coal Institute, Coal: liquid fuels, 2006, p. 12, accessed on 16 December 2008

Current and proposed coal-to-liquids projects

Despite the high up-front capital investment costs, interest in CTL is now growing worldwide, especially in coal-rich countries. This is driven by the low cost and large reserves of coal in many of these countries; increasing oil prices; desire for energy independence and security; and the potential for co-development of CCS technology to reduce greenhouse gas emissions.

CTL technology was utilised in Germany in the 1940s to meet much of their demand for diesel during the war when oil supplies were limited. South Africa has the only commercial CTL industry in operation today, and has been producing liquid fuels from coal since 1955 using the indirect conversion process. In the 1970s, additional investment in CTL in South Africa was prompted by trade sanctions on oil supplies to the apartheid regime, and the industry expanded considerably. The industry was supported by government price protection, but this has been largely phased out. Today, the South African company Sasol has three CTL plants that together produce more than 160 000 barrels of liquid fuel per day from coal, which provides about 30 per cent of South Africa’s transport fuel requirements. The company manufactures over 200 fuels and chemical products from coal. Environmental standards were relatively relaxed at the time South Africa’s CTL plants were developed, and the plants have been criticised for their environmental and greenhouse gas pollution – they do not incorporate CCS, as described above. Indeed, Sasol’s three plant complex has been identified as the world’s largest single emitter of CO2.[19]

CTL plants have been proposed in many countries, including Botswana, Germany, India, Indonesia, Mongolia, New Zealand and the Philippines. Several commercial scale demonstration plants are at advanced stages of planning in the US and China.[20] The first demonstration plant using direct liquefaction is reportedly under construction in China, due to be commissioned in 2008, and two other commercial scale CTL plants are under construction there.[21] Key factors driving CTL development in China include the low costs of coal production, construction capital, and labour, as well as strong government support.[22]

There are various proposals under investigation in Australia. A $2 billion project to manufacture fertiliser from brown coal in Victoria was launched on 3 June 2008.[23] The plant is to employ CCS and is expected to come online in 2012. The chairman of the Australian Energy Company, Allan Blood, who is behind the project, was reported to have said that diesel production from coal was economically viable at a crude oil price of around $60 per barrel.[24] Another project by Monash Energy, backed by Shell and Anglo American, proposes a $5 billion CTL plant in Victoria’s Latrobe Valley for the production of transport fuel from brown coal.[25] This project was recently reported to have been put on hold.[26]

Two Australian companies, Linc Energy and Carbon Energy, aim to combine underground coal gasification (UCG) with a CTL plant to produce synthetic fuel, among other products, from black coal in Queensland. UCG involves injection of oxygen into the coal seam underground and recovery of the resulting syngas stream, leaving the coal in situ. Linc Energy, which was formed in 1996 to commercialise the UCG process in Australia, has a target production capacity of 20 000 barrels per day for its planned facility at Chinchilla, Queensland, where the company has successfully trialled the UCG technology.[27] Carbon Energy is investing $20 million in constructing a surface plant and associated facilities at its Bloodwood Creek site in Queensland, to be commissioned for UCG trials in the next few months.[28]

Future prospects

Studies on the economic costs and benefits of CTL, accounting for the increasing influences of emissions-limiting policy measures, suggest that the CTL industry is likely to be restricted to niche markets except where it receives substantial government support. Referring to a recent publication reviewing the CTL industry,[29] the IEA’s Clean Coal Centre stated:

Because of the high costs involved, and the environmental implications, CTL processes will only be used in the long term where there is substantial government support for strategic reasons, and also where the extra CO2 produced can be effectively sequestered. The environmental benefits arising from the production of cleaner fuels are significant, but governments are unlikely to require their use. The view expressed by the IEA in World Energy Outlook 2006 is that CTL production is likely to remain a niche activity during the period up to 2030, and the review carried out in this study confirms this.[30]

The environmental concerns stem from the much higher energy-intensity of liquid fuel production from coal compared to conventional fuels, resulting in much larger CO2 emissions if CCS is not employed (150–175 per cent higher). It has been reported that of the approximately 30 large-scale CTL plants under construction or in the final planning stages around the world, only one (in Australia) intends to include CCS.[31] As noted earlier, CCS has not yet been deployed at commercial scale and it is not yet considered to be economically viable. A recent review of the CTL industry in the USA similarly concluded:

…CTL deployment in the United States is hampered by a lack of political compatibility as the growing importance of climate policy favours other fuel options and creates a high degree of economic uncertainty that is in conflict with CTL’s high investment costs. Hence, CTL commercialisation is likely to remain limited to niche markets in coal-producing states offering regional incentives or strategic markets such as the military with specific fuel and security requirements.[32]

As these studies indicate, environmental concerns together with high capital costs are likely to limit development and expansion of the CTL industry in Australia and elsewhere in the immediate future. However, there is considerable support for development of CCS from both industry and government,[33] and there will be indirect incentive for its development provided by the emissions trading scheme proposed for introduction in Australia in 2010, as well as by international schemes. If CCS technology and deployment matures, this may provide the economic conditions under which CTL could become viable.




[1].    These are economically demonstrated resources, which are resources judged to be economically extractable under current economic conditions.

[2].    Geoscience Australia, Australia’s identified mineral resources 2008, Canberra, 2008, accessed on 12 December 2008.

[3].    Australian Coal Association, ‘The Australian Coal Industry – Coal Resources’, http://www.australiancoal.com.au/the-australian-coal-industry_coal-resources.aspx, accessed on 12 December 2008.

[4].    Economically demonstrated resources; Geoscience Australia, op. cit., p. 21; brown coal is a lower grade of coal with high moisture content.

