Will Coal become the Source of Petroleum Liquids in India in Future?
Anshul Jain Jun 20,2011
With West setting the trend and aggressively looking to diversify its energy portfolio after petroleum prices reached record high in 2007 and 2008 and presently continue to be above $100 per barrel mark. There is a renewed interest in finding ways to use unconventional fossil-based resources and with plans to produce petroleum liquids from coal, it should be no surprise that India too should look at some point to follow the suit in order to reduce its burden of its costly crude oil imports.
Why Coal? Because coal is the only fossil fuel whose reserves are spread evenly around the world as opposed to crude oil and natural gas which are increasingly concentrated in fewer and fewer countries. In terms of proven coal resources, US lead the way followed by Russia, China, and India. In terms of production of coal, India currently ranks 5th in the world [BP Report, 2007]. Also, total proven recoverable coal resources are 3 times that of proven recoverable crude oil resources, making it an ideal case for resource tapping.
Coal-to-Liquids (CTL) is a technology whereby coal is first gasified to Syn gas and then Syn gas undergo a Fischer Tropsch Synthesis process whereby it is transformed to high quality petroleum liquids mainly jet fuel and diesel. There are other variants of this technology which can potentially produce Gasoline – rich liquids. China is attempting Direct Liquefaction of Coal to Liquids, an energy intensive process. It should be understood that coal-to-liquids technology is yet to be developed commercially. Though gasification of coal to Syn gas is a widely developed commercial process and Fischer Tropsch (FT) process is also considerably developed commercially, the combination of above two processes to convert coal-to-liquids has yet not been developed on a commercial scale.
It has been estimated that a 3 million Barrels per day (BPD) production of liquids from coal will reduced worldwide crude oil prices in the range of 2-5% and will potentially protecting against sudden and large disruption in world oil supplies leading to price shock [Report by Rand, Camm and Oritz, 2008]. In order to produce liquids from coal at a rate of 1 million BPD from coal in India, the author has estimated consumption of approximately 5.5 Lacs tons of coal per day, which would essentially amounts to 30% of coal production in India, rest 70% (450 tons/year) contributed by use of coal for generating electricity and industrial purposes. However, post 2030, at anticipated coal consumption of 1500 mn tons/yr [Coal Initiative Report, 2008] for generating electricity and industrial purposes, use of coal for producing petroleum liquids would contribute only 12% of total coal production. This extra production of coal can be accomplished by increasing the rate of mining coal.
One of the significant features of CTL based plants is the high upfront capital cost that would require use of project financing. It has been estimated by the author that the payback period from such a CTL plant producing 20000 BPD of petroleum liquids would be less than 4 years at petroleum product prices of $115 per barrel (assuming $85 per barrel of crude oil).
The potential problem against the development of CTL industry in India or worldwide is the emissions of carbon dioxide during the process. Experts have estimated that on average, emissions from CTL based plants would be twice that of emissions from production of petroleum fuels from crude oil, potentially leading to further environmental degradation. The developed countries like US are in the process of commercializing carbon sequestration technology, whereby it can dispose off carbon dioxide in certain geological formations. For India, in the absence of carbon dioxide disposal technology, the best path forward can be to produce liquids from a combined coal and biomass (CBTL) based plant. Total-fuel-cycle emissions of CO2 from Biomass are low since CO2 is absorbed during growth cycle of crops. A plant based on combination of coal and biomass would significantly bring down CO2 emissions and bring it at par with crude oil based plants.
Due to large capital costs involved in a CTL or CBTL project, very few firms have the financial resources to take on the risk involved in the project, as such the author recommends a Public-Private Partnership model for the project whereby Private companies can offer their expertise in design, construction and operations and government can take on higher risk by providing subsidies that reduce private firm’s operating cost or increase revenues and by providing a loan guarantee on firm’s debt financing.
(The content above reflects purely authors views based on his extensive study on the above subject as well as years of experience in Oil and Gas Industry)
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