Coal Is Liquid Fuels

Converting coal into a liquid fuel (coal liquefaction) is a tangible solution to the pressures felt by countries dependent on oil imports and adversely affected by high oil prices. Imagine, coal price only $10 per barrel of oil equivalent, that's super cheap.

Liquid fuels from coal can be delivered from an existing pump at a filling station via existing distribution infrastructure and used, without modification, in the current vehicle fleet. Coal, including waste or low-quality coal, can be readily converted into a variety of fuels, with a number of key advantages:

• Coal-derived fuels are ultra-clean: sulphur-free, low in particulates, with low levels of oxides of nitrogen.
• Carbon dioxide emissions, over the full fuel cycle, can be reduced by as much as 20%, compared to conventional oil products, through the use of carbon capture and storage [Williams & Larson 2003 ].
• Coal is mined in over 50 countries worldwide, and present in over 70 – infrastructure systems exist for utilising this resource to provide liquid fuels.
• Ultra-clean coal-derived fuels can be used for transport, cooking and stationary power generation, and as a feedstock for the chemicals industry.

Direct coal liquefaction converts coal to a liquid by dissolving coal in a solvent at high temperature and pressure. This process is highly efficient, but the liquid products require further refining (‘hydrocracking’ or adding hydrogen over a catalyst) to achieve high grade fuel characteristics.

Indirect coal liquefaction first gasifies the coal with steam to form a ‘syngas’ (a mixture of hydrogen and carbon monoxide). The sulphur is removed from this gas and the mixture adjusted according to the desired product. The syngas is then condensed over a catalyst – the ‘Fischer-Tropsch’ process – to produce high quality, ultra-clean products.

An array of products can be made via these processes – ultra-clean petroleum and diesel, synthetic waxes, lubricants, and chemical feedstocks. A similar process, using different catalysts, will produce alternative liquid fuels such as methanol and dimethyl ether (DME).

Efficiency and productivity can be improved by co-producing liquid fuels, electricity and chemical feedstocks (known as polygeneration). Carbon dioxide emissions from the production process can be significantly reduced through carbon capture and storage – and costs may be offset as a result of changes in sulphur management.

ENERGY SECURITY

In Coal: Secure Energy the World Coal Institute looks at coal’s role in a balanced energy mix – particularly regarding security of supply in power generation – and how the use of clean coal technologies and carbon capture and storage can allow those security benefits to be realised while alleviating environmental impacts [WCI 2005].

Energy security considerations are potentially even more important in the transport sector. Oil products provide 96% of the energy used in transport – a far cry from the ‘balanced energy mix’ being sought as a sensible paradigm for stable economic development. As oil prices have risen dramatically over recent years, the possibility of hedging risks through the use of alternative fuels – Coal to Liquids (CTL); Gas to Liquids (GTL); and Biomass to Liquids (BTL) – is being seriously considered.

Energy security, of course, is not limited to concerns around high oil prices. It is a complex mix of issues around resource access, security and availability of supply infrastructure, rapidly changing patterns of production and consumption, unusual and adverse weather events and geopolitical tensions.

Resource Availability

The most fundamental concern about oil supply is the physical quantity of remaining reserves. The world’s total proven conventional oil reserves currently stand in the region of 1.2 trillion barrels, or about 40 years of supply at today’s production levels [BP 2006]. While unconventional resources (oil shales, tar sands etc.) are being developed, demand is also forecast to rise at an average rate of 1.6% per annum between now and 2030 [IEA 2004].

Gas to Liquids (GTL) plants are currently operating in Malaysia and Qatar, and several others are planned. However, gas reserves are forecast to last only another 65 years. Gas prices are comparatively high and, as markets expand and interconnect, greater competition for resources may be expected, particularly with regard to liquefied natural gas (LNG) for power generation. GTL is effectively limited to stranded natural gas fields – i.e. those that are either too remote from a market, making construction of pipelines prohibitively expensive; or those where the market is saturated and export costs are too great.

