Coal to Liquids (CTL): An Overview

Rio de JaneiroMarch 2007

Dr. Dan DriscollProject Manager

Gasification and Fuels Division

National Energy Technology Laboratory

Interest Drivers for CTL

“Addicted to oil” – State of the Union address 2006 US petroleum imports in 2005 exceeded $250 billion 35% of energy consumption is from Oil 1

Daily world consumption is 84 million bbl/d – 20% higher than 1995 – expect 120M by 2030

World vehicle ownership at 700 M; – double by 2030 to 1.5 billion; – developingcountries to triple

96% of all energy used for transportation – largest demand for oil World oil supplies could peak between 2016 and 2037 2

Oil resources not equitably distributed globally; coal more wide spread Concerns in: Energy security and Economic Development

Oil availability supply issues Infrastructure difficulties

Coal remains the most abundant fossil fuel in the world. Products produced from oil can be made from coal. Outside Activities:

National Coal Council Report (March 2006) identified capacity to support production of 2.6million bpd of liquid fuels from coal by 2025. See www.NationalCoalCouncil.org

Southern States Energy Board Report (July 2006) called for aggressive federal investment inCTL incentives “to encourage the private sector to step forward on a massive scale.” Seewww.AmericanEnergySecurity.org

DOD Air Force Request for Interest in Military Alternative Fuels

1Ref: World Coal Institute Report “Coal-to-Liquids” November 20062Ref: Hirsch, Robert, et, al., “Peaking of World Oil Production: Impacts, Mitigation, & RiskManagement”, NETL, February 2005

Rate of Use

FranceS. KoreaBrazilCanadaIndiaRussiaGermanyChina

U.S.Japan

Mexico0% 10% 15% 20%5% 25%

U.S. Dependence on Foreign OilOil Reserves

U.S.NigeriaLibyaRussiaVenezuelaU.A.E.KuwaitIraqIranCanadaSaudi Arabia

2%2%

3%5%

6%8%8%

9%10%

14%21%

Updated July 2005. Source: International Energy Annual 2003 (EIA), Tables 1.2 and 8.1-O&GJ. Canada’s reserves include tar sands.

The United States usesmore oil than the nextfive highest-consumingnations combined.

3%3%3%3%3%3%3%

7%

25%7%

3%

U.S. Energy Sources

Energy Source

% of U.S.Electricity

Supply

% of TotalU.S. Energy

SupplyOil 3 39Natural Gas 15 23Coal 51 22Nuclear 20 8Hydroelectric 8 4Biomass 1 3Other Renewables 1 1

Why Coal?

Coal Reserves are Abundant

Provides over halfNation’s electricity

Abundant domesticreserves

Low, relativelystable prices 0

100

200

300

Coal Oil Gas

Years Supply at CurrentProduction Rates

Eastern

Western

U. S. Coal Resources Are Widely Distributed

Delineation of U.S. Coal Resources and Reserves

Source: EIA Coal Reserves Data 1997http://www.eia.doe.gov/cneaf/coal/reserves/chapter1.html#chapter1a.html

Sufficient reserve tomeet projecteddemand forelectricity and up to4MMBPD CTLindustry for over100 years

1 ton of coal produces2 barrels of liquid

Coal-to-Liquids – Rationale

U.S. economy requires a reliable supply of liquid fuels for nationalsecurity and economic stability.

Oil refineries operating at > 90% capacity, refining capacity highlyconcentrated in Gulf Coast

Rising oil prices and imports, moratoriums for off-shore drilling Increasing concern about terrorism/natural disasters on petroleum

supply chain.

Coal-derived liquid fuelscan supplement oil-basedfuels and moderate fuelprice increases.

Coal to Liquids TechnologiesConversion Technologies:

Direct Liquefaction (Bergius Hydrocracking)Indirect (Gasification + Fischer-Tropsch) Liquefaction.

