INTERNATIONAL ENERGY AGENCY COAL INDUSTRY ADVISORY BOARD

COALTOLIQUIDS an alternative oil supply?

PROGRAMME

IEA Coal Industry Advisory Board workshop IEA Headquarters in Paris, 2 November 2006 IEA 9, rue de la Fdration 75739 Paris Cedex 15

Introduction to the workshop

Oil supply security and price concerns have led to a renewed interest in coal as an alternative feedstock for the production of transport fuels and chemicals. By using coal conversion technologies, such as coal-to-liquids (CTL), the worlds vast coal resources could become an important alternative to crude oil. CTL describes both coal gasification, combined with Fischer-Tropsch (FT) synthesis to produce liquid fuels, and the less developed, direct coal liquefaction technologies. Coal gasification is applied widely in the production of chemicals and fertilisers, notably in China where 8,000 coal gasifiers are operating. Fischer-Tropsch synthesis, first developed in Germany during the early decades of the 20th century, has been further developed and improved in South Africa by Sasol. In the past, CTL has substituted for imported oil: during the 1930s and 1940s, when coalrich Germany needed a secure source of transport fuels; and, since the 1950s in South Africa, where 40 million tonnes of coal per year are still converted into 160,000 barrels per day of crude oil equivalent. Following the oil price shocks of the 1970s, significant coal liquefaction R&D was undertaken in the USA, Europe, Japan and Australia, although much of this development work was subsequently put on hold as oil prices stabilised from the mid1980s and through the 1990s. Today, with the return of high oil prices, China is constructing a 60,000 bpd CTL plant and, with plans for further projects, aims to produce one million barrels per day by 2020. In the USA, new incentives have been introduced for coal-based transport fuels and coal companies are now assessing the commercial viability of new projects as one component of a wider vision to make greater use of the countrys vast coal resource1. Against this background, the workshop will explore the future prospects for coal liquefaction. This will be largely determined by the process economics and the relative costs of oil (and natural gas) compared with coal. However, there are also significant environmental issues that must be considered. Invitations to participate in the workshop will be extended to those policy makers, advisors, industrialists, financiers, technologists and other professionals who have an interest in understanding more about CTL and who can ultimately influence its future development from within either the public or private sectors. Numbers will be limited to ensure that an active debate can take place amongst participants.

Issues to be discussed at the workshop

Concerns over the cost and security of oil supplies may be driving the interest in CTL, but would a shift to coal bring new concerns over the security and price of coal supplies? CTL raises many other issues, not least its potentially high CO2 intensity and process water demand. With CO2 capture and storage (CCS) at the coal liquefaction plant, the net CO2 emissions from coal-based transport fuels are similar to oil-based fuels. Without CCS, emissions would be significantly above those from the oil-based alternatives about 7-10 times as much CO2 is emitted in converting coal to transport fuels, when compared with crude oil2. These, and other issues, will be discussed at the end of each session. The final workshop session offers the opportunity for speakers and participants to consider and respond to a series of key questions (see box opposite).

See, for example, information provided by the National Mining Association [www.futurecoalfuels.org].

Key questions for participants If CTL became widespread, then would the accelerated depletion of coal reserves put into question the longevity of coal resources and the perceived security that they offer? What is the potential impact of CTL on coal markets volumes, prices and transportation? Will the necessary differential between coal and oil prices be maintained long enough to drive the widespread up-take of CTL? Do low construction costs in China make the economics of CTL uniquely attractive, or will plants also be built in developed and other developing countries? What is the confidence in projected capital costs and thus in projected product prices? How much does CO2 capture and storage add to the cost of CTL? Direct or indirect what is the preferred route to coal liquefaction? What is the CO2 emission intensity of competing CTL processes, with and without CO2 capture? What impact would CTL have on life-cycle emissions from the transport sector? What are the process water demands of CTL and do these represent a significant issue? What are the national- and international-level policy implications of a growth in CTL? Should governments offer incentives to speed the deployment of CTL as an alternative to conventional transport fuels? Who will drive CTL projects coal companies, oil companies, utility companies or entrepreneurs? Are there any early opportunities for CTL, such as to supply a single battlefield fuel? What are the alternatives if CTL is needed to meet demand, but results in higher CO2 emissions, what other transport fuel options should be explored?

Technical background2
Coal may be used to produce liquid fuels suitable for transportation applications by the removal of carbon or addition of hydrogen, either directly or indirectly. The first approach is usually known as carbonisation or pyrolysis and has low yields; the second is called liquefaction. As the cost of converting coal into useful liquid fuels is higher than the cost of refining crude oil, it is the relatively low price of the raw coal feedstock that provides the main incentive to pursue the technology. Direct liquefaction is potentially the most efficient route currently available, yielding in excess of 70% by weight of the dry, ash-free coal feed, under favourable conditions. Although many different direct processes exist, common features are the dissolution of a high proportion of the coal in a solvent at elevated temperature and pressure followed by catalysed hydrocracking of the dissolved coal with hydrogen gas. The overall energy efficiencies of modern processes are generally in the range 60-70% and the technology has been demonstrated at large pilot plants. Although no commercial plants yet exist, Shenhua Groups first CTL facility is under construction in China using direct liquefaction technology. The less efficient, but commercially proven, indirect liquefaction process relies on the gasification of coal to produce synthesis gas (a mixture of carbon monoxide and hydrogen) which is then reacted over a catalyst at temperature and pressure to produce the desired liquid products. It is this indirect process, using well-established Fischer-Tropsch synthesis, that has been commercialised by Sasol in South Africa and will be used in several new projects proposed in China.

