COMMITTEE ON SCIENCE AND TECHNOLOGY Subcommittee on…

       COMMITTEE ON SCIENCE AND TECHNOLOGY
          Subcommittee on Energy and Environment
               U.S. House of Representatives
The Benefits and Challenges of Producing Liquid Fuel from Coal: The Role
                          for Federal Research

                           Wednesday, September 5, 2007
                                    10:00 a.m.
                         2318 Rayburn House Office Building

PURPOSE

On Wednesday, September 5, 2007 the Subcommittee on Energy and Environment of the
Committee on Science and Technology will hold a hearing to receive testimony on the
use of coal to produce liquid fuel, the status of coal-to-liquid (CTL) technologies and
what additional research, development and demonstration programs should be undertaken
at the Department of Energy or other agencies to better understand the benefits and
barriers to converting coal into transportation fuels.

The Subcommittee will hear testimony from six witnesses who will speak to a range of
policies that warrant consideration before moving forward with the advancement of the
production of synthetic transportation fuels from coal. Policies for consideration include
carbon dioxide management, infrastructure improvements, water usage, energy security,
energy balance of CTL technologies (energy used and produced), exhaust emissions,
options for using coal with organically derived feedstocks to produce liquid fuels, coal
production requirements, potential outcomes for consumers, and the appropriate level of
federal investment in CTL technologies. They also will discuss the technical and
economical challenges with meeting any desired policy objectives as well as the benefits
and drawbacks of investing federal resources in CTL technologies.

WITNESSES

Dr. Robert L. Freerks, Director of Product Development Rentech Corp., Denver,
CO. He will speak to the state of development of CTL technologies using the Fischer-
Tropsch process. He will highlight the benefits of the commercialization of the FT
process and discuss some of the challenges.

Mr. John Ward VP, Marketing and Governmental Affairs Headwaters, Inc.
South Jordan, Utah. He will discuss the growing global demand for oil and the need to
explore alternative liquid fuel options using the nation's abundant coal reserves. He will
review the local and global economic benefits as well as the national security and
environmental benefits.
Dr. James Bartis, Sr. Policy Researcher RAND Corp., Arlington, VA . He will
address economic and national security benefits of CTL technology as well as the
technical challenges for addressing the carbon dioxide emissions resulting from the CTL
process. He will also provide suggestions for federal activities needed to address the
uncertainties surrounding CTL technology.

Mr. David G. Hawkins, Director, Climate Center at Natural Resources Defense
Council, Washington, DC. He will speak to the environmental concerns associated with
the adoption of CTL technologies ­ in particular, the "well-to-wheel" emissions of these
new fuels and the impact on global climate change. He will also address other energy
strategies which still rely on coal, but help to reduce our nation's carbon dioxide footprint
at the same time.

Dr. Richard D. Boardman, The Secure Energy Initiative Head, Idaho National
Laboratory, Idaho Falls, ID. He will discuss water resource management related to the
production of liquid fuels from coal. He will also address the potential for producing
liquid transportation fuels using coal with organically derived feedstocks.

Dr. Joseph Romm, Center for Energy & Climate Solutions; Center for American
Progress; former Acting Asst. Sec at Department of Energy during the Clinton
Administration, Washington, DC. He will address the environmental policy
considerations related to advancing CTL technology. He will focus on the role of CTL
technology in a world with greenhouse gas constraints.

BACKGROUND

The coal-to-liquids (CTL) process was discovered by German scientists and used to make
fuels during World War II. Since that time, there has been varying intensity of interest in
this technology. As the price of petroleum and natural gas stays high, there will be an
increasing interest in developing the commercial potential of producing synthetic liquid
fuels from coal.

There are a number of proposed CTL projects in the United States and overseas, and
SASOL in South Africa has a long history with CTL. According to the 2007
Massachusetts Institute of Technology (MIT) Report "The Future of Coal," SASOL has
been producing 195,000 barrels per day of liquid fuel using Fischer-Tropsch technology
for several decades. In addition, jet fuel from a gas-to-liquids pilot plant has already been
certified for use by the United States Air Force.

