Pennsylvania Coal-to-Liquid Project Could be Major Fuel Supply Pathfinder for U.S. as China Backing Same Technology

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Researched by Industrialinfo.com (Industrial Information Resources Incorporated; Houston, Texas). As the Chinese government approaches the final decision stage on committing to coal-to-liquid (CTL) projects worth over $20 billion, the first CTL projects in the U.S. are taking shape. Sasol (NYSE:SSL) (Johannesburg, South Africa), which has the world’s only operating CTL plant at Secunda in South Africa producing 160,000 barrels per day (BPD) of fuel, is in talks with the privately-held Pennsylvania project development company WMPI Pty., LLC (Gilberton, Pennsylvania). Royal Dutch Shell (NYSE:SHL) (London, UK) is also talking to WMPI to set up the pilot plant in Gilberton, with a capacity of 5,000 BPD of zero-sulfur diesel fuel. The two companies would work separate coal blocks.

Both Sasol and Shell are in separate negotiations with the Chinese government on a number of major projects in Ninxia, Shaanxi, and Shenua, all major coal producing regions. Shell already operates a number of smaller coal gasification projects for local domestic heating and dedicated projects.

John W Rich Jr, President of WMPI, said in late September that Eastman Chemical Company (NYSE:EMN ) (Kingsport, Tennessee) may operate the Gilberton plant and Sasol and Shell could be given a portion of sales through the licensing of their technologies.

WMPI has a $100 million award from the United States Department of Energy (DOE) to build the $612 million demonstration plant in the anthracite belt and the Commonwealth of Pennsylvania will provide $47 million for the project through the Transferable Investment Tax Credit for coal waste removal and ultra- clean fuels.

Another $465 million investment will be needed to build the plant, which is being provided by private investors, said Robert Hoppe, Chief Operational Officer of WMPI. The plant will use run-of-mine coal and waste coal, which will create value from an environmental liability, said Hoppe. He listed the benefits of the plant as the clean up of despoiled lands, less acid mine drainage, fewer auto emissions through use of the plant’s ultra clean fuels, production of clean electricity and increased employment in the region, which is economically depressed. The Gilberton project will create 1,000 construction jobs at the site, 150 high-quality permanent jobs at the project and about 600 downstream jobs in the community.

The state of Pennsylvania, home to 8% of U.S. coal deposits, is planning for its trucking association to buy 40% of the plant’s output. WMPI is asking $1.30 a gallon, which is less than half the current retail price. "It’s a fantastic price. It’s a doable," said Governor Edward Rendell, who is reported to have signed a ten-year contract to produce fifteen to twenty million gallons of fuel at the competitive prices offered.

WMPI is also planning a CTL plant in West Virginia, where the Sasol, Linde (NYSE:LIN ) (Wiesbaden, Germany) and Chevron Texaco (NYSE:CVX ) (San Ramon, California) strategic partners will use the abundant coal refuse piles as feedstock. The U.S. Defense department has expressed support for Fischer-Tropsch technology utilized in CTL fuel projects. It has told the Consortium for Fossil Fuel Science, a DOE funded research center, that they will support a West Virginia project. A spokesman said, "With West Virginia’s coal reserves equaling about 70 billion barrels of oil, West Virginia could become the new Kuwait."

Montana is also planning a start-up CTL plant to produce 22,000 BPD of derivative oil from the state’s massive coal reserves. Governor Schweitzer has said that he hopes to convert waste coal to two million BPD of oil by 2015, which at current levels is equivalent to one day of U.S. consumption.

What is common to both the Chinese and U.S. interest in CTL projects is energy security and independence in an age of high fuel costs. Domestic coal production is predicted to fill 60% of China’s energy feed by 2020, and CTL fits into this picture. China has also been spurred on to even tighter focus on self-sufficiency by the failure of the CNOOC-Unocal oil company deal, which would have been a major pathfinder in its quest for an increase of sources for oil.

The U.S., with mounting environmental and energy supply pressures, is finding cleaner diesel from coal a possible option especially at current oil price levels regarding transport fuel and power generation, alongside IGCC integrated gasification combined cycle (IGCC) clean coal generation projects.

For related news item see June 28, 2004 - Shenuan's Coal-to-Oil Projects Moving as Chinese Government Nods to Sasol, and August 22, 2005 - Syntroleum Joins Australian Linc Energy’s Chinchilla Underground Coal Gasification Integrated Clean Power Project.

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