Coal to Liquids (CTL): An Overview

Rio de Janeiro March 2007

Dr. Dan Driscoll Project Manager Gasification and Fuels Division

National Energy Technology Laboratory Interest Drivers for CTL

 “Addicted to oil” – State of the Union address 2006  US petroleum imports in 2005 exceeded $250 billion  35% of energy consumption is from Oil 1  Daily world consumption is 84 million bbl/d – 20% higher than 1995 – expect 120 M by 2030  World vehicle ownership at 700 M; – double by 2030 to 1.5 billion; – developing countries to triple  96% of all energy used for transportation – largest demand for oil  World oil supplies could peak between 2016 and 2037 2  Oil resources not equitably distributed globally; coal more wide spread  Concerns in: Energy security and Economic Development  Oil availability supply issues  Infrastructure difficulties  Coal remains the most abundant fossil fuel in the world.  Products produced from oil can be made from coal.  Outside Activities:  National Coal Council Report (March 2006) identified capacity to support production of 2.6 million bpd of liquid fuels from coal by 2025. See www.NationalCoalCouncil.org  Southern States Energy Board Report (July 2006) called for aggressive federal investment in CTL incentives “to encourage the private sector to step forward on a massive scale.” See www.AmericanEnergySecurity.org  DOD Air Force Request for Interest in Military Alternative Fuels

1Ref: World Coal Institute Report “Coal-to-Liquids” November 2006 2Ref: Hirsch, Robert, et, al., “Peaking of World Oil Production: Impacts, Mitigation, & Risk Management”, NETL, February 2005 U.S. Dependence on Foreign Oil Oil Reserves Saudi Arabia 21% Canada 14% Iran 10% Iraq 9% Kuwait 8% U.A.E. 8% Venezuela 6% Russia 5% Libya 3% Nigeria 2% U.S. 2%

Rate of Use U.S. 25% Japan 7% China 7% Germany 3% Russia 3% The United States uses India 3% more oil than the next Canada 3% Brazil 3% five highest-consuming S. Korea 3% nations combined. France 3% Mexico 3% 0% 5% 10% 15% 20% 25% Updated July 2005. Source: International Energy Annual 2003 (EIA), Tables 1.2 and 8.1-O&GJ. Canada’s reserves include tar sands. U.S. Energy Sources

% of U.S. % of Total Electricity U.S. Energy Energy Source Supply Supply Oil 3 39 Natural Gas 15 23 Coal 51 22 Nuclear 20 8 Hydroelectric 8 4 Biomass 1 3 Other Renewables 1 1 Why Coal? Coal Reserves are Abundant

Years Supply at Current Production Rates

Provides over half 300 Nation’s electricity Abundant domestic 200 Western reserves 100 Eastern Low, relatively stable prices 0 Coal Oil Gas U. S. Coal Resources Are Widely Distributed Delineation of U.S. Coal Resources and Reserves

Sufficient reserve to meet projected demand for electricity and up to 4MMBPD CTL industry for over 100 years

1 ton of coal produces 2 barrels of liquid

Source: EIA Coal Reserves Data 1997 http://www.eia.doe.gov/cneaf/coal/reserves/chapter1.html#chapter1a.html Coal-to-Liquids – Rationale

 U.S. economy requires a reliable supply of liquid fuels for national security and economic stability.  Oil refineries operating at > 90% capacity, refining capacity highly concentrated in Gulf Coast  Rising oil prices and imports, moratoriums for off-shore drilling  Increasing concern about terrorism/natural disasters on petroleum supply chain.

Coal-derived liquid fuels can supplement oil-based fuels and moderate fuel price increases. Coal to Liquids Technologies Conversion Technologies: Direct Liquefaction (Bergius Hydrocracking) Indirect (Gasification + Fischer-Tropsch) Liquefaction.

Direct Liquefaction - Dormant in the U.S. but being actively pursued in China. The Shenhua project in Inner Mongolia will bring a full scale single train, 20,000 BPD commercial unit into production in 2008 using Headwaters technology.