Direct Liquefaction - Dormant in theU.S. but being actively pursued inChina. The Shenhua project in InnerMongolia will bring a full scale singletrain, 20,000 BPD commercial unitinto production in 2008 usingHeadwaters technology.

Inner Mongolia Coal Liquefaction Plant Schematic, China 2006

Direct Coal Conversion Projects

Originally developed in Germany in 1917Used to produce aviation fuel in WWIIUS spent $3.6 billion on DCC from 1975-2000Headwaters Technology licensed to China in 2002

Lawrenceville, NJ3 TPD (30 bpd)

Catlettsburg, KY250 – 600 TPD

(1,800 bpd)

Inner Mongolia, China4,200 TPD

(17,000 bpd)

Direct Coal Conversion to Liquid Fuels

Gas RecoveryTreatment

Refining

Fractionation

SolventDeashing

Hydro-treating

Unit

Coalconversion

Ash Reject

Heavy VacuumGas Oil

Diesel FuelGasoline

LPG

Methane& Ethane

H2S, NH3, COx

H-DonorSlurry

Slurry

Deashed Oil

Recycled H2Make-upH2

Coal +Catalyst

Gasifier

Unconverted Coal

Direct ConversionAdvantages

Conceptually simpleprocess

Produces high-octanegasoline

More energy efficientthan indirect conversion(i.e. more fuel / BTUsproduced per ton of coal)

Products have higherenergy density(BTU/gallon) thanindirect conversion

Disadvantages

High aromatic content Low-cetane number

diesel Potential water and air

emissions issues Fuels produced are not a

good environmental fitfor the U.S. market

May have higheroperating expenses thanindirect conversion

Indirect Coal Conversion

Originally developed in Germany in 1923(Franz Fischer and Hans Tropsch)

Used to produce diesel fuel during WW-IICurrently used to produce liquid fuels and chemicals

in South Africa

Secunda, South Africa150,000 bpd

Brownsville, TX7,000 bpdGTL Plant

• Designed by HRI (Headwaters predecessor)• First commercial use of High Temp. FT• Operated 1950-55• Shut down when oil price dropped due to

Middle East oil discoveries.

Example of Prior Large Scale US-based Facilities World Large Scale Facilities

Indirect Coal Conversion

Gasification &Gas Cleaning

Fischer-TropschSynthesis

FT ProductSeparation &

Upgrading

Electric PowerGeneration

Oxygen/Steam

CoalPetcoke

Biomassetc

Sulfur,CO2

and Ash

Steam

Electricity

Steam Tail Gas

H2 + COSyngas

CxHyLiquids& Wax

Water&

Oxygenates

Ultra-CleanLiquid Fuels& ChemicalFeedstocks

Catalyst

Gasification- A Versatile Source of Fuels

Water

Oxygen Extreme Conditions:1,000 psig or more2,600 Deg FCorrosive slag and H2S gas

Products (syngas)CO (Carbon Monoxide)H2 (Hydrogen)[CO/H2 ratio can be adjusted]

By-productsH2S (Hydrogen Sulfide)CO2 (Carbon Dioxide)Slag (Minerals from Coal)

GasClean-Up

BeforeProduct

Use

Coal,biomass,pet. coke

Coal Gasification Chemistry

2C (coal) + ½O2 + H2O = 2CO + H2

Simultaneous Three Body Collisions are UnlikelyMultiple Bi-Molecular Interaction Mechanism in Effect

C + O2 = CO2

C + CO2 = 2COC + ½O2 = CO

C + H2O = CO + H2

C + 2H2 = CH4

GasifiersGE Energy

(Chevron-Texaco)

KBRTransportReactor

ConocoPhillipsE-Gas

ShellSCGP

Siemens(GSP/Noell)

Slurry-feed Dry-feed

Comparison of Gasifier Characteristics

Controlcarbon &inventorycarryover

Raw gascooling

Carbon ConversionFines andHydrocarbon liquids

Issues

ModerateLowModerateModerateLowHighSteam Req.

ModerateHighModerateModerateLowLowOxidant Req.