[5].    Australian Bureau of Agricultural and Resource Economics, Energy in Australia 2008, Canberra, 2008, pp. 15, 19, accessed on 15 December 2008.

[6].    See, for example, G. Nagl, ‘Cleaning up gasification syngas’, http://www.environmental-expert.com/resultEachArticle.aspx?cid=8737&codi=7347&level=7&idproducttype=6, accessed on 16 December 2008.

[7].    World Coal Institute, Coal: liquid fuels, 2006, p. 4, accessed on 29 September 2008.

[8].    CCS technology is currently in the development stage, and has not been deployed at commercial scales. Further information on CCS technology can be found in Appendix 1 of J. Styles, M. Coombs, S. Scully and K. Post, ‘Offshore Petroleum Amendment (Greenhouse Gas Storage) Bill 2008’, Bills Digest, no. 26, Parliamentary Library, Canberra, 2008–09, accessed on 12 December 2008.

[9].    International Energy Agency (IEA), Coal Industry Advisory Board, Clean coal technologies: accelerating commercial and policy drivers for deployment, OECD/IEA, 2008, p. 41, accessed on 29 September 2008.

[10]. ibid., p. 42.

[11]. World Coal Institute, ‘Coal to liquids’, http://www.worldcoal.org/pages/content/index.asp?PageID=423, accessed on 29 September 2008.

[12]. D. Vallentin, ‘Policy drivers and barriers for coal-to-liquids (CtL) technologies in the United States’, Energy Policy, vol. 36, no. 8, August 2008, p. 3199.

[13]. IEA, op. cit., p. 42.

[14]. See the Cooperative Research Centre for Greenhouse Gas Technologies (CO2CRC) for more information on CCS technologies, demonstration projects and geological storage assessment in Australia, http://www.co2crc.com.au/, accessed on 15 December 2008.

[15]. Australia has been arguing for the inclusion of CCS in the Clean Development Mechanism, which allows countries to offset their emissions by investing in projects in developing countries to reduce emissions there. This would greatly assist development of CCS to the point of large-scale deployment. However, the recent climate change negotiations at the Conference of Parties at PoznaƄ in early December 2008 failed to produce an agreement on the issue, which makes it unlikely that CCS will be included in the CDM when the final treaty is negotiated in Copenhagen at the end of 2009.

[16]. IEA, op. cit., p. 41.

[17]. World Coal Institute, Coal: liquid fuels, op. cit., p. 12.

[18]. Australian Bureau of Agricultural and Resource Economics, op. cit., p. 72.

[19]. L. Taylor, ‘South African plant is world’s biggest single emitter of CO2’, Australian, 19 June 2008, p. 4.

[20]. IEA Clean Coal Centre, ‘Coal to liquids’, http://www.iea-coal.org.uk/site/ieacoal_old/publications/newsletter/current-issue/chlorine-in-coal-combustion-and-cofiring?, accessed on 16 December 2008.

[21]. D. Adam, ‘Alarm over new oil-from-coal plans’, The Guardian, 20 February 2008, http://www.guardian.co.uk/environment/2008/feb/20/china.ctl, accessed on 29 September 2008.

[22]. IEA Clean Coal Centre, loc. cit.

[23]. R. Wallace, ‘$2bn plan to “fuel petroleum needs”’, Australian, 3 June 2008, p. 7. Victoria’s coal reserves are predominantly brown coal, which has a higher moisture content than black coal and produces more CO2 emissions per energy yield due to lower combustion efficiency. There is therefore additional pressure on the brown coal industry to invest in clean coal technologies to remain competitive with black coal in environmental terms.

[24]. ‘Coal put forward as alternative source of diesel’, ABC News, 3 June 2008, http://www.abc.net.au/news/stories/2008/06/03/2263839.htm, accessed on 29 September 2008.

[25]. Monash Energy, ‘Project overview’, http://www.monashenergy.com.au/project/project.html, accessed on 29 September 2008.

[26]. ‘Coal-to-liquid project suspended’, ABC News, 4 December 2008, http://www.abc.net.au/rural/resource/stories/s2437580.htm, accessed on 15 December 2008.

[27]. Linc Energy, ‘Process overview’, http://www.lincenergy.com.au/process.php, accessed on 15 December 2008; ‘Chinchilla pilot burn project’, http://www.lincenergy.com.au/cpb.php, accessed on 15 December 2008.

[28]. Carbon Energy Pty Ltd, ‘Overview’, http://www.metex.com.au/?page=carbon_energy&section=65, accessed on 15 December 2008.

[29]. G. Couch, ‘Coal to liquids’, IEA, 2008.

[30]. IEA Clean Coal Centre, loc. cit.

[31]. D. Adam, loc. cit.

[32]. D. Vallentin, op. cit., p. 3210.

[33]. For example, the Government recently announced a $100 million Global Institute to facilitate the development of CCS technology—‘Global carbon capture and storage initiative’, K. Rudd (Prime Minister) and M. Ferguson (Minister for Resources, Energy and Tourism), media release, Parliament House, Canberra, 19 September 2008. The Offshore Petroleum Amendment (Greenhouse Gas Storage) Act 2008 was passed on 21 November 2008 to provide the legal framework for geosequestration in offshore geological storage reservoirs. Also notable is the Government’s assistance to the most emissions-intensive coal-fired generators and to development of CCS outlined in its recent Carbon Pollution Reduction Scheme White Paper (see ‘Electricity sector adjustment scheme fact sheet’). Under the proposed scheme, synthetic fuels are subject to the same obligations as other fuels, and upstream processes will also be covered. However, carbon transferred to CCS facilities would not be counted towards the originating entity’s gross emissions (see ‘Chapter 6: Coverage’).

 

 

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