The Department of Defense can execute long term contracts for alternative synfuels, but only if the synfuel have lower GHG’s than conventional petroleum based fuel. The Department of Defense (DoD) has backers on Capitol Hill that support increasing the length of procurement contracts that the DoD can enter for supply of fuels. The current law was passed in September 2008 and permits the DoD to enter into contracts that are a maximum of 10 years in length. Senator John Thune (South Dakota) announced that the Senate approved the National Defense Authorization bill for Fiscal Year 2009. Recently the Senate Budget Committee voted unanimously to approve an amendment to the Fiscal Year 2010 Budget that will permit the Department of Defence to increase the contract length from 10 years to 20 years.

Senator Bunning (Kentucky) sponsored an amendment to the Fiscal Year 2010 Budget to increase the DoD contract term to 20 years and it was passed by the Senate Budget Committee.

The increased contract term length for fuel supply contracts is considered to be due to the US Air Force has been considering various coal-to-liquid proposals. The U.S. Air Force has a strategic objective to convert it’s fleet of aircraft to a domestic coal-to-liquids synfuel. Proponents of coal-to-liquid plants have noted that the U.S. Air Force must be able to enter long term contracts for developers to successfully negotiate lender funding to build the facilities. The Governor of Indiana recently signed legislation that allows the State to enter into 30 year contracts for this same reason.

A key requirement of any long term contract is that the alternative fuels are environmentally friendly. Section 526 of the Energy Independence and Security Act (EISA) was included in the 2007 energy bill to prohibit Federal agencies from procuring alternative synfuel unless its life cycle Green House Gas (GHG) emissions are less than those for conventional petroleum sources.

EISA Section 526 states: “No Federal agency shall enter into a contract for procurement of an alternative or synthetic fuel, including a fuel produced from nonconventional petroleum sources, for any mobility-related use, other than for research or testing, unless the contract specifies that the lifecycle greenhouse gas emissions associated with the production and combustion of the fuel supplied under the contract must, on an ongoing basis, be less than or equal to such emissions from the equivalent conventional fuel produced from conventional petroleum sources.”

The value of the U.S. movie industry is $10 billion which roughly equates to only two coal-to-liquid plants. During the Oscar’s I learned that the movie industry is a $10 billion industry. $10 billion? Yes, $10 billion. The revenue potential for all the wealthy producers, the creative directors, the imaginative writers, the costume persons, the hard working stage hands and the talented actors and actresses and the entire U.S. movie industry is only $10 billion.

Yet, the industry seems to be everywhere and immense in scope and size. I confirmed that the domestic movie industry is $10 billion on the Motion Picture Association website. I decided to also check rottentomatoes.com to see what the gross revenue was for some of the top films.

I was surprised to find that Slumdog Millionaire, the year’s Best Movie, has only grossed $8.4 million revenue. So what is the point?

The point is that a commercial scale coal/petcoke gasification plant with an air separation unit and a Fischer-Tropsch or Methanol-to-Gasoline unit would cost roughly $4 to $5 billion based upon several published reports. Wow! The entire U.S. movie industry is only equivalent to the cost of two Coal-To-Liquids plants.

Anyone that is in the petrochemical/coal gasification/engineering and construction business is aware of the formidable capital investment required to construct a Coal-To-Liquids plant, but this really puts the cost into perspective for folks that are not in the industry.

The general public thinks that making a movie is a huge investment. The average cost to make a movie is $106 million. This is a very, very low investment compared to the cost to construct a Coal-To-Liquids plant.

This is why the U.S. government needs to provide mechanisms to reduce risk for the developers, owners and financial institutions. The government should provide risk mitigation mechanisms such as loan guarantees, outright loans, tax credits and other instruments for developers and owners. There is a good chance this will be done. President Obama stated in his address to Congress that there will be legisislation to stimulate the energy sector and included “clean coal” in his remarks.

Rio Tinto is the leading international mining company headquartered in the UK. It combines Rio Tinto plc, a London public listed company, with Rio Tinto Limited, a company listed on the Australian stock exchange. The Rio Tinto company finds, mines and processes the earth’s mineral resources. The focus is on metals and minerals that are essential for making thousands of everyday products. The major products include aluminum, copper, diamonds, coal, gold, uranium, iron ore and other products.

Rio Tinto has recognized the important opportunity for sustainable development through the gasification of coal for energy and liquid products. Tom Albanese, Chief Investment Officer for Rio Tinto, said “Coal is a key part of Rio Tinto’s energy business and we believe it has an essential role in generating clean power in the future.” Rio Tinto has joined with BP to form Hydrogen Energy for the purpose of accomplishing the goal of developing coal gasification plants and creating clean power. Rio Tinto made a cash investment of $32 million towards the joint venture.

The new venture, Hydrogen Energy, will be headquartered in Weybridge. Both companies will provide employees for staffing the company. The initial headcount is expected to be approximately 75 employees.

The Ohio EPA awarded the final air permit for the Ohio River Clean Fuels project to Baard Energy. The Ohio River Clean Fuels LLC (ORCF) project is a 53,000 barrel alternative fuels coal-to-liquids project that will be located near Wellsville, Ohio. The estimated cost of the plant is $5 billion.