1,500-1,900>2,3001,700-1,9001,700-1,900800-1,200800-1,200Gas Temp. (°F)

AnyAnyAnyLowHighLowCoal Rank

BetterUnlimitedBetterGoodBetterthan dryash

LimitedFines

~1/16in~ 100 Mesh~1/4 in~1/4 in~2in~2inCoal Feed

DrySlaggingAgglomerateDrySlaggingDryAsh Cond.

TransportFlow(KBR)

EntrainedFlow

(GE, Shell,E-Gas, Siemens)

Fluidized Bed(U-Gas & HTW)

Moving Bed(Lurgi & BGL)

Products from Syngas

BuildingBlocks

forChemicalIndustry

Clean SyngasH2, CO, CO2

Gasificationand GasCleaning

GasTurbine

Clean Electricity

Separation

of H2

from CO2

Shift Reaction

CO + H2O H2 + CO2

CO2 forSequestration

H2

H2

StationaryFuel Cells

TransportationFuels Fuel Cell Vehicle

Fischer- Tropsch or MethanolSynthesis

2nH2 + nCO (- CH2-)n + nH2O

CO + 2H2 CH3OHMethane(SNG)

Methanation

CO + 3H2 CH4 + H2O

Fischer-Tropsch (F-T) Technology

CO(g) + 2H2(g) (CH2)n(l) + H2O(g) ΔH0 = -165kJ/mol

The water produced combines with CO in the water-gas shift reaction to form H2 and CO2

CO(g) + H2O(g) (CO2)(g) + H2(g) ΔH0 = - 41.2kJ/mol

The overall F-T reaction is therefore described as follows:

2CO(g) + H2(g) (-CH2-)n(l) + CO2(g) ΔH0 = -206 kJ/mol

Another approach to liquid fuels via synthesis gas is methanol production.

CO(g) + 2H2(g) CH3OH(l)

Methanol can be used directly or converted into gasoline through a process suchas the Mobil process using zeolite catalysts.

*With Fe-based Catalysis

Anderson Schultz Flory Distribution

Indirect Conversion

The liquid products from indirect conversion process are zerosulfur, near zero aromatic hydrocarbons. Minimal refiningneeded to produce ultra-clean diesel or jet fuel.

Carbon dioxide produced during indirect conversion can becaptured for subsequent storage.

Indirect conversion plants can co-produce electric power toimprove process economics.

If hydrogen is the preferred fuel in the future, these plants maybe easily reconfigured to produce fuel cell grade hydrogen

SASOL in South Africa has two large,indirect coal conversion facilities(SASOL II and III) that currently produce

about 150,000 BPD of liquid fuels.

Indirect Conversion

Advantages

Ultra-clean products Well suited for CO2

capture Well suited for electric

power co-production May have lower

operating expenses thandirect conversion

Disadvantages

Conceptually morecomplex than directconversion

Less efficient fuelproduction than direct

Produces low-octanegasoline

Fewer BTUs per gallonthan direct conversionproducts

Comparison of Typical Direct and IndirectLiquefaction Final Product Slate

0.6730.764Naphtha specific gravity

2%5%Naphtha aromatics

Nil<0.5 ppmNaphtha sulfur

45-75>100Naphtha octane (RON)

0.7800.865Diesel specific gravity

<4%4.8%Diesel aromatics

<1 ppm<5 ppmDiesel sulfur

70-7542-47Diesel cetane

80% diesel20% naphtha

65% diesel35% naphtha

Distillable product mix

IndirectDirect

Hybrid ConversionA hybrid conversion facility is basically a direct

and indirect conversion facility built next to oneanother.

The products of the direct and indirect conversiontrains complement each other and can be blendedto produce high quality diesel and gasoline.

Headwaters Technology Innovation hasconducted a feasibility study for a 60,000 bbl/dhybrid plant to be built in the Philippines by privateand government entities.