Coal Liquefaction, Technology Status Report 010, DTI/Pub URN 99/1120, London: Department of Trade and Industry, October 1999 [www.dti.gov.uk/files/file18326.pdf?pubpdfdload=99%2F1120].

Aims of the workshop

To provide a CTL technology status review and update on current projects. To disseminate knowledge of CTL process economics, both with and without CO2 capture and storage. To understand the environmental issues associated with CTL. To reach conclusions on the role of CTL as an alternative source of transport fuels. To bring CIAB advice on the subject of CTL to the attention of the IEA.

WORKSHOP PROGRAMME Thursday, 2 November 2006

08:3009:00 09:0009:15 Registration of Participants Opening Session Mr Claude Mandil, Executive Director, International Energy Agency Mr Preston Chiaro, Chief Executive Energy, Rio Tinto & CIAB Chairman 09:1510:15 SESSION 1: Experience with Coal-to-Liquids Technologies in South Africa and Japan Chaired by Dr John Topper, Managing Director, IEA Clean Coal Centre
CTL technologies are not widely used and are unfamiliar to many in the coal mining and power generation sectors. This session sets the scene by introducing the chemical engineering behind CTL and illustrating how this has been used at pilot and commercial plants Sasol operates CTL plants in South Africa with a combined capacity of 160,000 bpd of crude oil equivalent. Participants will receive a new brochure on CTL prepared by the World Coal Institute and, in 2007, will be provided with a complimentary copy of an IEA Clean Coal Centre report on the subject.

A Primer on the Technologies of Coal-to-Liquids (15 min) Mr Daniel C Cicero, Technology Manager Hydrogen & Syngas, Office of Coal & Power R&D, US Department of Energy, National Energy Technology Laboratory Japanese R&D Achievements with Coal Liquefaction (15 min) Dr Sadao Wasaka, Director General, Environment Technology Development Dept., New Energy and Industrial Technology Development Organization Commercial Experience in South Africa with CTL and Coal-to-Chemicals (15 min) Mr Andr Steynberg, Technology Manager for CTL, Sasol Technology (Pty) Ltd 15-minute discussion 10:1510:45 10:45-12:00 Coffee Break SESSION 2: Policy Drivers for CTL in the USA, Industrys Response and the Environmental Implications Chaired by Mr Steven F Leer, President and Chief Executive Officer, Arch Coal Inc
Todays high oil prices make coal a competitive source for transport fuels, but commercial risks remain high and only those projects that are economically viable and environmentally sound are likely to proceed. Incentives, available under the recent Transportation Act, could accelerate the conversion of the vast US coal resource into transport fuels (a 50c/gal tax credit is available under the Safe, Accountable, Flexible, and Efficient Transportation Equity Act of 2005 equivalent to c.$20/bbl and possible loan guarantees under the Energy Policy Act of 2005). The US Department of Energy is supporting a commercial-scale project to convert waste coal into FT diesel and power. In addition, the US Department of Defenses concept of a single fuel for the battlefield opens up opportunities for alternative fuels; a coal-based fuel would reduce the inherent risks and vulnerabilities associated with oil-based supplies.

Policy Incentives for CTL in the USA (15 min) Dr Roger Bezdek, President, Management Information Services Inc. and primary 3 consultant to the SSEBs American Energy Study Commercial Opportunities for CTL in the USA (15 min) Mr Greg Boyce, President and Chief Executive Officer, Peabody Energy Economics of CTL Projects (15 min) Mr Robert C Kelly, Executive Officer, DKRW Energy LLC Sequestration of CO2 from CTL Processes (15 min) Mr I Merrick Kerr, Chief Financial Officer, Rentech Inc. 15-minute discussion 12:0013:15 SESSION 3: CTL Projects in China and the Developing World Chaired by Mr Eric Ford, Chief Executive Officer, Anglo Coal Australia Pty Ltd
Shenhua Group is constructing a 60,000 bpd, direct coal liquefaction plant in the Inner Mongolia Autonomous Region. Plans exist for further CTL projects, including two plants in Ningxia Hui Autonomous Region (each 60-70,000 bpd) and a further 80,000 bpd plant in Shaanxi Province, which are progressing using well-proven technologies from Sasol and Shell. The aim is to produce 50 mtoe annually by 2020, from 200 million tonnes of coal. In addition, Yankuang Group has two coal-to-chemicals plants under construction, one Fischer-Tropsch and one methanol based, and Xinao Group has funding for a major DME project in Inner Mongolia. Further proposals for polygeneration plants, producing electricity, hydrogen, liquid fuels and chemicals, are also under consideration.