Inner Mongolia Coal Liquefaction Plant Schematic, China 2006 Direct Coal Conversion Projects

Originally developed in Germany in 1917 Used to produce aviation fuel in WWII US spent $3.6 billion on DCC from 1975-2000 Headwaters Technology licensed to China in 2002

Lawrenceville, NJ Catlettsburg, KY Inner Mongolia, China 3 TPD (30 bpd) 250 – 600 TPD 4,200 TPD (1,800 bpd) (17,000 bpd) Direct Coal Conversion to Liquid Fuels

H2S, NH3, COx

Methane Make-up Recycled H 2 Gas Recovery & Ethane H2 Treatment LPG

Hydro- Coal + Coal Gasoline treating Refining Catalyst conversion Diesel Fuel Unit H-Donor Slurry

Slurry Fractionation Heavy Vacuum Gas Oil

Solvent Ash Reject Deashed Oil Deashing Gasifier Unconverted Coal Direct Conversion

Advantages Disadvantages  Conceptually simple process  High aromatic content  Produces high-octane gasoline  Low-cetane number diesel  More energy efficient than indirect conversion  Potential water and air (i.e. more fuel / BTUs emissions issues produced per ton of coal)  Fuels produced are not a  Products have higher good environmental fit energy density for the U.S. market (BTU/gallon) than  May have higher indirect conversion operating expenses than indirect conversion Indirect Coal Conversion

Originally developed in Germany in 1923 (Franz Fischer and Hans Tropsch) Used to produce diesel fuel during WW-II Currently used to produce liquid fuels and chemicals in South Africa Example of Prior Large Scale US-based Facilities World Large Scale Facilities

Brownsville, TX 7,000 bpd GTL Plant

• Designed by HRI (Headwaters predecessor) • First commercial use of High Temp. FT • Operated 1950-55 • Shut down when oil price dropped due to Secunda, South Africa Middle East oil discoveries. 150,000 bpd Indirect Coal Conversion Coal Petcoke Biomass Oxygen/ etc Steam Catalyst

C H FT Product Gasification & H2 + CO Fischer-Tropsch x y Liquids Gas Cleaning Syngas Synthesis Separation & & Wax Upgrading

Steam Tail Gas Sulfur, Water Ultra-Clean CO2 & Liquid Fuels and Ash Oxygenates & Chemical Feedstocks Steam Electric Power Generation

Electricity Gasification- A Versatile Source of Fuels

Oxygen Extreme Conditions: .1,000 psig or more .2,600 Deg F .Corrosive slag and H2S gas

Coal, Products (syngas) biomass, CO (Carbon Monoxide) Gas pet. coke H2 (Hydrogen) Clean-Up [CO/H2 ratio can be adjusted] Before By-products Product H2S (Hydrogen Sulfide) Use CO2 (Carbon Dioxide) Slag (Minerals from Coal) Water Coal Gasification Chemistry

2C (coal) + ½O2 + H2O = 2CO + H2

Simultaneous Three Body Collisions are Unlikely Multiple Bi-Molecular Interaction Mechanism in Effect

C + O2 = CO2

C + CO2 = 2CO

C + ½O2 = CO

C + H2O = CO + H2

C + 2H2 = CH4 Gasifiers GE Energy ConocoPhillips KBR Shell Siemens (Chevron-Texaco) E-Gas Transport SCGP (GSP/Noell) Reactor

Slurry-feed Dry-feed Comparison of Gasifier Characteristics

Moving Bed Fluidized Bed Entrained Transport (Lurgi & BGL) (U-Gas & HTW) Flow Flow (GE, Shell, (KBR) E-Gas, Siemens) Ash Cond. Dry Slagging Dry Agglomerate Slagging Dry

Coal Feed ~2in ~2in ~1/4 in ~1/4 in ~ 100 Mesh ~1/16in

Fines Limited Better Good Better Unlimited Better than dry ash Coal Rank Low High Low Any Any Any

Gas Temp. (°F) 800-1,200 800-1,200 1,700-1,900 1,700-1,900 >2,300 1,500-1,900 Oxidant Req. Low Low Moderate Moderate High Moderate

Steam Req. High Low Moderate Moderate Low Moderate

Issues Fines and Carbon Conversion Raw gas Control Hydrocarbon liquids cooling carbon & inventory carryover Products from Syngas

Clean Electricity Gasification Clean Syngas and Gas Gas H2, CO, CO2 Cleaning Turbine Stationary Fuel Cells H2 Separation Building Shift Reaction of H CO2 for Blocks Methanation 2 for CO + H2OH2 + CO2 from CO Sequest CO + 3H CH + H O 2 Chemical 2 4 2 ration Industry Fischer- Tropsch or Methanol Synthesis H2 2nH2 + nCO (- CH2-)n + nH2O

Methane CO + 2H2 CH3OH (SNG) Transportation Fuels Fuel Cell Vehicle Fischer-Tropsch (F-T) Technology

0 CO(g) + 2H2(g) (CH2)n(l) + H2O(g) ΔH = -165kJ/mol

The water produced combines with CO in the water-gas shift reaction to form H2 and CO2

0 CO(g) + H2O(g) (CO2)(g) + H2(g) ΔH = - 41.2kJ/mol

The overall F-T reaction is therefore described as follows:

0 2CO(g) + H2(g)(-CH2-)n(l) + CO2(g) ΔH = -206 kJ/mol

Another approach to liquid fuels via synthesis gas is methanol production.