Hybrid Coal Conversion Concept

CoalGasification

ProductRefining &Blending

Direct Coalconversion

Water/gas ShiftHydrogenRecovery

Indirectconversion

(Fischer-Tropsch)

H2 FinalProducts

Raw DCL Products

Raw ICL Products

Coal

FT Tail Gas

H2

CO2

Plants Under Consideration in the UnitedStates

Planning

Engineering

Key

Summary of CTL Projects in United States

Planning50,000BituminousUnidentifiedAlexander County (Cairo, IL)IL

Planning10,000BituminousAEP MountaineerWV

Planning22,000Sub-bituminous/ligniteDKRW Energy (Roundup, MT)MT

PlanningNot availableLigniteSynfuel Inc.LA

Planning10,000Coal/petcokeRentechMS

Planning10,000BituminousMingo CountyWV

Planning5,000AnthraciteWMPIPA

Planning25,000BituminousAmerican Clean Coal FuelsIL

Engineering2,000BituminousRentech, (East Dubuque, IL)*IL

Planning10,000 – 50,000Sub-bituminousRentechWY

Planning11,000BituminousDKRW Energy (Medicine Bow, WY)WY

Planning2 plants, 35,000 eachBituminousRentech, Baard EnergyOH

Planning40,000LigniteHeadwaters, GRE, NACC, FalkirkND

Planning10,000 – 150,000Sub-bituminous/ligniteState of MontanaMT

Planning10,000 – 50,000BituminousHopi Tribe, HeadwatersAZ

StatusCapacity (bpd)Coal TypeDevelopersState

* will also co-produce fertilizer.

CTL Pilot Plants in the United States

OperationalUp to 30HeadwatersIncorporatedNew Jersey

Shutdown300 – 400ConocoPhillipsOklahoma

Shutdown – 9/0670SyntroleumOklahoma

Operational in 200710 – 15RentechColorado

StatusCapacity (bpd)OwnerState

Existing and Potential CTL Projects

Ref: from Headwaters Inc. J.N. Ward Senate Briefing 1-19-07

Summary of CTL World-Wide

Operational & 2nd PlannedPilot plantOil India LtdIndia

Planning--SiemensChina

Planning80,000SasolSouth Africa

Planning50,000L&M GroupNew Zealand

Planning50,000HeadwatersPhilippines

Planning60,000Anglo American/ShellAustralia

Construction~76,000Pertamina/AccelonIndonesia

PlanningTwo 700-bpd demo plantsHeadwaters/UK Race InvestmentChina

Planning70,000 – 80,000Shell/ShenhuaChina

Planning80,000 (each plant)Sasol JV (2 studies)China

Construction40,000 (initially) 180,000 plannedYankuangChina

Construction~3,000 to 4,000Lu’an GroupChina

Construction – Operationalin 2007

20,000 (initially)ShenhuaChina

Operational150,000SasolSouth Africa

StatusCapacity (bpd)Owner/DeveloperCountry

Coal to Liquids Developments

Zeus Development Corpwww.SYNGASRefiner.com

Coal to Liquids

China CTL plants move aheadCheap feedstock: ~$5/bblLabor and other direct cost:~$15/bbl

US CTL plant activity somewhatstalled

Developers seeking financing

Reduce capex/opex

Optimum logistics between cheaplow-rank feedstocks and markets

Sasol estimates CTL plant rangesfrom $60Kb/d to $80K/b/d for 50K-b/dand 80K-b/d plant, respectively

• China’s Shenhua and Ningxia CTLplants could cost between $5B to$7B, up from $6B, and consume15MM to 19MM tpy of coal.

• Sasol in talks with two US firms and isbusy improving its processes to offsetrising costs

• DKRW is seeking financing for its$2.75B Medicine Bow, WY plantusing GE gasifier and Rentech FTreactor

• US CTL plant costs from $1.2 billionto $3 billion with MT small plant at$1.5B up to $8B for larger plants.

Source - Cornitius, 2006, “The Impacts of Synfuels on World PetroleumSupply”, presented at 2006 EIA Energy Outlook and Modeling Conference.

