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Diesel from CTL with carbon capture at a cost of $53 / barrel

Tuesday, August 16, 2011

UK company Altona Energy believes it can supply vehicle ready diesel at $53 a barrel (33¢ a litre), with a coal to liquids plant, incorporating carbon capture for underground carbon storage, with financial support from China. It has a site for a coal mine 800km North of Adelaide where the conversion of coal to liquids plant will also be located

Altona Energy of the UK has plans to develop a coal mine, coal to liquids plant, carbon storage and electricity generating plant on a site 800km North of Adelaide, Australia.

With financial support from China National Offshore Oil Corporation (CNOOC), it believes it can provide road ready diesel at $0.33 a litre.

The coal to liquids process is often considered a dirty way to create vehicle fuels, because carbon dioxide is emitted into the atmosphere both in the coal processing plant and from the vehicle.

But if the carbon dioxide from the coal processing plant is sequestered (buried underground), then the overall carbon emissions are just the same as for traditional motor fuels, but with the added benefit of much lower emissions of other pollutants (SOX, NOX, particulates), because they are removed in the processing plant, rather than coming out of the vehicle's exhaust.

So far, Altona has conducted an initial, or 'pre-feasibility' study, by engineering giant Jacobs Engineering. Now, at CNOOC's expense, it has embarked on a far more comprehensive study, known as a 'bankable feasibility study', or in other words a study so thorough a bank can lend money on the results. This study will cost Aus$440m (US$415m) and will be primarily completed in 2012 or early 2013.

Coal to liquids

In the coal gasification process, coal is reacted with oxygen and steam. The carbon in the coal is oxidised, ending up with a mixture of carbon dioxide, carbon monoxide, water vapour and hydrogen.

The carbon dioxide is separated out, dehydrated, compressed and is ready to be sent to the carbon storage system. The hydrogen and carbon monoxide are sent to the Fischer Tropsch plant, where they are processed to form a liquid hydrocarbon which is then refined to produce diesel naptha.

If carbon storage is incorporated, running vehicles from synthetic fuels is arguably more environmentally friendly than conventional transport fuels. The carbon emissions from the vehicle itself are the same, but all of the impurities (for example sulphur) can be removed in the processing plant, not through the vehicle's exhaust. There are lower particulates in the emissions (small particles of unburnt carbon / soot), and less NOX emissions and also zero aromatics such as benzene.

Synthetic fuels are also 10 per cent lighter (in mass per kilojoule) than conventional fuels for the same energy content. This makes a big difference when putting them in aeroplanes - because it means that the plane can go 10 per cent further distance for the same mass of fuel.

The process to converting coal to liquid fuels on an industrial scale was first done in Germany, to provide liquid fuels for German equipment in World War 2. It was then further developed by SASOL in South Africa to provide liquid fuels during the apartheid era, when sanctions prevented delivery of oil tankers.

Currently coal-to-liquids is enjoying a resurgence due to high oil prices, the need to create a diversity of supply, and reduce risk of supply concerns. There are coal gasification projects underway in the US, UK, China, South Africa and South Korea.

Jet fuels produced by the coal-to-liquids process have been provided to airlines refuelling at Johannesburg and Cape Town since 1998, in a 50:50 mix (synthetic and kerosene).

In 2008, 100 per cent synthetic fuel was approved for aviation, and has been used since 2009 by Qatar Airways on its London to Doha route, sourced from Shell's Pearl gas to liquids project in Qatar, for the production of synfuels using Sasol technology.

In 2010, total worldwide synthetic fuels plants in operation exceeded 330,000 barrels per day, with an extra 270,000 barrels of oil per day plants expected to be operational in 2011, with US Air Force expected to complete 100 per cent certification of its whole fleet to use synthetic fuels blend, Altona says.

By 2030, the US Department of Energy has predicted that synthetic fuels consumption will be over 3m bopd, if sour crude oil price is over $57 a barrel.

It is therefore possible that coal to liquids could create a more viable financial pathway for carbon capture, or 'clean coal', than just using coal to make electricity.

If coal is used to make electricity, then investors and the public are faced with a simple charge for the carbon capture - do they want to pay around 20% more for electricity or not? Since many people care far more about their bank balances than they do about their carbon emissions, this could be a tough sell. (However the risk of price escalation of LNG, which is used in thermal power stations, as a lower carbon alternative to coal, is eliminated).

But if the coal is used to make a liquid fuel, then the public gets the option of liquid fuels for their vehicles which are cleaner and cheaper than conventional fuels. If the carbon dioxide from the coal processing is sequestered, then there are no objections about use of synfuels produced from coal.

Altona's project

Altona's project in the state of South Australia is known as the 'Arckaringa' project, because Arckaringa is the name of the coal basin.

The amount of mine-able coal in the basin has been estimated at 7.8bn tonnes, and this has already been verified as part of a detailed AU$440m study of the project, currently being conducted by CNOOC (see below).

The coal basin has been studied by geologists for decades, although previously there has not been any mine on the site due to techno-economics. Altona Energy has acquired rights to build an open cast mine on the site.

A railway line has been built in the past few years which passes through the basin, connecting Adelaide with Darwin, which could be used to transport coal or liquid fuels from the region.

