Coal: Not Part of the Obama "All-of-the-above" Strategy

If we’re going to take control of our energy future; if we’re going to avoid high gas prices every year, we need an all-of-the-above strategy that develops every source of American energy.

—     President Obama, March 1, 2012

President Obama keeps talking about an all-of-the-above energy policy, but he apparently doesn’t mean it. Coal, the nation’s most abundant resource, is not part of President Obama’s energy policy. President Obama has worked diligently to introduce policies that lower the use of coal—first in his attempt to institute a cap-and-trade policy for reducing greenhouse gases and second in promoting EPA regulations that require coal plants to add additional environmental equipment or retire. This antagonism toward coal also makes coal-to-liquids technology impossible to use in the United States.  So much for a real “all-of-the-above” energy policy.

President Obama’s energy policy contrasts strongly with China’s.  China is the world’s largest energy consumer, surpassing the United States in 2009. Currently, China consumes more than 3 and a half times the coal that we use and has started building coal-to-liquids plants to help supply oil products to its populace. While the United States has policies to make liquid fuels from renewable sources, those technologies are very expensive today. Coal-to-liquids technology, on the other hand, is a proven technology having been used in World War II by the Germans and South Africa, another rich coal nation, since then.[i]

Oil Prices

Oil (Brent crude) prices are now over $123 per barrel spurred by China’s factory output (which grew more than expected in February), lower unemployment than expected in the United States, and tensions in Iran. These high oil prices and the desire to reduce energy dependence ignited interest in coal-to-liquid technology.  Coal-to-liquid processes have long been used by countries lacking access to oil: in Germany production peaked during the 1940s and South Africa has been using the technology for fuel since the 1950s. Now, China, rich in coal reserves, and realizing that it needs oil, began trial operation of the world’s first direct coal-to-liquid facility in December 2008. China intends to produce one million tons of coal-based liquid fuel a year (about 7 million barrels).

China’s Coal-to-Liquids Industry

China’s largest coal producer, the Shenhua Group, is reaping huge profits from a coal-to-liquids project completed in late 2008 in North China. In the first 3 months of 2011, company profits reached more than 100 million yuan or $15.38 million from production of 216,000 tons of refined oil products. The project located in Inner Mongolia is the world’s first large coal-to-liquids plant. Last year, it operated for 5,000 hours and produced 450,000 tons of oil products. It is expected to reach one million tons of annual capacity. With profits of that magnitude in only two years of operation, China has proven that coal-to-liquids is a lucrative business. Shenhua Group is planning to quintuple its coal-to-diesel capacity by 2013.

Other Chinese plants are turning coal into methanol and catalytically synthesizing gasified coal into a variety of chemical commodities. Since 2007, Chinese fuel marketers have been blending a billion gallons or more into gasoline at the pump. To try to mitigate emissions, Shenhua has started a small carbon sequestration project that is expected to inject 100,000 tons of carbon dioxide into a deep saline aquifer by the end of this year. Its vast plant can potentially capture 2.9 million tons of carbon dioxide annually–about four-fifths of the plant’s emissions.[ii]

Coal-to-Liquids Technology

There are two types of coal-to-liquids technologies: direct liquefaction and indirect liquefaction. In direct liquefaction, a chemical reaction at high temperatures is created and hydrogen gas and a catalyst are added to produce liquid fuel. Because direct liquefaction usually produces low-quality liquid fuel that is expensive to make compliant with U.S. standards, it is not a viable option for meeting requirements for liquid fuels in the United States.[iii]

Indirect liquefaction is a multi-step procedure where coal is first gasified, making “syngas”. The syngas is then chemically refined to produce liquid fuel. The Fischer-Tropsch method is the most common technology used.

U.S. Government and Coal-to-Liquids Technology

The U.S. Government promoted the development of coal-to-liquids technologies following the oil shocks of the 1970s, but shelved the projects in the 1980s when oil prices fell. In the current economic environment, with oil prices surpassing $100 per barrel and generally projected to rise in the long term, coal-to-liquid technology could again become viable. According to a study by the National Energy Technology Laboratory (NETL), when the crude oil price is equal to or above $86 per barrel, coal-to-liquid technology would be economic. The NETL study also indicates that adding carbon sequestration to the process is relatively inexpensive and would result in life cycle greenhouse gas emissions 5 to 12 percent less than petroleum based diesel.[iv] Other studies, however, do not agree with this lower estimate of emissions.

Currently, there is a Congressional ban on the Pentagon’s use of alternative fuels if they produce more carbon dioxide than conventional petroleum. Because the life cycle greenhouse gas emissions from the coal-to-liquids fuel are believed to be larger than the greenhouse gas emissions from conventional petroleum, they are not pursuing our most abundant energy source. Thus, the U.S. Armed Services is banned from using synthetic fuels from coal to fuel their aircraft and other vehicles.[v] Instead, the U.S. Air Force and the U.S. Navy are experimenting with renewable biofuels that are extremely expensive and whose own “carbon footprint” may turn out to be more than conventional petroleum. Cost estimates are 10 to 40 times more than petroleum based aviation fuels.

Conclusion

While China is benefiting from a coal-to-liquids program, it is unlikely that the United States will do the same. Even though the United States has the world’s largest coal reserves, the Obama administration’s regulations and government policies concerning the military make a coal-to-liquids industry unlikely in the United States at the present time. The U.S. Energy Information Administration is projecting that some coal-to-liquid technology will be used in the United States, beginning with production this decade and reaching 280,000 barrels per day by 2035.[vi] However, that is a very small amount and unlikely to be competitive with China’s programs.