DOE CTL Research Activities ICRC – ($5M):

Produce gallon/barrel quantities of FTliquids from coal-derived syngas withCobalt-based catalysts to be furtherprocessed into No. 2 diesel for small-scaletesting as ultra-clean transportation fuel,evaluated as fuel for specialized vehiclesfor the military, and tested as feed to areformer to produce hydrogen.

Status:Negotiating with two partners to produce

lab and large scale quantities of FT liquidsfrom "live" coal-derived synthesis gas.

Lab ScaleCSTR

Nikiski AK FT Plant

DOE CTL Research Activities

Headwaters Technology Innovation Group(HTIG) – ($4.2M):Produce barrel quantities of coal-derived liquids

using Iron-based FT synthesis in PDU-scalereactor.

Investigate primary and secondary wax/catalystseparation, hydrotreating and hydrocracking ofneat FT liquid products, and hydrogen yieldfrom product reforming.

Status:PDU planned at the Gas Technology Institute’s

(GTI) facility in Des Plaines, IL.PDU fabrication and operation proposed to be

done by HTIG.HTIG will utilize their hydocracking facility to

upgrade raw FT wax products.

WMPI-Gilberton (DOE CCPI Project) Gasify anthracite waste (4,700 tons/day) to

produce syngas using high pressureoxygen-blown gasifiers.

Co-produce electric power (41MW) andsteam together with 5,000 barrels per dayof synthetic hydrocarbon liquid fuels via FTsynthesis.

A Shell gasifier and RectisolTM processremoves contaminants from the plant’seffluent and concentrates CO2 forsequestration.

Benefits- If successful, technology may beapplied throughout the U.S. enablingreclamation of coal wastes into high-cetane diesel fuel.

Shell SCGP Gasifier

Hydrogen from Coal Research

Coal can also serve as a source for purehydrogen fuel

Liquid production with subsequent reformingEthanol (higher alcohols)

2CO + H2 = H3CH2COH + H2O

Direct separationAdvanced membrane systems

Hydrogen “filter”Water Gas Shift (WGS) Membrance reactors

LSU/Clemson/ORNL/ConocoPhillips

Catalytic process for the synthesis of ethanolfrom coal-derived syngas

Current yields – 5%Target yield – 45% (95% selectivity, 3 year life)

Catalyst

Coal

heat

Co core

3.2 nmintentional “gaps” in shell toprovide Co-Cu interfaces

Cu shell

surfactant

Rh core

Fe shell

intentional gaps in shell toprovide Rh-Fe interfaces

Fe core

Rh shell

2-5 nm

Figure 4. Core-shell nanostructured catalysts particles: Fecore-Rh shellCore-shell nanostructured catalystsparticles: Fe core-Rh shell.

Steam/O2

C2H5OH

Gas Separation from Shifted Syngas(Conventional Technology)

CO2• Low PressureChemical Solvents(MEA, DEA)

• High PressurePhysical Solvents(Dimethylether ofPolyethylene Glycol,Methanol)

• Hybrid SolventsPurisol, Sulfinol

H2

•Cryogenics(Large-Scale,High Cost)

• Pressure SwingAbsorption(Limited to ModestTemperatures)

• Membrane Systems(Chemical Damagefrom H2S, LimitedTemp. Tolerance)

ConvertedSyngas:

H2H20CO2

CO2•AdvancedMembraneSystems

(High and LowTemp)

•Low TemperatureHydrateFormationProcesses

H2•AdvancedMembraneSystems

Organic/Inorganic

Proton & MixedConducting

Porous/Dense

Homogeneous/Asymmetric

Gas Separation from Shifted Syngas(Advanced Applications)

ConvertedSyngas:

H2H20CO2

Membrane-Based Hydrogen Separation

Micro Porous Dense Metallic

Dense Ceramic Research TopicsMembrane materials and fabrication

Optimum diffusivity, flux, resistance,tolerance to impurities, temperature,

pressure.Large-scale production, cost.

