June 20, 2007 — Liquid Assets

Can liquefying coal from places like Mingo County, W.Va., help solve our energy problems?
By Ernie Siciliano

Could the United States convert its vast coal reserves into liquid fuels, providing an antidote to rising oil prices? In Mingo County, W.Va., the push toward energy alternatives is illustrated by Rentech Inc.'s deal to construct a coal liquefaction plant. Pending the results of a feasibility study, the plant's construction could take up to two and a half years, while oil production could begin within four years after that.

"Everyone keeps calling us the Saudi Arabia of coal, but we have more than that," says Kenneth Nemeth. He is executive director of the Southern States Energy Board, an energy and environmental policy group with representatives from the five Fifth District states and
13 other states and territories in the South. Nemeth estimates that America's coal reserves potentially contain the equivalent of
992 billion barrels of oil, versus the estimated 686 billion barrels of oil in the Middle East. However, economic and environmental hurdles still must be overcome to turn coal into a liquid asset.

Once operating, the Mingo County plant would produce between 10,000 and 30,000 barrels of oil a day, a tiny fraction of the 9 million barrels Americans use daily. If other coal liquefaction plants develop in coal-rich states like Illinois and Wyoming, however, liquid coal could replace 29 percent of the United States' energy imports by 2030, according to a study by the Southern States Energy Board.

Howard Herzog, an MIT researcher who recently authored a study on the future of coal, doubts that coal liquefaction will seriously dent oil imports because of its prohibitive startup costs. "To get to even the level of 10 percent of our oil use is an incredible amount of investment, and I don't think it's something you ramp up that quick," Herzog notes.

The Mingo County plant would cost roughly $2 billion, says Richard Bajura, director of West Virginia University's National Research Center for Coal and Energy. It would take approximately 20 years to recoup the initial investment, but if oil prices fall below $45 a barrel in that time, profits would vanish. "When you talk about [investing]
$2 billion, people are balking," Bajura said. "We think we can do the technology, but we need the money."

For now, high oil prices should help coal liquefaction attract investments from companies like Peabody Energy Corp., which recently sunk $10 million in a liquid-to-coal plant in East Dubuque, Ill. According to a U.S. Department of Energy report, such plants would yield a 19.8 percent return on investment as long as oil prices remain above $61 a barrel.

Coal liquefaction uses the Fischer-Tropsch method, a process invented in the 1920s. South Africa has used this method to meet
30 percent of its energy needs, pumping out 150,000 barrels of liquid coal daily. It resorted to coal liquefaction after a series of oil embargos were imposed on the country during the Apartheid era.

In the United States, proposals to support coal liquefaction have been discussed in Congress, though no concrete legislation has been submitted. Proposals include $10 billion in loan guarantees, subsidies to coal companies if oil prices drop sharply, and tax credits for companies that sell liquefied coal.

Meanwhile, the practice faces fierce opposition from environmentalists who estimate it may emit almost twice as much carbon dioxide as oil refining. A study published by the Department of Energy's Argonne National Laboratory found that processing liquid coal produces 66 percent more carbon dioxide than gasoline.

"In order to look at a true cost-benefit you need to look at the externalities," said Margaret Janes, senior policy analyst at the Appalachian Center for the Economy & the Environment in Lewisburg, W.Va. Janes is opposed to coal liquefaction unless it is used as a "transitional" fuel while researchers develop more environmentally friendly energy sources.

In addition, Janes says that the effectiveness of carbon capture and carbon sequestration, two processes championed by industry advocates as ways to slash carbon dioxide emissions, are unknown. (Carbon capture removes carbon dioxide during coal-to-liquid production, while carbon sequestration stores the carbon for possible future use.) Both processes are planned to be implemented at the Mingo County plant.

Herzog cautions that, at best, modifications to the coal liquefaction process will succeed in only maintaining current carbon dioxide levels. "Even if we capture all of the carbon that comes out of production and sequester it, we are just going to be where we are now," he says.

Nemeth is more optimistic. If energy companies were producing liquid coal using the Fischer-Tropsch method, "we wouldn't be getting anywhere near the pollution coming out of oil refineries every day."

Nemeth says mixing biomass with coal during the liquefaction process is one way to reduce carbon dioxide emissions. Using a
50-50 biomass-coal mix with the Fischer-Tropsch method is likely to release less carbon dioxide than traditional petroleum-based fuels, researcher James Bartis told the Senate Energy and Natural Resources Committee last month.