CO(g) + 2H2(g) CH3OH(l)

Methanol can be used directly or converted into gasoline through a process such as the Mobil process using zeolite catalysts.

*With Fe-based Catalysis Anderson Schultz Flory Distribution Indirect Conversion

 The liquid products from indirect conversion process are zero sulfur, near zero aromatic hydrocarbons. Minimal refining needed to produce ultra-clean diesel or jet fuel.  Carbon dioxide produced during indirect conversion can be captured for subsequent storage.  Indirect conversion plants can co-produce electric power to improve process economics.  If hydrogen is the preferred fuel in the future, these plants may be easily reconfigured to produce fuel cell grade hydrogen  SASOL in South Africa has two large, indirect coal conversion facilities (SASOL II and III) that currently produce about 150,000 BPD of liquid fuels. Indirect Conversion

Advantages Disadvantages

 Ultra-clean products  Conceptually more  Well suited for CO2 capture complex than direct conversion  Well suited for electric power co-production  Less efficient fuel production than direct  May have lower operating expenses than  Produces low-octane direct conversion gasoline  Fewer BTUs per gallon than direct conversion products Comparison of Typical Direct and Indirect Liquefaction Final Product Slate Direct Indirect

Distillable product mix 65% diesel 80% diesel 35% naphtha 20% naphtha

Diesel cetane 42-47 70-75

Diesel sulfur <5 ppm <1 ppm

Diesel aromatics 4.8% <4%

Diesel specific gravity 0.865 0.780

Naphtha octane (RON) >100 45-75

Naphtha sulfur <0.5 ppm Nil

Naphtha aromatics 5% 2%

Naphtha specific gravity 0.764 0.673 Hybrid Conversion

A hybrid conversion facility is basically a direct and indirect conversion facility built next to one another. The products of the direct and indirect conversion trains complement each other and can be blended to produce high quality diesel and gasoline. Headwaters Technology Innovation has conducted a feasibility study for a 60,000 bbl/d hybrid plant to be built in the Philippines by private and government entities. Hybrid Coal Conversion Concept

Indirect Raw ICL Products Coal conversion Gasification (Fischer-Tropsch)

CO2 FT Tail Gas

Water/gas Shift Product Hydrogen H2 Refining & Final Recovery Blending Products

H2

Coal Direct Coal conversion Raw DCL Products Plants Under Consideration in the United States

Key Planning

Engineering Summary of CTL Projects in United States

State Developers Coal Type Capacity (bpd) Status

AZ Hopi Tribe, Headwaters Bituminous 10,000 – 50,000 Planning

MT DKRW Energy (Roundup, MT) Sub-bituminous/lignite 22,000 Planning

MT State of Montana Sub-bituminous/lignite 10,000 – 150,000 Planning

ND Headwaters, GRE, NACC, Falkirk Lignite 40,000 Planning

OH Rentech, Baard Energy Bituminous 2 plants, 35,000 each Planning

WY DKRW Energy (Medicine Bow, WY) Bituminous 11,000 Planning

WY Rentech Sub-bituminous 10,000 – 50,000 Planning

IL Rentech, (East Dubuque, IL)* Bituminous 2,000 Engineering Unidentified IL Bituminous 50,000 Planning Alexander County (Cairo, IL)

IL American Clean Coal Fuels Bituminous 25,000 Planning

PA WMPI Anthracite 5,000 Planning

WV AEP Mountaineer Bituminous 10,000 Planning

WV Mingo County Bituminous 10,000 Planning

MS Rentech Coal/petcoke 10,000 Planning

LA Synfuel Inc. Lignite Not available Planning

* will also co-produce fertilizer. CTL Pilot Plants in the United States

State Owner Capacity (bpd) Status

Colorado Rentech 10 – 15 Operational in 2007

Headwaters New Jersey Up to 30 Operational Incorporated

Oklahoma Syntroleum 70 Shutdown – 9/06

Oklahoma ConocoPhillips 300 – 400 Shutdown Existing and Potential CTL Projects

Ref: from Headwaters Inc. J.N. Ward Senate Briefing 1-19-07 Summary of CTL World-Wide Country Owner/Developer Capacity (bpd) Status