Defect control and managementFundamental knowledge base

Mass transport, selectivity, kineticsMembrane reactors

Seals, synergy versus challenges

Desiredflux ~ 300ft3/ft2-hr at

100 psidelta P

with99.99%

purity andcost

<$100/ft2

HighHighPressure COPressure CO22

(Ready for(Ready forSequestration)Sequestration)

SynthesisSynthesisGas...Gas...

(H2, CO2, CO,plus H2O)

PurePureHydrogenHydrogen

Water-Gas-Shift Membrane Reactor Concept

- WGS Reaction: CO + H2O CO2 + H2- High-T operation for favorable kinetics- Membrane removes H2 to “shift” unfavorableequilibrium to produce more H2.

Hydrogen Separation Membrane Projects

Eltron Research, Inc Scale up H2 separation ceramic

membrane for FutureGen and choosemembrane system configuration.

Selectivity = 99.999%+ Demonstrated 1000 psi delta P, 270

psi permeate pressure 11 months continuous operation in

simulated syngas Demonstrated large-scale wafer flux of

100 ft3/hr/ft2 at 100 psi at 420oC. Begun design and construction of 1.3

#/day H2 separation facility to obtainengineering data.

Eltron Research, Inc Scale up H2 separation ceramic

membrane for FutureGen and choosemembrane system configuration.

Selectivity = 99.999%+ Demonstrated 1000 psi delta P, 270

psi permeate pressure 11 months continuous operation in

simulated syngas Demonstrated large-scale wafer flux of

100 ft3/hr/ft2 at 100 psi at 420oC. Begun design and construction of 1.3

#/day H2 separation facility to obtainengineering data.

NETL Intramural R&D Using high pressure hydrogen test

facility to verify contractor results. Tested Eltron membrane at 400° C

for ~ 30 hrs.

Cross-section of anelectro-deposited alloycatalyst film on a metalmembrane at EltronResearch

Hydrogen Separation Membrane Projects

Argonne National LabDevelop dense cermet membrane.Microstructural evaluation of series

3e membrane after exposure tosimulated coal gas revealedserious deterioration after 1100hours.

Southwest Research InstituteDevelop thin dense self-supported

Pd-Cu alloy membrane.Formation of 110 in2 membranes

< 5 micrometers thick.Best H2 flux 242 ft3/hr/ft2 at 20 psi

at 400oC.

Argonne National LabDevelop dense cermet membrane.Microstructural evaluation of series

3e membrane after exposure tosimulated coal gas revealedserious deterioration after 1100hours.

Southwest Research InstituteDevelop thin dense self-supported

Pd-Cu alloy membrane.Formation of 110 in2 membranes

< 5 micrometers thick.Best H2 flux 242 ft3/hr/ft2 at 20 psi

at 400oC.

Gas Technology Institute Develop novel reactor using dual-

phase non-porous membranes. Constructed HTHP test unit. Fabricated two membrane types One type had selectivity ~2000

for H2S over CO2. Another type showed CO2 flux up

to 0.02 ccSTP/cm2/min withselectivity over He.

Oak Ridge National Lab Develop ceramic porous

membrane. Demonstrated fabrication for 1

meter tubes. Completed single-gas tests

showing potential for highselectivity.

ANL membranefabrication

GTI supportedmembrane tube

SWRImembrane

WGS Reactor/Hydrogen SeparationMembrane Projects

Aspen Products Group•Develop a robust WGS membranereactor using contaminant-tolerant,highly active WGS catalyst andPd/Cu coated Ta membrane.•Demonstrated that a low-costnanosized WGS catalyst is activeand stable in 300-500C range.•Fabricated 26 tubular membraneswith different catalyst coatings andlayer thicknesses•Demonstrated high H2 permeabilityin presence of H2S and water.