In contrast, coal reserves are forecast to last well into the future – on a global average for a further 155 years, but in some countries domestic reserves may last much longer [BP 2006]. There are vast reserves in the USA, Russia, China, India and Australia, and many other countries have reserves more than adequate for over 100 years of use at current rates.

Coal is the world’s fastest growing energy source and is set to continue on this path [BP 2006]. New resources are being identified in, amongst others, Mongolia, Nigeria and Botswana, and production is increasing rapidly in Venezuela and Colombia.

Biofuels are also a growing market. Brazil has led the world with its biofuels programme (ethanol from sugarcane), and the US now uses 20% of its corn for ethanol production – supported by tax credits and its value as a replacement of the fuel additive MTBE1. Global ethanol production provides around 0.4% of world oil consumption, and further rapid growth is expected.

However, growing biomass for fuels requires large land resources, and may in some parts of the world have to compete with food production or indeed with biomass for commercial electricity production – especially where subsidies or incentives have already been put in place. Biomass production for fuels on this scale can also have a significant impact on biodiversity. BTL plants are the most costly of the alternative fuel production systems to build, and feedstock costs are variable.

Using coal and biomass together to produce liquid fuels can offer some valuable benefits. Biomass can be used in the less costly coal to liquids plants thereby reducing capital outlay. Reducing the amount of biomass used will put less pressure on land use and biodiversity, and reduce competition with food crops. Co-processing of coal and biomass, in conjunction with carbon capture and storage, provides an opportunity to produce liquid fuels with near-zero net greenhouse gas emissions [Williams et al 2006].

Security of Supply

Geopolitical issues dominate oil and gas security of supply discussions. The location of the world’s oil and gas resources and their availability to consumers is a major concern, and import dependency is a considerable part of this. Countries and governments may feel an elevated level of risk if over-dependent on one particular fuel source or on imports from one particular region – particularly if the region is an unstable one where risks may change frequently. While greater freedom of trade, connectivity of markets and interdependence of fuels should go a long way to alleviate potential difficulties, these are not fully in place.

Coal offers a number of security of supply benefits. Coal has a particularly broad geographic resource distribution – it is present in more than 70 countries worldwide and currently mined in 50 of those [WEC 2004]. Coal users can benefit from utilising their own indigenous resources, or by accessing affordable coal in a well-established market from a wide variety of countries and suppliers. Even taking into account the costs of transformation, coal-derived fuels can provide a hedge against the volatility of oil prices and facilitate greater economic independence through the stabilisation of demands on foreign currency reserves.

In the oil sector, production is still dominated by the Organization of Petroleum Exporting Countries (OPEC), which has accounted for almost half of the growth in world oil production since 1995 and its production is at its highest level ever. OPEC accounts for more than 40% of total world production, covers almost 80% of global proven reserves, and its exports provide over 50% of the world’s internationally traded oil.

Net oil imports in the OECD rose to 59% in 2005 – the highest share since 1979. Chinese oil consumption has more than doubled since 1995, and the majority of this is imported. In the USA, domestic production reached its peak in 1971 and has been declining steadily since. The USA now tops the oil import charts, buying in some 13 million bbl/d – almost three times the amount of the next largest importer, Japan.

Many of the OPEC countries have a history of political instability, and most are concentrated in the currently unstable Middle East. Attacks on energy infrastructure in OPEC nations due to ongoing conflicts are a cause for increasing concern, most recently in Iraq and Nigeria. Distribution infrastructure and oil supply routes are also potentially at risk – chokepoints are particular worries, where congestion may slow supplies, or which may be at risk as conflict targets. Pipelines, refineries and other energy infrastructure have all recently been the focus of conflict-driven attacks.

Security of supply is not merely the physical security of infrastructure. For example, political concerns in Venezuela resulting from the re-nationalisation of the oil industry have led to investor withdrawal. Industrial issues may also affect supplies – as during winter 2006 when Gazprom, the Russian gas monopoly, turned off its supplies to Ukraine. While the circumstances surrounding this act – non-payment and disagreement over prices – may have justified the action in the views of the supplier, their readiness to do so caused worry to many other customers. If the dispute had lengthened, technical issues around gas delivery would have created supply problems to a much larger area.