South Africa Sasol 150,000 Operational

South Africa Sasol 80,000 Planning

China Shenhua 20,000 (initially) Construction – Operational in 2007

China Lu’an Group ~3,000 to 4,000 Construction

China Yankuang 40,000 (initially) 180,000 planned Construction

China Sasol JV (2 studies) 80,000 (each plant) Planning

China Shell/Shenhua 70,000 – 80,000 Planning

China Headwaters/UK Race Investment Two 700-bpd demo plants Planning

China Siemens -- Planning

India Oil India Ltd Pilot plant Operational & 2nd Planned

Indonesia Pertamina/Accelon ~76,000 Construction

Australia Anglo American/Shell 60,000 Planning

Philippines Headwaters 50,000 Planning

New Zealand L&M Group 50,000 Planning Coal to Liquids Developments

Coal to Liquids

China CTL plants move ahead • China’s Shenhua and Ningxia CTL Cheap feedstock: ~$5/bbl plants could cost between $5B to $7B, up from $6B, and consume Labor and other direct cost: 15MM to 19MM tpy of coal. ~$15/bbl • Sasol in talks with two US firms and is US CTL plant activity somewhat busy improving its processes to offset stalled rising costs Developers seeking financing • DKRW is seeking financing for its Reduce capex/opex $2.75B Medicine Bow, WY plant Optimum logistics between cheap using GE gasifier and Rentech FT low-rank feedstocks and markets reactor Sasol estimates CTL plant ranges • US CTL plant costs from $1.2 billion from $60Kb/d to $80K/b/d for 50K-b/d to $3 billion with MT small plant at and 80K-b/d plant, respectively $1.5B up to $8B for larger plants.

www.SYNGASRefiner.com Zeus Development Corp

Source - Cornitius, 2006, “The Impacts of Synfuels on World Petroleum Supply”, presented at 2006 EIA Energy Outlook and Modeling Conference. DOE CTL Research Activities  ICRC – ($5M): Produce gallon/barrel quantities of FT liquids from coal-derived syngas with Cobalt-based catalysts to be further processed into No. 2 diesel for small-scale testing as ultra-clean transportation fuel, evaluated as fuel for specialized vehicles for the military, and tested as feed to a reformer to produce hydrogen.  Status: Negotiating with two partners to produce lab and large scale quantities of FT liquids from "live" coal-derived synthesis gas.

Lab Scale CSTR

Nikiski AK FT Plant DOE CTL Research Activities

 Headwaters Technology Innovation Group (HTIG) – ($4.2M): Produce barrel quantities of coal-derived liquids using Iron-based FT synthesis in PDU-scale reactor. Investigate primary and secondary wax/catalyst separation, hydrotreating and hydrocracking of neat FT liquid products, and hydrogen yield from product reforming.  Status: PDU planned at the Gas Technology Institute’s (GTI) facility in Des Plaines, IL. PDU fabrication and operation proposed to be done by HTIG. HTIG will utilize their hydocracking facility to upgrade raw FT wax products. WMPI-Gilberton (DOE CCPI Project)

 Gasify anthracite waste (4,700 tons/day) to produce syngas using high pressure oxygen-blown gasifiers.

 Co-produce electric power (41MW) and steam together with 5,000 barrels per day of synthetic hydrocarbon liquid fuels via FT synthesis.

 A Shell gasifier and RectisolTM process removes contaminants from the plant’s effluent and concentrates CO2 for sequestration.