Aspen Products Group•Develop a robust WGS membranereactor using contaminant-tolerant,highly active WGS catalyst andPd/Cu coated Ta membrane.•Demonstrated that a low-costnanosized WGS catalyst is activeand stable in 300-500C range.•Fabricated 26 tubular membraneswith different catalyst coatings andlayer thicknesses•Demonstrated high H2 permeabilityin presence of H2S and water.

Media & Process Technology Construct commercially-ready

membrane reactor for CO2capture with low parasitic energy.

Achieved complete conversion ofCO and concentration of CO2 insingle-stage WGS-MR at lowshift-T and stoichiometricsteam/CO ratio.

Superior performance and costsrelative to program goals.

WGS Reactor/Hydrogen SeparationMembrane Projects

United Technologies, Corp. Identify Pd-Cu tri-metallic alloy

membranes with high stability andhydrogen permeation: synthesizeS and Cl tolerant WGS catalyst.

Two materials selected for furtherstudy with dopants G5 and J6,respectively.

Thermodynamic solubilitypredictions selected compositionrange of 1.0 to 1.5 % for the G5alloy. Permeation projected toexceed B2 bcc Pd-Cu.

Nine candidate WGS catalystswere prepared and analyzed; sixwere selected for testing.

University of Wyoming/WRI Develop an improved monolithic

WGS catalyst and a vanadiumalloy hydrogen separationmembrane.

FT Fuels - Domestic Fleet Tests

Fleet test in Denali NationalPark summer 2004.

Fleet test in Washington D.Cin September 2004.

Synthesis gas-derived clean fuels.

Natural Gas Derived FT Fuels

Air Force Approach

Conduct demonstration on B-52/TF33 ground/flight

Define next steps for systematic approach to certification of newfuels

Rationale for B-52 Testing

Decision to use B-52 for demo supported by: Safety

8 Engines Ability to isolate test fuel and feed only 2 engines TF33 non-afterburning, less complex, subsonic flight envelope

Aircraft AvailableTarget aircraft selected to retire

(no impact to test or operationalfleet)

Successful Demonstrations:Two engine test - 9/2006Eight engine test with mixed jet

fuel/FT fuel – 12/2006

Request for InformationSynthetic Fuel

DESC Request for Information (RFI) Issued May 30, 2006 Closed August 10, 2006 (initially set for July 31, 2006) Responses received – 28 total (22 interested in production)

Objectives RFI PART I: Short-Term Objective (through 2011)

Identify responsible potential sources of synthetic fuel meeting theFischer-Tropsch DRAFT specification

Determine feasibility of 200M USG requirement 100M USG Air Force 100M USG Navy

RFI PART II: Long-Term Objective (past 2011) Investigate long-term prospects for the manufacture and supply of

aviation synthetic fuels on a larger scale

Aviation Alternative Fuels Roadmap

Aviation Alternative Fuels Roadmap The commercial sector and government must work

together to promote/embrace alternative fuels to securesupply availability, to minimize price volatility, to improveoperational and to explore the potential to reduceenvironmental impact.….. Adopted 5/24/06 by AIA/ATA/FAA sponsoredworkshop with DOE, DoD and NASA stakeholders

Follow-up meeting Oct 23-24, 2006 to furtherdefine Roadmap

Profile of a Coal-to-Liquids (CTL) Plant Capacity: 40,000 bpd (13.2 million bpy)

LPG: 2,700 bpd (7%)Naphtha: 12,100 bpd (30%)Diesel: 25,200 bpd (63%)

Capital cost: $3.6 billion Annual revenue: $1 billion Coal consumption: 8.6 million tpy Production cost with 0% IRR: $44/bbl fuel ($35/bbl crude oil

equivalent) Production cost with 15% IRR: $60/bbl fuel ($48/bbl crude oil

equivalent) CTL plant employment: 250 people Land area: 480 acres Make-up Water: 25,000 gpm (36,000 acre-feet per year) CO2 recovery: 8,000 to 25,000 tpd (depending on level of

recovery)Ref: Headwaters Inc. J.N. Ward Senate Briefing 1-19-07

CTL Projected Cost

Configuration Plant Size

TotalCapital

Cost MM$Capital Cost

$/DBTotal CoalInput (TPD)