CTL Projects in China and Future Strategy (15 min) Dr Yuzhou ZHANG, Chairman, Shenhua Coal Liquefaction Corporation & Vice President of Shenhua Group Corporation Limited CTL Technology in China and Polygeneration Opportunities (15 min) Prof Zheng LI, Tsinghua-BP Clean Energy Research & Education Centre Engineering and Investing in Modern CTL Plant (15 min) Mr Nicols Ximnez, General Manager: Clean Coal Energy Europe, Shell Gas & Power International 30-minute discussion 13:1514:15 14:15-15:15 Buffet Lunch SESSION 4: Prospects for CTL in Europe, Australasia and Globally Chaired by Dr Don Elder, Chief Executive Officer, Solid Energy New Zealand Ltd
The worlds biggest lignite or brown coal reserves lie in Australia, some 38 billion tonnes. India and the USA have similarly large reserves, whilst substantial reserves exist in many other countries, including Germany where annual production of 180 million tonnes underpins one quarter of the countrys electricity production. Despite their low calorific value and often high moisture content, all these reserves are suitable for converting to liquid fuels, providing appropriate technologies are available. Globally, brown coal resources are similar in magnitude to non-conventional oil resources, and hard coal resources exceed the combined total of all types of oil and gas resources. What then is the oil industrys view on the future of coal as a source of alternative fuels?

Coal-to-Liquids and Coal-to-Hydrogen in Australias Latrobe Valley (15 min) Mr Jeff Cochrane, Chief Executive Officer, Monash Energy Project From Mine to Wheel the role of lignite-to-liquids in tomorrows energy supply (15 min) Mr Matthias Hartung, Executive Vice President, RWE Power AG Oil Industry View on Coal-to-Liquids and Coal-to-Hydrogen (15 min) Dr Atul Arya, Vice President Group Strategic Analysis, BP plc 15-minute discussion

American Energy Security building a bridge to energy independence and to a sustainable energy future, The Southern States Energy Board, July 2006 [www.americanenergysecurity.org].

15:15-16:00 16:00-17:30

Tea Break SESSION 5: Coal Market and Policy Implications of a Growing CTL Demand Chaired by Preston Chiaro, Chief Executive Energy, Rio Tinto & CIAB Chairman Panel discussion with: Dr Victor K Der, Director Office of Clean Energy Systems, US Department of Energy Mr Roger Bezdek, President, Management Information Services Inc. Mr Greg Boyce, President and Chief Executive Officer, Peabody Energy Mr Jeff Cochrane, Chief Executive Officer, Monash Energy Project Shri D N Prasad, Director (Technical), Indian Ministry of Coal TBC Mr Andr Steynberg, Technology Manager for CTL, Sasol Technology (Pty) Ltd Dr Yuzhou ZHANG, Chairman, Shenhua Coal Liquefaction Corporation & Vice President of Shenhua Group Corporation Limited Mr Bill Senior, Senior Advisor Technology, BP Alternative Energy
Panellists will offer their own, short commentary (5 min) in response to the questions posed in the box on page 3, and to any other key issues emerging from the workshop. CIAB Members and other participants will then be invited to join an open discussion (45 min) to tease out key messages from the workshop followed by concluding remarks from the chair.

IEA Coal Industry Advisory Board

The IEA Coal Industry Advisory Board comprises a group of 40-50 members, typically chief executives of coal mining companies or major power utilities. At its annual plenary session, it brings advice to the IEA on, for example, the continued use of coal as a secure source of energy and on measures to mitigate the environmental impact of coal use. The Board holds occasional workshops on topics of particular importance to the industry and Agency; this high-level workshop on coal-to-liquids continues that tradition.
For further information on this event, please contact Brian Ricketts at the International Energy Agency (brian.ricketts@iea.org) who can also arrange invitations for those wishing to attend. Organising Committee: Andy Lloyd, Rio Tinto (chair) / Milton Catelin, World Coal Institute / Sylvie Cornot-Gandolfe, ATIC Services / Brian Heath, CIAB / Bill Koppe, Anglo Coal / Roland Lbke, GVST / Kyohei Nakamura, J-Power / Fred Palmer, Peabody / Stan Pillay, Anglo Coal / Wendy Poulton, Eskom / Brian Ricketts, IEA / Hans-Wilhelm Schiffer, RWE Power / Deck Slone, Arch Coal / John Topper, IEA Clean Coal Centre. IEA International Energy Agency 9, rue de la Fdration 75739 Paris Cedex 15 FRANCE tel: +33 (0)1 40 57 65 00/01 fax: +33 (0)1 40 57 65 59 www.iea.org / info@iea.org Access by public transport: Metro Line 6: Bir Hakeim RER C: Champs de Mars Bus Line 42: Docteur Finlay or Dupleix PLEASE CARRY YOUR PASSPORT OR OTHER OFFICIAL PHOTO ID TO GAIN ENTRY TO THE IEA BUILDING 27 October 2006