 Benefits- If successful, technology may be applied throughout the U.S. enabling reclamation of coal wastes into high- Shell SCGP Gasifier cetane diesel fuel. Hydrogen from Coal Research

Coal can also serve as a source for pure hydrogen fuel

Liquid production with subsequent reforming Ethanol (higher alcohols)

2CO + H2 = H3CH2COH + H2O

Direct separation Advanced membrane systems Hydrogen “filter” Water Gas Shift (WGS) Membrance reactors LSU/Clemson/ORNL/ConocoPhillips

Catalytic process for the synthesis of ethanol from coal-derived syngas Current yields – 5% Target yield – 45% (95% selectivity, 3 year life)

surfactant RCuRhh shell core shell

Steam/O2 heat

Catalyst FFeCoe shell core

Coal intentionalintentional gaps “gaps” in in shell shell to to 23.2-5 nm nm provideprovide Rh Co--FeCu interfaces interfaces

C2H5OH CoreFigure 4-shell. Core-shellnanostructured nanostructured catalystscatalysts particles: Fe core-Rh shell particles: Fe core-Rh shell. Gas Separation from Shifted Syngas (Conventional Technology)

H CO2 2 • Low Pressure •Cryogenics Chemical Solvents (Large-Scale, (MEA, DEA) High Cost) • High Pressure Converted • Pressure Swing Syngas: Absorption Physical Solvents (Dimethylether of (Limited to Modest Polyethylene Glycol, H2 Temperatures) Methanol) H20 • Membrane Systems (Chemical Damage • Hybrid Solvents CO2 Purisol, Sulfinol from H2S, Limited Temp. Tolerance) Gas Separation from Shifted Syngas (Advanced Applications)

H2 CO2 •Advanced •Advanced Membrane Membrane Systems Systems Converted Organic/Inorganic (High and Low Syngas: Proton & Mixed Temp) Conducting •Low Temperature H Porous/Dense Hydrate 2 Formation H20 Homogeneous/ Processes Asymmetric CO2 Membrane-Based Hydrogen Separation

 Micro Porous  Dense Metallic

Desired flux ~ 300 ft3/ft2-hr at 100 psi  Dense Ceramic delta P Research Topics Membrane materials and fabrication with Optimum diffusivity, flux, resistance, tolerance to impurities, temperature, 99.99% pressure. purity and Large-scale production, cost. Defect control and management cost Fundamental knowledge base 2 Mass transport, selectivity, kinetics <$100/ft Membrane reactors Seals, synergy versus challenges Water-Gas-Shift Membrane Reactor Concept

- WGS Reaction: CO + H2O  CO2 + H2 Pure - High-T operation for favorable kinetics Hydrogen - Membrane removes H2 to “shift” unfavorable equilibrium to produce more H2.

Synthesis Gas... High Pressure CO (H2, CO2, CO, Pressure CO2 plus H2O) (Ready for Sequestration) Hydrogen Separation Membrane Projects

EltronEltronResearch,Research, Inc Inc  Scale up H2 separation ceramic NETL Intramural R&D  Scale up H2 separation ceramic membranemembrane for for FutureGen FutureGen and and choose choose  Using high pressure hydrogen test membranemembrane system system configuration configuration.. facility to verify contractor results.  SelectivitySelectivity = = 99.999%+ 99.999%+  Tested Eltron membrane at 400° C  DemonstratedDemonstrated 1000 1000psipsideltadelta P, P, 270 270 for ~ 30 hrs. psipsipermeatepermeate pressure pressure  1111 months months continuous continuous operation operation in in simulatedsimulatedsyngassyngas  Demonstrated large-scale wafer flux of  Demonstrated3 2 large-scale wafero flux of 100100 ft ft3/hr/ft/hr/ft2 atat 100 100psipsiatat 420 420oC.C.  BegunBegun design design and and construction construction of of 1.3 1.3 #/day H2 separation facility to obtain #/day H2 separation facility to obtain engineeringengineering data. data.

Cross-section of an electro-deposited alloy catalyst film on a metal membrane at Eltron Research Hydrogen Separation Membrane Projects

Gas Technology Institute ArgonneArgonne National National Lab Lab .Develop dense cermet membrane. . Develop novel reactor using dual- .Develop dense cermet membrane. phase non-porous membranes. ..MicrostructuralMicrostructuralevaluationevaluation of of series series 3e3e membrane membrane after after exposure exposure to to . Constructed HTHP test unit. simulatedsimulated coal coal gas gas revealed revealed . Fabricated two membrane types seriousserious deterioration deterioration after after 1100 1100 hours. . One type had selectivity ~2000 hours. for H S over CO2. ANL membrane 2 fabrication . Another type showed CO2 flux up to 0.02 ccSTP/cm2/min with Southwest Research Institute selectivity over He. Southwest Research Institute GTI supported ..DevelopDevelop thin thin dense dense self self-supported-supported membrane tube PdPd-Cu-Cu alloy alloy membrane. membrane. Oak Ridge National Lab 2 ..FormationFormation of of 110 110 in in2 membranesmembranes . Develop ceramic porous << 5 5 micrometers micrometers thick. thick. membrane. 3 2 . .Best H2 flux 242 ft3 /hr/ft2 at 20 psi Demonstrated fabrication for 1 .Best H2o flux 242 ft /hr/ft at 20 psi atat 400 400oC.C. meter tubes. SWRI . Completed single-gas tests membrane showing potential for high selectivity. WGS Reactor/Hydrogen Separation Membrane Projects