The broad distribution of coal resources and the variety of supply routes ensure that such difficulties are extremely unlikely where countries are involved in the international market. If one supply route were to be cut off for any reason, a host of other suppliers and import facilities can be utilised.

The availability of oil refining capacity to meet the need for modern fuels is a further concern in ensuring a constant supply of oil products. The scale of necessary investment – some $500 billion is needed by 2030 – is challenging for all, but particularly for developing countries, and especially in light of dwindling resources. Aging refineries need to be upgraded or replaced to meet changing needs as product specifications change. The demand for low or ultra-low sulphur fuels is putting further strain on current processes due to shortages of the hydrogen necessary for their production.

The uncertainty about availability and security of oil and gas supplies has led many governments to consider their positions and exposure to oil-related risks. Investors are carefully assessing their options and looking at alternative fuels and processes.

Rising Fuel Prices

Oil and gas prices are increasing both in absolute terms and in volatility, largely as a result of the constraints and concerns discussed in this paper. Coal prices have been historically lower and more stable than both oil and gas on an equivalent energy basis, and despite the growth of index and derivative based sales in recent years, this is likely to remain the case.

By July 2006, oil prices had reached highs of $78 per barrel (NYMEX) as a result of ongoing supply issues and exacerbated by further conflict in the Middle East. The role of OPEC is a complicating factor – the Organisation may be considered a single supplier, significantly reducing the amount of competition in the sector and thus reducing the overall ability of the market to correct prices.

Average monthly US natural gas prices during 2005 reached $8.79/million BTU, peaking at over $15/million BTU in December 2005 (Henry Hub). European prices showed similar volatility. The average European natural gas price was $6.28/million BTU – compared to an annual average price during the 1990’s of $2.50.

The comparative price of coal is significantly lower. The overall trend in coal prices over 2005 was a downward one, in stark contrast to oil and gas. Its overall affordability and availability have contributed to coal remaining the fastest growing fuel in the world [BP 2006].

Recent financial forecasts have suggested future average coal prices of $45 per tonne – roughly $70 per tonne of oil equivalent, or under $10 per barrel of oil equivalent. Oil prices, governing the price of conventional liquid fuels, are likely to remain high – the US Government predicts a range to over $90 per barrel for the period to 2030.

The constraints of resource availability, supply security, refinery capacity and changes in product demand, are unlikely to ease. The result is investment in alternative supplies: additional capacity from conventional oil fields previously too expensive to exploit; unconventional oil, such as oil sands from Canada and Venezuela; or alternative processes – CTL, BTL or GTL.

The use of wheat for ethanol production (biofuels) however, may lead to competition between food and oil markets. 2006 has seen wheat prices rise to a 10 year high due to a combination of very dry weather conditions and the expected growth in biofuel production. Global wheat production is expected to fall short of demand this year, the fifth of the past six years where demand has exceeded supply. The global wheat stocks-to-use ratio in 2007 is likely to be the lowest in three decades [UNFAO 2006].

COAL TO LIQUIDS: INVESTMENT

The growth in demand for liquid fuels, together with the dramatic increase in oil price and energy security concerns, is creating a unique situation for the potential rapid development of coal to liquids industries around the world.

The low price of coal compared to the high price of other fuel sources, whether oil (currently trading at $600 per tonne), ‘unconventional’ oil, or gas, provides a degree of longer term investment certainty that has generated a significant amount of interest in CTL fuels worldwide.

The conversion of any feedstock to provide an alternative fuel requires sizeable upfront investment and all alternatives are more costly to build than a conventional oil refinery. The cost of building a conversion facility varies according to location, but recent work suggests that CTL plants are one of the most cost effective of the alternative fuels, particularly when overall operating costs and the low cost of coal are considered. CTL capital investment costs range around $50,000-$70,000 per barrel of daily capacity, compared to $100,000-$145,000 per barrel of daily capacity for biomass to liquids plants [US DOE 2005].