Altona plans to mine 15m tonnes of coal a year. If the total resource is 7.8bn tonnes, this means the mine can operate for 520 years.

It will build a coal to liquids plant which will convert this coal to 10m barrels of diesel a year (equivalent to a 27,000 barrels of oil per day well).

It will also build a power station to provide the power necessary to operate the facilities as well as being able to export 560 MW into the grid.

The power supply will come in handy - South Australia currently has 2 power stations with total output of 750mW, and the region actually uses 3.5 gigawatts. There is an estimated electricity deficit of 1 GW for the region being forecast, says Altona's finance director Anthony Samaha. Being able to supply baseload power has helped get the Australian government's support for the project, he says.

Once the plant is built, the syngas production (hydrogen and carbon monoxide mixture) can be varied to the electricity generating plant, or the coal to liquids plant, according to the demands (and pricing) of the day.

To illustrate the importance of the project, the Arckaringa UEJV (Unincorporated Evaluation Joint Venture Agreement) - signed in June 21 2010 in Canberra, in the presence of the VP of China Xi Jinping, prime minister of Australia Kevin Rudd, President of CNOOC Fu Chengyu and Minister for Trade and industry South Australia Tom Koutsantonis.

"Arckaringa is a project as important to South Australia as North Dome (the world's largest gas field) is to Qatar,' says Peter Fagiano, executive director of Altona. Arckaringa has been described as 'one of the world's largest untapped energy banks,' he says.

Altona also plans to build a plant which will react carbon dioxide with hydrogen to form fuel grade methanol, which can be added to the local gasoline pool.

The gasification technology can be used to gasify biomass (for example, wood) as well as coal. This means that you could build a system which can actually take carbon dioxide out of the atmosphere and make electricity or liquid fuels at the same time. You grow trees to absorb the carbon dioxide, gasifying the biomass, and separating the resulting hydrogen and carbon dioxide, sequestering the carbon dioxide and using the hydrogen to make electricity or liquid fuels.

It can also gasify black liquor, a by-product from the paper and pulp industry - as well as sewage and municipal waste.

The gasification processing technology can make a range of plastics as well as liquid fuels, by the conversion of syngas into methanol, which can then be converted into olefins and finally polypropylene.

The plan is to store the carbon in an underground aquifer near the site, about 150km away, so the carbon dioxide can be transported by pipeline to the site.

The region is very low population (desert), so the company does not anticipate public concerns about underground carbon storage, as there have been in other countries which are densely populated.


So far a 2008 'pre-feasibility' study of the project has been made by US engineering giant Jacobs Engineering, which developed the design of the coal to liquids plant, which is estimated to have a refinery gate cost of $0.33¢ per litre (or $53/barrel) for diesel.

The $53 per barrel includes the cost of capital expenditure. Operating costs only are $38 per barrel.

According to the initial 'pre-feasibility' study, the plant (including coal gasification, coal to liquids plant, IGCC power plant and carbon storage) will cost $3bn to build, and the coal mine $500m.

Now, CNOOC is financing a full scale feasibility study into the project, with a cost of AU$440m (US$ 415m), and has been given a 51 per cent stake in Arckaringa coal asset in return.

Currently a CNOOC team based in Adelaide is looking at the mine and CNOOC in Beijing is looking at coal to liquids plant development.

The study is known as a 'bankable feasibility study' - in other words, the level of detail should be sufficient enough for a commercial bank to lend money based on the results.

Altona's full scale financial evaluation is based on costs of the 4th quarter of 2010. The re-evaluation of the coal resource by CNOOC and Chinese institutions was completed in Q1 2011, including the quantity and quality of coal. Now CNOOC's consultants are evaluating the plant project design.

Altona Energy

Altona Energy has been listed on the UK's Alternative Investment Market (AIM) since 2006.

Altona Energy is 20.1 per cent owned by Tonjiang International Energy Co Ltd, a company whose CEO is Zheng Qiang, previously management at China Economic Commission, China Rare Earth office of the State Council Rare Earth Leading Group of the State Planning Commission. Mr Zheng introduced Altona to CNOOC and is also a non executive director of Altona.

UK investment company Investco Perpetual has a 17 per cent stake in Altona.

If the coal to liquids plant goes ahead, CNOOC can increase its interest in the overall project up to 70 per cent, with Altona owning 30 per cent. (CNOOC owns half of Arckaringa project licenses, so CNOOC would effectively own 85 per cent of the project). CNOOC would also provide debt finance for the whole project, including its own equity, leaving Altona needing to raise 15 per cent of the project costs.

Peter Fagiano, executive director of Altona, was previously director of operations for the process and technology division at Jacobs Engineering UK Limited. Parent company Jacobs Engineering is one of the world's largest project engineering firms. Mr Fagiano was also previously managing director of ABB Global Engineering UK & International Oil and Engineering Division.

Altona is the only coal to liquid company on the UK's Alternative Investment Market (AIM).

By buying a stake in Altona Energy, you also get a share of other projects the company might get involved with, with lots of possibilities for projects within China itself, says Altona's finance director Anthony Samaha.

External Links
» Altona Energy

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