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Thursday, January 06, 2011

Mailbag: "Bear Trader" comments on Turning Natural Gas into Fuel Liquids

My belief is that the NYT overestimates the cost and difficulty of producing fuel liquids from natural gas.

SASOL uses what is known as Fischer - Tropsch synthesis to make fuel liquids from coal in South Africa. Fischer - Tropsch synthesis is expensive. The Third Reich had little petroleum available, essentially only from Romania, and produced synthesized coal derived fuel liquids to the max. The official cost of synthetics was about twice the cost of fuel liquids made from Romanian oil, and Germany was paying through the nose for for that stuff. I suspect Fischer -Tropsch from coal in the USA would deliver gasoline at over $10 per gallon.

The American Army Air Force finally bit the bullet and systematically bombed the hell out of the Reich's synthetic fuel plants. The Germans defended them with all their might. It cost the lives of many of our youngsters and maybe a thousand or two of our bombers. Albert Speer (Third Reich Minister of Production) said, after the war, that the English bombing was like terrible body blows but that the American 90%+ destruction of synthetic fuel plants was like having their throats cut.

Anyway. The chemistry of making fuel liquids from a combination of natural gas and coal is way different than what is needed to produce fuel liquids from coal alone. The natural gas can supply the hydrogen needed for what is known as the "solvent refined coal" process, cutting energy waste and initial investment substantially. Not "off the shelf" technology, though, needs some R&D.

Maybe, not including the cost of designing and building the plants, putting in pipelines and railroads (to handle coal) and going for economies of scale - say, replacing one half of oil imports - you could make gasoline that would sell for $4 - $5 a gallon in today's money. The reason I use this relatively high price range is that using this much natural gas on a continuous basis would mean natural gas prices in the order of $10 - $15 per million Btu instead of under $4.

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