The plant will be built on 650 acres in cooperation with the Columbiana County Port Authority adjacent to the Wellsville Port Intermodal Facility. The site is near Wellsvile, Ohio close to the border of West Virginia and Pennsylvania in the Midwest coal corridor.

The project is expected to be built in three phases. Each phase will include two coal gasifier trains that feed syngas to one FT reactor unit. When all three phases are complete, the plant will convert 28,000 tons per day of coal and biomass. The coal will be Pitt #8, but other coals in the area can also be used for feedstock as well as biomass.

Baard Energy selected the Shell Gasification Process technology for the plant. The Shell Gasification Techonology is well proven. It’s in use in Europe and China projects. The Shell gasifiers have been operated successfully with up to 30% biomass blended into the coal feedstock at the coal gasification plant in Buggenum, The Netherlands.

The facility will have three Fischer-Tropsch trains and produce 50,000 barrels per day of ultra-clean diesel and jet fuel, 3,000 barrels per day of LPGs and 250 MW electricity. Baard’s presentation at the Coal Gasification Technology conference in 2005 referenced Rentech’s Fischer-Tropsch technology, but this has not been confirmed with a news release.

The CO2 will be removed using the Linde Rectisol process. Once the CO2 is removed it will be used for injection into existing oilfields for enhanced oil recovery (EOR). Baard has had discussions with Marathon Oil regarding an offtake agreement for the CO2. There are oil fields in production within 20 miles of the plant site that can utilize the CO2 for EOR.

Baard has discussed offtake agreements with the Air Force as well as local petroleum refining companies for the jet fuel, naptha and diesel. Civil and Environmental Consultants and CH2MHill assisted with the permitting process. AMEC Paragon performed the front end engineering and development (FEED). The City of Wellsville, the State of Ohio and local labor leaders support the project.

With the air permit issued, Baard will be able to finalize the lending requirements and proceed with the detailed engineering, procurement and construction.

Senator Rockefeller supports building coal-to-liquid (CTL) projects in the United States. Senator Rockefeller introduced the Future Fuels Act of 2008 and described the act as part of America’s solution for energy independence and national security.

Senator Rockefeller acknowledges the environmental challenges of coal due to the production of CO2, but also points out that there are environmentally friendly solutions to the CO2 and, first and foremost, the CO2 can be collected and stored in deep geoligical formations (carbon capture and sequestration). He wants the nation to accelerate the development of scientific data regarding CO2 sequestration.

The senator specifically states that CTL technology can be used to produce electricity, chemical feedstocks, diesel and jet fuel. This technology will have a tranformational effect on the United States. The Future Fuels Act of 2008 is designed to bring together the best minds in government and the private sector to develop a road map that will achieve success with this industry.

We have a 250-year supply of coal in America. The Future Fuels Act of 2008 will enable us to more fully develop this resource. The Future Fuels Act will:

>provide $10.3 billion – $8.3 billion in expanded clean coal tax incentives and an additional $2 billion for municipal and cooperative energy providers in clean coal energy bonds.

>provide incentives for coal methanation projects.

>provide a ‘stand-by’ loan program for CTL projects if oil prices drop below price still to be determined.

>provide incentives for the construction of pipelines to transport fuels produced at CTL plants to the marketplace.

>provide an immediate $650 million to national labs to further develop CO2 sequestration research.

>create a corporation that is charged with assisting private corporation with developing new technology to further CTL industry.

Senator Rockefeller stated, “Known American coal reserves can produce electricity at current rates – and be converted to transportation fuels in sufficient amounts to supplant more than the petroleum we import from the Persian Gulf and elsewhere – for two centuries or more. No American president will have to call up the Guard and Reserve to secure the coalfields, and no American parent will have trouble falling asleep because they’re concerned about the safety of their son or daughter in uniform because the people who own the energy don’t much like the American presence near the energy.”

CIC Energy, British Virgin Islands, has received a feasibility study for it’s planned coal-to-liquids project. The feasibility study results are positive. The project is based on converting coal from the Mmamabula Coal Field in Botswana, South Africa to fuels and petrochemicals. Jacobs Engineering performed the study and they evaluated three options for CIC Energy.

The three options analyzed in the study are:

The study evaluated two entrained flow coal gasifiers: the Shell Coal Gasification Process technology and the Siemens SFG technology. The gasification technologies were evaluated based upon coal utilization, environmental friendliness, robustness, carbon conversion efficiency, reliability based upon the physical characteristics of the Mmumubula Coal Field. The study recommended Shell and CIC has entered into an Option Agreement with Shell to acquire a technology license.

The study included an evaluation of the capital expenditure required. The estimate is based on June 2008 costs and is considered a “budget” +/- 30% estimate. The estimate includes equipment, material, construction for the coal gasification island, methanol unit(s), methanol-to-gasoline and DME units and the pipeline for Alternative #3.

CIC Energy is proceeding with evaluation by Shell Global Solutions to determine the optimum end product mix for the project.