Media & Process Technology . Construct commercially-ready AspenAspen Products Products Group Group membrane reactor for CO2 •Develop•Develop a a robust robust WGS WGS membrane membrane reactor using contaminant-tolerant, capture with low parasitic energy. reactor using contaminant-tolerant, . Achieved complete conversion of highlyhighly active active WGS WGS catalyst catalyst and and Pd/Cu coated Ta membrane. CO and concentration of CO2 in Pd/Cu coated Ta membrane. single-stage WGS-MR at low •Demonstrated•Demonstrated that that a a low low-cost-cost nanosized WGS catalyst is active shift-T and stoichiometric nanosized WGS catalyst is active steam/CO ratio. andand stable stable in in 300 300-500C-500C range. range. •Fabricated•Fabricated 26 26 tubular tubular membranes membranes . Superior performance and costs withwith different different catalyst catalyst coatings coatings and and relative to program goals. layerlayer thicknesses thicknesses •Demonstrated•Demonstrated high high H H2permeabilitypermeability in presence of H S and2 water. in presence of H22S and water. WGS Reactor/Hydrogen Separation Membrane Projects

United Technologies, Corp. University of Wyoming/WRI . Identify Pd-Cu tri-metallic alloy . Develop an improved monolithic membranes with high stability and WGS catalyst and a vanadium hydrogen permeation: synthesize alloy hydrogen separation S and Cl tolerant WGS catalyst. membrane. . Two materials selected for further study with dopants G5 and J6, respectively. . Thermodynamic solubility predictions selected composition range of 1.0 to 1.5 % for the G5 alloy. Permeation projected to exceed B2 bcc Pd-Cu. . Nine candidate WGS catalysts were prepared and analyzed; six were selected for testing. FT Fuels - Domestic Fleet Tests

Fleet test in Washington D.C Fleet test in Denali National in September 2004. Park summer 2004.

Natural Gas Derived FT Fuels

Synthesis gas-derived clean fuels. Air Force Approach

 Conduct demonstration on B-52/TF33 ground/flight

 Define next steps for systematic approach to certification of new fuels Rationale for B-52 Testing

 Decision to use B-52 for demo supported by:  Safety  8 Engines  Ability to isolate test fuel and feed only 2 engines  TF33 non-afterburning, less complex, subsonic flight envelope

Aircraft Available  Target aircraft selected to retire (no impact to test or operational fleet)

Successful Demonstrations:  Two engine test - 9/2006  Eight engine test with mixed jet fuel/FT fuel – 12/2006 Request for Information Synthetic Fuel

 DESC Request for Information (RFI)  Issued May 30, 2006  Closed August 10, 2006 (initially set for July 31, 2006)  Responses received – 28 total (22 interested in production)

 Objectives  RFI PART I: Short-Term Objective (through 2011)  Identify responsible potential sources of synthetic fuel meeting the Fischer-Tropsch DRAFT specification  Determine feasibility of 200M USG requirement  100M USG Air Force  100M USG Navy  RFI PART II: Long-Term Objective (past 2011)  Investigate long-term prospects for the manufacture and supply of aviation synthetic fuels on a larger scale Aviation Alternative Fuels Roadmap Aviation Alternative Fuels Roadmap  The commercial sector and government must work together to promote/embrace alternative fuels to secure supply availability, to minimize price volatility, to improve operational and to explore the potential to reduce environmental impact. ….. Adopted 5/24/06 by AIA/ATA/FAA sponsored workshop with DOE, DoD and NASA stakeholders  Follow-up meeting Oct 23-24, 2006 to further define Roadmap Profile of a Coal-to-Liquids (CTL) Plant  Capacity: 40,000 bpd (13.2 million bpy) LPG: 2,700 bpd (7%) Naphtha: 12,100 bpd (30%) Diesel: 25,200 bpd (63%)  Capital cost: $3.6 billion  Annual revenue: $1 billion  Coal consumption: 8.6 million tpy  Production cost with 0% IRR: $44/bbl fuel ($35/bbl crude oil equivalent)  Production cost with 15% IRR: $60/bbl fuel ($48/bbl crude oil equivalent)  CTL plant employment: 250 people  Land area: 480 acres  Make-up Water: 25,000 gpm (36,000 acre-feet per year)

