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Report: Coal-to-liquids costly but doable Plant near Eielson Air Force Base makes most sense; small-scale demonstration project could reduce commercial, technical risks Stefan Milkowski For Petroleum News
The ambitious coal-to-liquids project proposed for the Fairbanks area could be economic at oil prices above $108 a barrel, according to a conceptual study of the project completed by the Toronto-based engineering firm Hatch Ltd.
The study, released Nov. 11, estimates that a large-scale plant would cost between $4.1 billion and $7.4 billion, depending on the plant’s capacity and feedstock, and could produce synthetic fuels for $108 to $138 per barrel, assuming a 12 percent profit margin. Under a low-profit scenario, the plant could produce fuels for less than $90 dollars a barrel, or about $2.10 per gallon.
The Fairbanks Economic Development Corp. commissioned the study, which was funded by a $300,000 state grant and a $250,000 grant from the Fairbanks North Star Borough.
At a news conference Nov. 11, FEDC President Jim Dodson and board Chairman Steve Lundgren touted the project as a way to reduce the cost of energy in the Interior, create local jobs, make good use of an undervalued resource, and protect the area’s military bases by helping the military meet a mandate to use synthetic fuels.
“This is the bold type of project that FEDC should be looking at,” Lundgren said.
Hatch assumed in its report that 300 or 500 plant personnel would be required for plant operation, depending on the plant’s size, but Dodson claimed that up to 1,000 jobs could be created, based on operations at other plants.
The plant would produce synthetic liquid fuels, such as jet fuel, diesel, and naphtha, and would produce heat and up to 120 megawatts of power for export. (Gasoline would not be produced.)
Dodson said FEDC is currently seeking funding for a more thorough engineering study, expected to cost between $6 million and $7 million. According to Hatch, a project could be completed by the end of 2014.
Slim profit margins The capital cost estimates included in the report are well above previous estimates.
According to Dodson, FEDC had seen “generic” estimates of roughly $85,000 per barrel per day of capacity. Hatch estimated that a plant in Fairbanks producing 40,000 barrels of synthetic fuels per day from coal would cost roughly $186,000 per barrel, or more than double that; a plant half that size would cost even more per barrel. A 40,000-barrel-per-day plant using coal and natural gas would be the cheapest plant to build per unit, at about $116,000 per barrel, or $4.6 billion in total capital cost.
“That one is in the ballpark,” Dodson said in an interview Nov. 12. “The others are kind of way outside the ballpark.” Dodson noted that the study was completed during a time of extraordinarily high commodity prices and that the per-barrel costs were for already separated fuel products, whereas the costs of refining oil products is not included in the cost of a barrel of crude oil.
Hatch estimated that using natural gas in addition to coal would also result in lower breakeven production costs — $108 per barrel compared to $123 for the large coal plant and $138 for the small coal plant. All three plants could still earn a 5 percent rate of return or better selling their products at $88.46.
Hatch also considered adding a small fraction of biomass as feedstock.
The report assumes natural gas prices of $6 to $8 per thousand cubic feet through 2030 and coal prices of $25 per ton delivered. Profit margins were most sensitive to the market price of the final products. If product prices fell from $88 a barrel to $66, the rate of return for the coal and natural gas project would drop to zero.
At the news conference, Dodson said the project would probably require some commercial entity for which “profit is not necessarily the prime motivation.” He added that the project wouldn’t be able to secure financing if it ultimately proved uneconomic.
Several similar proposals around the U.S. have been cancelled with the falling price of crude oil, according to Gary Stiegel, a gasification technology manager with the Department of Energy.
“When you’re above 100 dollars a barrel, you have the potential to make these projects economical,” he said. “But when the price falls, it’s going to be difficult.”
New technologies The Fairbanks plant would combine several technologies. Coal, natural gas and biomass would first be gasified and then made into synthetic fuels through the Fischer-Tropsch process.
According to Stiegel, gasification is a “fairly mature technology,” with roughly 130 plants in operation around the world, but has not been integrated with Fischer-Tropsch to any great extent.
The plant would also rely on new technologies to capture and store carbon dioxide emissions. Dodson said he believed the project could reduce overall area emissions by using natural gas and biomass and by creating efficiencies of scale, but added that the goal was to capture and store at least some of the carbon dioxide. Selling the gas for enhanced oil recovery will not likely be an option, he said, requiring the development of other cost-effective techniques.
“We haven’t come up with a method of sequestering carbon yet,” he said. “What we have right now are theories.”
Impressive size The FEDC task force that first identified coal-to-liquids as a possible money-saver initially imagined a 5,000-barrel-per-day plant. Dodson said that number increased to 20,000 or 40,000 bpd because of economies of scale and technological limitations. A 40,000-bpd plant would meet all of the area’s jet fuel and diesel needs and allow synthetic fuels to be shipped to other markets, he said.
Based on the Hatch report, the plant would cover 410 acres and require stockpiles of coal 64 feet high, 100 feet deep, and nearly a third of a mile long. Slag and fly ash stockpiles could reach up to 300 feet tall. The plant would require between 530 and 1,433 tons of coal per hour, or 4.2 million to 11.4 million tons of coal per year, many times what the Usibelli Coal Mine currently produces.
Looking ahead Hatch considered four possible plant locations at FEDC’s request and determined that a plant near Eielson Air Force Base would make the most sense, largely because of the base’s demand for distributed heat.
The report suggested that commercial and technical risks could be reduced by starting with a small-scale demonstration project, something Dodson said “may be a way to move forward.”
Meanwhile, U.S. Sen. Ted Stevens helped secure $10 million in federal funding for the Air Force to continue work on the project. The money, which Stevens said would be used for feasibility and environmental studies, was included in a defense appropriations bill approved in late September, according to Stevens’ office.
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