Turning coal into liquid fuel

Calgary startup plans to build C$4.5B plant to produce 40,000 bpd of fuel by 2014; project to include CO2 capture for EOR

Gary Park

For Petroleum News

A small Calgary company is prepared to lead the rest of Canada in converting coal into liquid petroleum fuels, with plans for a C$4.5 billion project to produce 40,000 barrels per day over 50 years starting in 2014.

Alter NRG proposes to turn coal reserves in northwestern Alberta into diesel fuel and naphtha — a heavy oil product used for paving roads and for diluting bitumen from the oil sands — employing proven processes that have been in commercial options around the world for more than 30 years.

The company started a strategic partner selection process earlier this year and expects to disclose its financing plans before the end of 2008.

“As the first coal-to-liquids project in Canada, the project will be a significant, long-term contributor to Alberta’s economy as well as set a precedent for clean energy solutions,” said Alter NRG Chief Executive Officer Mark Montemurro.

He said the venture can break even with oil prices at $50-$60 per barrel and generate returns at $80.

Each flowing barrel of coal-to-liquids production would require a capital investment of $110,000 per barrel, roughly in line with larger oil sands plants.

A process for turning coal into liquid fuel was developed in the 1920s and was used by Germany to produce synthetic diesel during the Second World War.

Alter NRG owns 460 million metric tons of proven plus probable coal reserves and 876 million metric tons of coal resource.

It plans to mine two blocks containing 301 million metric tons using established surface mining technology, then use commercially proven gasification and other processes to produce diesel and naphtha.

The coal deposit was chosen partly because of its proximity to infrastructure and mature oil fields that would benefit from enhanced oil recovery by the injection of carbon dioxide.

The plans include the sale of produced carbon dioxide into the enhanced oil recovery market. More than 85 percent of CO2 produced by the project will be captured for sequestration in deep saline aquifers or in depleted oil or gas pools.

Alter NRG has identified 30 pools that are suitable for EOR with original oil-in-place of 7.6 billion barrels and an ability to store 228 million metric tons of CO2. The company estimates that total CO2 required for EOR in the pools will amount to an average demand of 27,000 metric tons per day.

Over the 50-year operating life, the coal will be mined at a maximum rate of 9.2 million metric tons per year.

Using a modified Fischer-Tropsch process designed specifically to produce ultra-clean diesel, the gasifier will convert solid coal feedstock into syngas, which will be further processed into liquids, with a planned emphasis on low-sulfur, high-cetane diesel.

A similar coal gasification plant run by Dakota Gasification Co. in North Dakota supplies CO2 to EnCana’s EOR field at Weyburn in southern Saskatchewan.

Montemurro said it was a deliberate move on Alter NRG’s part to choose a location where the coal reserves are on top of oil fields.

“We think this gives us a distinct strategic advantage,” he said.

Mary Griffiths, a senior policy analyst at the Alberta-based Pembina Institute, said the environmental think tank prefers renewable energy sources over fossil fuels, but conceded that gasification is probably the least damaging method.

Because of the potential damage to land and water from strip mining the coal, she said Pembina would prefer to see the CO2 stored deep underground rather than used for EOR.

But Griffiths credited Alter NRG for its public disclosure.

Montemurro is a former executive with oil sands startup Deer Creek Energy, which was acquired in 2005 by France’s Total.

Michael Heier, chairman of Alter NRG’s board, is former chief executive officer and current chairman of Trinidad Drilling, one of Canada’s fastest-growing drilling and well service contractors.