 CO2 recovery: 8,000 to 25,000 tpd (depending on level of recovery) Ref: Headwaters Inc. J.N. Ward Senate Briefing 1-19-07 CTL Projected Cost

Crude Oil Total Sequester RSP Power Equivalent Capital Capital Cost Total Coal Cost Capital/ RSP O&M/ RSP Coal/ Credit $/DB ($10 Configuration Plant Size Cost MM$ $/DB Input (TPD) $/DB DB DB DB $35.6/MWh Total $/DB Premium)

Capture Ready 20000 BPD 1772 80,500 10,772 NA 32 13 19 -2 62 52 w/Sequestration 20000 BPD 1772 80,500 10,772 4 32 13 19 -2 66 56

Capture Ready 50000 BPD 3737 67,900 26,930 NA 27 14 19 -3 57 47 w/Sequestration 50000 BPD 3737 67,900 26,930 4 27 14 19 -3 61 51

Deployment Strategy EIA WOP Costs & Benefits Reference Case Incentive – Guaranteed Price Floor $55/DB for 20,000 BPD plants Total Incentive Cost: ~$6 Billion $45/DB for 50,000 BPD plants Total Capital Investment : $49BB 9 20,000 BPD plants Incremental Employment: 125,000 9 50,000 BPD plants - Mining 10,000 3 bituminous, 3 sub-bituminous, 3 lignite - Construction 22,500 All plants w/90% carbon capture & - Plant Operation 7,200 - Indirect 85,350 sequestration 2005 $49.70  Construct 3 plants/year 2015 $43.00 Incremental Coal Production: 94MM TPY - start 2008 2030 $49.19 630,000 BPD production by 2025 - first production on line 2011 Barriers to Creation of a Significant U.S. Industry

 Economic Risk World oil price volatility is the single greatest impeding the deployment of CTL facilities; petroleum industry capital drawn to higher profit producing crude oil E&P

 Technical Uncertainty Although plant components have been operated at commercial scale, the efficient integration of advanced coal gasification with advanced F-T synthesis technologies poses significant risk

 Needed Incremental Investment CTL facilities will require the use of large quantities of coal in Infrastructure driving a significant expansion of the U.S. coal mining industry; current railroads and railcars are inadequate to handle projected increases coal demand; additional barge capacity will likely be required; mine mouth plants coal-fuel plants will need pipeline connects

 Ready Availability of Critical Multiple CTL plants built concurrently worldwide will create Materials, Resources and Skills competition for critical process equipment, engineering, labor skills and materials

 Environmental Concerns As a carbon-rich fossil fuel, coal releases large quantities of carbon dioxide when converted into fuels and power which must be economically controlled A Path Forward…

 Build and Operate a few Pioneer Plants Subsidize the completion of 3 to 5 front-end engineering design studies Facilitate “Early Commercial Learning Experience” Identify barriers to process improvement and cost reduction Develop a greater understanding of the issues surrounding carbon capture, transport, sequestration, monitoring and verification of permanent storage

 Initiate a Program of Targeted Research Build a comprehensive R&D plan built on barriers derived from actual operation of pre-commercial sized plants

 Investigate Financial Incentives Tax Credits (EPACT 2005 Section 1307) Loan Guarantees Guaranteed Price Floors

 Formulate and test F-T fuels for early commercial markets DOD, Clean Cities, Northeast Home Heating Oil Reserve

 Involve, Coordinate, and Exchange Information with Interested Foreign Governments Coal to Liquids Summary

 Coal is a viable alternative feedstock for the production of liquid fuels and hydrogen  Development of a U.S. CTL industry could help mitigate the risks of an energy crisis.  Proactive development of a CTL industry can be accomplished by industry lead with government support due to high risks involved.  CTL can capture carbon for sequestration  Convincing demonstrations and multi-agency joint national implementation plan could be a first step.  DOE well positioned to produce, test, and certify liquid fuels produced from coal.  Benefits are measured in the billions of dollars. Visit Our Websites

Fossil Energy website: www.fe.doe.gov NETL website: www.netl.doe.gov