Liquid fuel from coal is not a new idea, but its development has been constrained by low oil prices – typically oil prices need to be of the order of $35 per barrel or higher for coal to liquids to be economically attractive. In the USA, studies suggest certain liquid fuels can be produced in conjunction with electricity production at a ‘break even crude oil price’ of between $27 and $45 per barrel, including the costs of carbon capture and storage [Williams & Larson 2003]. 

The capital cost of CTL plants is also expected to decrease through the ongoing development of the technology. Although CTL has been operating for many years in South Africa, a broadening and growth of the market will drive both existing providers and new entrants to develop more efficient and cost-effective processes to gain market advantage.

New developments notwithstanding, CTL currently provides one of the most affordable alternatives to conventional petroleum production.

COAL TO LIQUIDS: MARKET POTENTIAL

For the transport sector, growing at an annual average rate of 2.5% globally, there are currently few alternatives to liquid fuels. In developing countries, demand is growing even more strongly as economies develop and consumers purchase more vehicles.

In China, private car ownership has increased dramatically over recent years. Ownership is expected to reach around 250 million by 2025 – equivalent to 150 cars per thousand people [China Daily 2004]. In 2004 this figure was just 10 cars per thousand people. In North America current ownership is at 770 cars per thousand people [IEA 2004]. The pressure to provide infrastructure and fuels is immense – and coalderived fuels can play a significant role.

Fuels produced from coal also have potential outside the transportation sector. In many developing countries, health impacts and local air quality concerns have driven calls for the use of clean cooking fuels. Replacing traditional biomass or solid fuels with liquefied petroleum gas (LPG) has been the focus of international aid programmes. LPG, however, is an oil derivative and is thus affected by the expense and price volatility of crude oil. At current oil prices the affordability of LPG is questionable, potentially causing consumers to return to the use of traditional biomass resources – wood or dung – with resulting health impacts.

Coal-derived dimethyl ether (DME) is one of a suite of fuels that can be produced in the CTL process and is receiving particular attention today. It is a product that holds out great promise as a domestic fuel. DME is noncarcinogenic and non-toxic to handle and generates less carbon monoxide and hydrocarbon air pollution than LPG. DME can also be used as an alternative to diesel for transport, as well as for on and off-grid power applications. The use of DME in combined cycles is a proven technology, and emissions are as low as from natural gas. Where DME replaces domestic coal use, CO2 emissions may be up to 40% lower.

China in particular has taken up DME production – financing from the World Bank Group has been secured for a 400,000 t/year plant in Inner Mongolia to provide fuel for household cooking and heating, transportation and power generation. A further project in Ningxia Province has benefited from US Trade Department assistance and will provide power, chemical feedstock and liquid fuels.

The benefits of CTL can be realised particularly in countries that rely heavily on oil imports and that have large domestic reserves of coal. There are a number of CTL projects around the world at various stages of development, the most advanced being in China, the USA and Australia. There is also strong interest from other countries including Indonesia, Germany and India. Like South Africa, all of these countries have large domestic reserves of coal and much smaller reserves of oil.

MEETING ENVIRONMENTAL CHALLENGES

Converting coal to liquid fuels provides ultra-clean, sulphur-free products, low in aromatic hydrocarbons (such as benzene), and offering significant reductions in vehicle emissions such as oxides of nitrogen, particulate matter, volatile organic compounds and carbon monoxide. 

They are readily bio-degradable and non-toxic.Fuel consumption is lowered, reducing emissions of end-use carbon dioxide.

Transport Emissions

Synthetic fuels from coal can be used directly in today’s vehicles, with no need for modification. Road trials of synthetic fuels in several European capitals and elsewhere demonstrate that significant local air quality improvements can be achieved through the reduction of these tailpipe emissions. Studies in the USA suggest particulate emissions can be up to 75% less than traditional diesel, and oxides of nitrogen can be reduced by up to 60% The optimisation of new engines for synthetic fuels can produce even greater reductions, particularly of nitrogen oxides. New engine design, such as direct injection, will offer greater efficiencies.

