Coal-to-Methanol Promising Alternative to Oil... Again

Author urges US to not only restart is abandoned synthetic fuels program but to also convince China and India to do the same.

Published: 29-Mar-2005

lign=justify>Said a famous NY Yankee, “Its déjà vu’ all over again”. Just when we thought Yogi (as an affable stand-in for our erstwhile political leaders) was enjoying his retirement, he’s floating the idea that the solution to our liquid fuels challenge with the Middle East is based upon a new concept, making usable liquid energy forms out of indigenous U.S. supplies of carbon, a.k.a. coal. Well Yogi, there’s a big, big difference between technological feasibility and political will and that difference makes all the difference.

Nearly twenty five years ago, I was engaged in a program of national importance - The U.S. Synthetic Fuels Program. Announced, as I recall, as a $60 Billion dollar program to “free us” from dependence upon Middle East crude oil, hundreds of engineers, scientists, financial wizards and executives spent years trying to find the most effective means to make crude oil from shale deposits, synthesis gas (syngas) from coal, and liquid fuels (in my case - methanol) from syngas. After thousands of man-years and about $1 Billion dollars of cost, we got our answer from Washington, D.C. - shut it down!!! Thank you President Carter. Ten years later, I read a local interview with the former head of the Synthetic Fuels Corporation in which he claimed victory, since the whole Synfuels program was a bluff that caused OPEC to blink and lower prices. As a result, we stopped investing in developing future liquid fuel options. Well, fast forward another decade. After two Middle East wars, hundreds of billions of dollars, and thousands of U.S. lives, today’s Yogi (politicos) wonder why gasoline is so expensive and lament that we can’t run our autos on hydrogen yet. Where’s the real Yogi when we need a respite from reality?

Here’s what I learned during my four year investment and intervening years:

We have minimal technological, environmental and infrastructure conversion cost risks in converting our cars from burning gasoline to methanol. The biggest risk is financial and it’s a risk that U.S. energy companies won’t take. And who can blame them? The Middle East (Saudi Arabia) has pricing power by virtue of its control over marginal supply. If the U.S. makes a significant move toward building coal to methanol facilities, OPEC could pull a reverse Synthetic Fuels gambit on the U.S. Crude will suddenly become plentiful, gasoline prices will drop to $1 per gallon, and the billions invested in coal to methanol plants will be wasted. The cycle repeats. So, to implement a viable liquid fuels strategy, we have to be a bit smarter this time.

Geopolitically, it’s all about emerging consumers. China and India, two countries with over 30% of world’s population, are driving the current crisis. Increasing liquid fuels demand from China and India is the principal reason why crude prices are spiraling, as demand is forecast to outstrip supply. As these countries experience rapid industrialization, the demand for liquid fuels will outpace the supply of crude oil, keeping the cost of crude very high for some time. And we keep getting reports that both China and India are keen to make energy deals and invest to build a more secure supply of liquid fuels. While the world watches, both China and India are embarking on long-term dependence on Middle East crude oil.

To counter this impending disaster, I advocate a two step strategy that minimizes U.S. pain and the need for immediate investment, while improving crude oil supplies and lowering price pressure. The first step requires convincing both China and India that their best long-term fuels strategy is to convert their indigenous coal supplies into methanol. This investment program will provide local jobs, a cleaner environment, and drastically reduce their long term reliance on fickle Middle East nations. A major program by both countries will require U.S. technology, equipment and personnel skills, allowing us to establish best practices for the production facilities, transportation, and use of methanol for automobiles, while repatriating bloated foreign reserves of U.S. dollars, especially from China. And while these countries make this strategic investment over the next 25 years, crude oil suppliers will gradually lose pricing power.

The second step is for the U.S. to build its own coal to methanol facilities, allowing 15-25 years to make the full conversion, after first assisting China and India. This long-term conversion window will keep U.S. aggregate financial risk lower and allow slow but steady progress to avoid operating in a crisis mode. This time window will also allow U.S. energy companies to more purposefully plan and make sound financial decisions with less government involvement. If government involvement is required (and it may be), tax incentives and other risk reducing inducements can be phased in gradually, as we adjust to a changing liquid fuels supply, reducing the need for economic shocks and other dislocations.

But, my biggest concern in implementing this two step liquid fuels strategy is the same disappointment I faced twenty five years ago – the lack of political will. If we can’t sustain the will to implement this long term strategy, we will be faced with a continued reliance on unreliable suppliers, high costs, and, yes, more armed conflict. We need to be smarter this time and have some backbone. As Yogi said: “When you come to a fork in the road, take it!”

Peter J. Vanderzee spent ten years in the energy industry and was a project manager for a $1 Billion Synthetic Fuels project.


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