Other Stories

Published By: Greenwire
October 8, 2008

ALT FUELS: Coal-to-liquids' future hinges on oil prices, carbon costs -- study

Ben Geman, Greenwire senior reporter

The viability of coal-based transportation fuels depends on future oil prices and the cost of controlling greenhouse gas emissions -- but the growth of oil sands is less sensitive to those factors, according to a study released today.

The RAND Corp. study explores "economic and environmental trade-offs" with the two fuel sources that have the potential to displace imports from less-stable regions but also come with higher emissions than conventional oil.

Canadian oil sands production, already 1.3 million barrels per day, is a substantial source of U.S. fuels. Coal-to-liquids (CTL) is not produced commercially in the United States, but several companies hope to build plants, and the coal industry and coal-friendly members of Congress are seeking expanded federal support.

The think tank's study concludes that CTL's viability will depend on a mix of technology costs, long-term oil prices and emissions prices.

Without a price on emissions, CTL would be competitive with conventional fuels if oil prices are above the Energy Information Administration's 2025 "reference" forecast, which is $56 per barrel in the agency's 2007 Annual Energy Outlook.

"However, if CTL turns out to be more costly than anticipated or oil prices in the longer term are lower than this reference price, CTL may not be cost-competitive even without a CO2-emission cost," the RAND report says.

But the costs of capturing and storing emissions, and the price of carbon in the future, are also important, RAND states. If carbon capture and storage (CCS) can be widely deployed at a relatively low cost, CTL is economically viable over a "wide range" of oil prices and emissions costs, and would be undercut only if oil prices are well below forecasts.

But if carbon storage and CTL costs are relatively high, coal-based fuels are cost-competitive with conventional fuels at EIA's high price for 2025, but not at the reference price, the study says. EIA's "high" case is about $94 per barrel.

CTL fuels, absent carbon dioxide controls, generate about twice as much lifecycle greenhouse gases as conventional fuels, while controlling carbon brings the fuels roughly in line with each other.

"If nearer-term concerns about energy security lead to emphasis on rapid CTL investments while CO2-control requirements are delayed or kept minimal, then energy security and climate-protection objectives are brought into conflict," the study says.

The report was commissioned by the bipartisan National Commission on Energy Policy. "It makes no sense from a public policy perspective to propose fuels production from coal until carbon capture and storage is completely demonstrated and proven out at scale," said Sasha Mackler, the group's research director.

But Corey Henry, spokesman for an industry group called the Coal-to-Liquids Coalition, disagreed.

"The first fleet of CTL plants can be built using enhanced oil recovery as a bridging technology until CCS technologies are developed and commercially available," he said in a statement. He said CTL can be an important part of efforts to produce transportation fuels from domestic sources.

Plants with carbon capture and storage capability would be more expensive. The study cites data showing that a first-of-its-kind CTL plant would have capital costs of roughly $3.1 billion to $3.8 billion. Adding CCS capacity increases the costs by approximately $200 million.

Oil sands' lifecycle emissions are 15-20 percent higher

Oil sands are more resilient to the vagaries of future crude oil prices and carbon reduction costs.

The study finds that lifecycle emissions from oil sands -- a massive resource that is energy intensive to extract -- are roughly 15-20 percent higher than those of conventional oil without carbon controls and have the same CO2 intensity as CCS.

"Therefore, its potential cost advantages relative to future oil prices are maintained over a wide range of potential CO2 emission-control costs," RAND states. Instead, the limiting factors for oil sands would be based on other concerns, such as water usage and other environmental effects, as well as natural gas availability.

Mackler said oil sands are highly unlikely to be affected by future carbon costs. "These fuels are really going to be unstoppable; they just look so financially attractive," he said. "A climate policy will not hold oil sands development back unless you see carbon prices on the order of $250 per ton."