The introduction of synthetic fuels will also have an immediate positive impact on emissions across the entire existing vehicle fleet, as it can be used in vehicles and existing fuel supply infrastructure without the need for any modifications.

Process Emissions

The conversion of any feedstock to liquid fuels is an energy intensive one, and process emissions must be considered. While the coal to liquids process is more CO2 intensive than conventional oil refining, there are options for preventing or mitigating emissions. Due to the broad global distribution of coal reserves, emissions may also be avoided through shorter fuel transport distances.

For coal to liquids plants, carbon capture and storage (CCS) can be a low cost method of addressing CO2 concerns and may result in greenhouse gas emissions being some 20% lower over the full lifecycle than fuels derived from crude oil [Williams & Larson 2003]. Where co-processing of coal and biomass is undertaken, and combined with carbon capture and storage, greenhouse gas emissions over the full fuel cycle may be as low as one-fifth of those from fuels provided by conventional oil [Williams et al 2006].

Carbon capture and storage involves the capture of CO2 emissions from the source, followed by transportation to, and storage in, geological formations. CCS is particularly applicable to the CTL process as the CO2 stream produced from CTL is at a very high concentration – very little of the costly CO2 separation is required before transport and storage.

Once the CO2 has been captured there are a number of storage options available. The CO2 can be stored in deep saline aquifers or be used to assist in enhanced oil recovery and subsequent CO2 storage. CO2 can also be captured and sold to the food and beverages industry, displacing CO2 currently sourced specifically for this purpose from naturally occurring CO2 deposits. This also provides an extra source of revenue for the project.

CCS is already being used on a coal gasification plant at one of the largest and longest running CCS projects in the world in Weyburn, Canada. The Great Plains synfuels plant in Dakota, USA, produces natural gas and other chemicals through the gasification of low quality coal. 60% of the CO2 generated from the gasification process is captured and transported via pipeline to the Weyburn oil field in Saskatchewan, Canada. At the Weyburn site, the CO2 is used for enhanced oil recovery and stored geologically. Weyburn has been operating since 2000 with a total of 5Mt of CO2 stored. In this case, the sale of the CO2 is an extra revenue source for Dakota Gas while reducing greenhouse gas emissions.

Cost Savings: Co-Capture and Co-Storage

Further opportunities for large cost savings exist through an alternative approach to sulphur management. In a traditional plant, sulphur is removed from the syngas to prevent poisoning of the reaction catalyst. If this sulphur (in its gaseous form) is separated with the CO2 and stored in the same geological formations, overall costs can be reduced still further by removing the need for a separate sulphur removal system. This in turn reduces the capital cost of the plant significantly, providing a low-cost sulphur/carbon management system that can be costeffective even without a price on carbon.

Recent studies on IGCC power generation have shown that the CO2 mitigation cost of such cocapture plants is at least four times lower than separate CO2 and hydrogen sulphide (H2S) capture plants [Ordorica-Garcia et al 2006).

THE COAL TO LIQUIDS PROCESS: TECHNOLOGY OPTIONS

Carbonisation & Pyrolysis

High temperature carbonisation is the oldest process for producing liquids from coal. Coal is heated to around 950°C in a closed container – decomposition takes place, and the volatile matter is driven off. This is typical of the cokemaking process, and the hydrocarbon liquid (coal tar) is predominantly a by-product.

The process produces very low yields and upgrading costs are relatively high – so the coal tar is not traditionally used in the transportation fuel sector. Coal tar is used worldwide for the manufacture of roofing, waterproofing, and insulating compounds and as raw materials for many dyes, drugs, and paints.

Mild pyrolysis is a lower temperature carbonisation, or decomposition, process. Coal is heated to between 450°C and 650°C, driving off volatile matter and forming other compounds through thermal decomposition.

Liquid yields are higher than for high temperature carbonisation, but reach a maximum of 20%. The main product is a char. This process has been used to upgrade low-rank sub-bituminous coals in the USA – it increases calorific value and reduces sulphur content.