There are two mainstream processes for producing liquid fuels for transportation
applications: direct and indirect. It is generally the indirect route for liquid fuel
production that is discussed in the United States. A good explanation for the focus on the
indirect process is the fact that SASOL in South Africa has commercialized that
technology increasing the confidence in the indirect approach to liquefaction. In
addition, the MIT Report explains that converting coal directly to liquid products requires
reactions at high temperatures and high hydrogen pressure. This liquefaction route is
very costly due to the type of equipment needed to operate at these conditions. The MIT
report also states that in general, the direct liquefaction route "produces low-quality
liquid products that are expensive to upgrade and do not easily fit current product quality
constraints."

INDIRECT LIQUEFACTION PROCESS:

As described by the MIT Report the initial step in the production of methane, chemicals,
or liquids from coal is the gasification of coal to produce a syngas ­ this is the same
process carried out in Integrated Gasification Combined Cycle (IJCC) for electricity
generation. The synthesis gas, or syngas, (predominantly carbon monoxide and
hydrogen) is cleaned of impurities and a water gas shift reaction increases the hydrogen
to carbon monoxide ratio. Then, a Fischer-Tropsch reaction converts a mixture of
hydrogen and carbon monoxide to liquid fuels. The hydrogen and carbon monoxide can
be derived from coal, methane or biomass.

CHALLENGES WITH CTL

The MIT report states that "Without CCS (carbon dioxide capture and storage), Fischer-
Tropsch synthesis of liquid fuels emits about 150% more CO2 as compared with the use
of crude oil derived products." Requiring these facilities to capture and sequester the
carbon dioxide will make the synfuels more expensive. However, the MIT report also
points out that carbon capture and storage would not require major changes to the
synfuels process or significant energy penalties because the CO2 is byproduct in an
almost pure stream and easier to capture and manage.

In addition, questions have been raised about the ability to guarantee a dependable and
sustained market for coal-to-liquid fuels which could deter private-sector investment.
Specifically, industry has expressed concern that the uncertainty of world oil prices
coupled with the technical risks associated with the operation of the initial commercial
plants and the implementation of carbon dioxide management options will make private
investment difficult to obtain.

CTL plant costs will vary based on location, capacity, construction climate, product slate
and coal type. The Fishcer-Tropsch synthesis using coal has been criticized as inefficient
and thus costly. The MIT report concludes, "Today, the U.S. consumes about 13 million
barrels per day of liquid transportation fuels. To replace 10% of this fuels consumption
with liquids from coal would require over $70 billion in capital investment and about 250
million tons of coal per year. This would effectively require a 25% increase in our
current coal production which would come with its own set of challenges."

BENEFITS FROM CTL

Production of domestic liquid fuel would help secure energy supplies by displacing
imports of diesel or jet fuel. Refiners cannot meet U.S. demand for these fuels so diesel
or jet fuel production from CTL facilities would offset imports.
"Unlike conventional transportation fuels, CTL fuels, made using an indirect liquefaction
process, produce tailpipe emissions that are almost completely free of sulfur." (Coal
International ­ January/February 2007)

"Carbon dioxide emissions, over the full fuel cycle, can be reduced by as much as 20%,
compared to conventional oil products, through the use of carbon capture and storage."
(Williams & Larson 2003, Princeton University, "A comparison of direct and indirect
liquefaction technologies for making fluid fuels from coal," Energy for Sustainable
development, Volume VII No. 4 December 2003)


Table 1. Comparative Merits and Drawbacks of Fishcer-Tropsch (CRS RL34133)


Abundant coal reserves available as                  Competition for coal in electric
feedstock.                                           Power generation.

Coal-to-liquids generates significant CO2            CO2 separation during synthesis gas
                                                     production makes capture feasible.

Produces ultra-low sulfur, high cetane               Produces low-octane gasoline
diesel.

Low efficiency in converting coal to                 waste heat available for electricity
liquid.                                              co-generation.

May have lower operating expenses                    Conceptually more complex than
than direct coal liquefaction                        direct liquefaction approach and
                                                     higher in capital investment cost.
Deep geologic sequestration offers                   CO2 sequestration not yet
solution for CO2 emissions.                          demonstrated on a large industrial
                                                     scale.

Gas-to-liquids offers reduced CO2                    Competition with domestic natural
generation.                                          gas use.

Biomass-to-liquids offers zero carbon                Competition with biomass for
footprint.                                           cellulosic ethanol production.


If you have questions or need additional information, please do not hesitate to contact
Michelle Dallafior with the Science and Technology Subcommittee on Energy and
Environment at 226-2179.