SequesterCost$/DB

RSPCapital/

DBRSP O&M/

DBRSP Coal/

DB

PowerCredit

$35.6/MWh Total $/DB

Crude OilEquivalent$/DB ($10Premium)

Capture Ready 20000 BPD 1772 80,500 10,772 NA 32 13 19 -2 62 52

w/Sequestration 20000 BPD 1772 80,500 10,772 4 32 13 19 -2 66 56

Capture Ready 50000 BPD 3737 67,900 26,930 NA 27 14 19 -3 57 47

w/Sequestration 50000 BPD 3737 67,900 26,930 4 27 14 19 -3 61 51

Incentive – Guaranteed Price Floor$55/DB for 20,000 BPD plants$45/DB for 50,000 BPD plants

9 20,000 BPD plants9 50,000 BPD plants3 bituminous, 3 sub-bituminous, 3 ligniteAll plants w/90% carbon capture &

sequestrationConstruct 3 plants/year

- start 2008- first production on line 2011

Total Incentive Cost: ~$6 BillionTotal Capital Investment : $49BBIncremental Employment: 125,000

- Mining 10,000

- Construction 22,500- Plant Operation 7,200- Indirect 85,350

Incremental Coal Production: 94MM TPY630,000 BPD production by 2025

EIA WOPReference Case

Costs & BenefitsDeployment Strategy

2005 $49.702015 $43.002030 $49.19

Barriers to Creationof a Significant U.S. Industry

Economic Risk

Technical Uncertainty

Needed Incremental Investmentin Infrastructure

Ready Availability of CriticalMaterials, Resources and Skills

Environmental Concerns

World oil price volatility is the single greatest impeding thedeployment of CTL facilities; petroleum industry capital drawnto higher profit producing crude oil E&P

Although plant components have been operated at commercialscale, the efficient integration of advanced coal gasification withadvanced F-T synthesis technologies poses significant risk

CTL facilities will require the use of large quantities of coaldriving a significant expansion of the U.S. coal mining industry;current railroads and railcars are inadequate to handle projectedincreases coal demand; additional barge capacity will likely berequired; mine mouth plants coal-fuel plants will need pipelineconnects

Multiple CTL plants built concurrently worldwide will createcompetition for critical process equipment, engineering, laborskills and materials

As a carbon-rich fossil fuel, coal releases large quantities ofcarbon dioxide when converted into fuels and power whichmust be economically controlled

A Path Forward…

Build and Operate a few Pioneer PlantsSubsidize the completion of 3 to 5 front-end engineering design studiesFacilitate “Early Commercial Learning Experience”Identify barriers to process improvement and cost reductionDevelop a greater understanding of the issues surrounding carbon capture,

transport, sequestration, monitoring and verification of permanent storage

Initiate a Program of Targeted ResearchBuild a comprehensive R&D plan built on barriers derived from

actual operation of pre-commercial sized plants

Investigate Financial IncentivesTax Credits (EPACT 2005 Section 1307)Loan GuaranteesGuaranteed Price Floors

Formulate and test F-T fuels for early commercial marketsDOD, Clean Cities, Northeast Home Heating Oil Reserve

Involve, Coordinate, and Exchange Informationwith Interested Foreign Governments

Coal to Liquids Summary

Coal is a viable alternative feedstock for the production ofliquid fuels and hydrogen

Development of a U.S. CTL industry could help mitigate therisks of an energy crisis.

Proactive development of a CTL industry can beaccomplished by industry lead with government support dueto high risks involved.

CTL can capture carbon for sequestration

Convincing demonstrations and multi-agency joint nationalimplementation plan could be a first step.

DOE well positioned to produce, test, and certify liquid fuelsproduced from coal.

Benefits are measured in the billions of dollars.

NETL website:www.netl.doe.gov

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