Rapid pyrolysis occurs by subjecting coal to contained temperatures of around 1200°C, but for only a few seconds. This process is aimed at producing chemical feedstocks rather than liquid fuels. Carbonisation and pyrolysis produce a small proportion of the total product as liquid fuels which still require further treatment. A demonstration plant was built in the USA (operational 1992 to 1997) for coal upgrading, but there is little scope for economically viable liquid fuels.

Direct Liquefaction

Hydrogen is added to the organic structure of coal, breaking it down to the point where distillable liquids are produced.

There are a number of different methods, but the basic process involves dissolving coal in a solvent at high temperature and pressure followed by the ‘hydrocracking’ (i.e. adding hydrogen over a catalyst)

Liquid yields can be in excess of 70% of the dry weight coal feed, with thermal efficiencies of around 60-70%. The liquids produced from direct liquefaction are of much higher quality than those from pyrolysis and can be used unblended in power generation or other stationary applications. However, further upgrading is required for use as a transport fuel. There are two main groups of direct liquefaction processes:

• Single-stage: provides the distilled liquids (distillates) through one primary reactor or reactor chain. Most of these have been superseded by two-stage processes to increase production of lighter oils.
• Two-stage: provides distillates through two reactors or reactor chains. The first reaction dissolves the coal either without a catalyst or with a low-activity disposable catalyst, producing heavy coal liquids. These are further treated in the second reactor, with hydrogen and a high-activity catalyst to produce additional distillate

A number of processes have been developed in single-stage technology – including Kohleoel, NEDOL, H-Coal, Exxon Donor Solvent, SRC, Imhausen and Conoco, but not all have reached commercial realisation.

The Kohleoel and NEDOL processes are considered to be the most developed, and Japan’s Ministry of Economy, Trade and Industry hope to transfer this technology to China by the end of the decade.

Coal and a synthetic iron-based catalyst are ground and combined with a recycled solvent to form a coal slurry. This is then mixed with hydrogen and heated before entering the primary reactor, which operates at 450°C and 170 bar. The products are cooled, depressurised and distilled to provide a light product. Medium and heavy distillates are produced via the vacuum distillation column, and some used to provide the solvent for the initial slurrying step.

The two-stage processes have often derived from single-stage reactions – the Catalytic Two-Stage Liquefaction process was developed from the H-Coal single stage. This technology is the one chosen for Shenhua’s Inner Mongolia plant in China, as the proprietary HTI Direct Coal Liquefaction Technology. Pulverised coal is slurried in a recycled process solvent, then preheated, mixed with hydrogen and fed to the first reactor, which operates under typical conditions of 435-460°C and 170 bar. A second reactor completes the liquefaction, operating at higher temperatures. The reaction catalyst for both stages is a nano-scale, iron-based one, dispersed in the slurry.

Indirect Liquefaction

Indirect liquefaction involves the complete breakdown of the coal structure by gasification with steam. The composition of this synthesis gas, or ‘syngas’ is adjusted to give the required balance of hydrogen and carbon monoxide. Sulphur compounds are also removed at this stage to prevent poisoning of the reaction catalyst as well as to provide low-sulphur transport fuels.

The syngas is then reacted over a catalyst at relatively low pressure and temperature. Products vary according to the reaction conditions and catalyst. Methanol, for example, is produced using a copper catalyst (at 260-350°C and 50-70 bar). DME is produced by a partial hydration of methanol over further catalysts – for example, activated alumina and a fixed zeolite).

The only commercial-scale indirect coal liquefaction process currently in operation is at Sasol in South Africa.

The Sasol process is based on the FischerTropsch (FT) liquefaction process. Sasol uses both the low-temperature FT process (fixed bed gasification, slurry-phase FT), and the high temperature (HTFT) process incorporating circulating fluidised bed gasification, and Sasol Advanced Synthol technology.

The HTFT process operates at 300-350°C and 20-30 bar, with an iron-based catalyst, and produces a lighter suite of products, including high-quality ultra-clean gasoline, petrochemicals and oxygenated chemicals.