Is CTL a leap forwards, or backwards?

The number of projects to produce olefins from coal feedstock has been increasing rapidly, with nearly 2 million t/a of production already operational, and several million more under development. This is merely one facet of a new push toward coal-based chemical production across the board, from ammonia and methanol to downstream dimethyl ether, urea, even gasoline and diesel. China has been at the forefront of these expansions, but other countries such as Australia and South Africa are moving ahead with coal-based chemical production and the US and India have also seriously considered such developments.

High oil prices have of course been the main driver, particularly for olefins and fuel derivatives, as well as the increasing use of natural gas for power production, edging out chemicals production in some places in the world. China in particular has faced rocketing demand for fuels and a lack of oil or gas to use to supply that demand. Indeed, until quite recently the orthodoxy was that high oil and gas prices would lead to a new focus on coal and other heavy feedstocks such as heavy fuel oil, petroleum coke, refinery bottoms and so on. Just this week I came across a report written as recently as 2006 by a leading consultancy – I will spare the company’s blushes by not naming them, but many of us were saying exactly the same thing back then – which said that coal to liquids production had reached a “turning point”, and could now become the feedstock of choice in a world where oil production may have already peaked.

Of course, in the world of basic chemicals there are few truly new ideas, and in some ways this is a question of turning the clock back to the first half of the 20th century, when the chemical industry was almost exclusively coal-based, before widespread car use had created the oil refining industry and before cheap natural gas had begun to displace coal as a feedstock for ammonia and methanol production. Indeed, it could be argued that in many ways this new era of coal-based chemicals is something of a backwards rather than a forwards step. One major reason is that in a world where global average temperatures are increasing, generating 50% more CO2 per tonne of fuel or chemical produced (as compared to natural gas) is not sustainable in the long term. Various ways of overcoming coal’s limitations on this score have been proposed, mainly revolving around carbon capture and storage (CCS). But this technology remains unproven on the grand scale that would be required, and is only really currently viable in areas where the CO2 can be used to re-pressurise declining oil and gas reservoirs.

And now, in just the past few years since that 2006 report, a new complication has emerged, in the form of shale gas. Shale gas has come to dominate ‘unconventional’ gas production in the US, eclipsing coalbed methane and tight gas production. US shale gas production increased by an astonishing 50% year on year from 2006 to 2010, and could soon be supplying 40% of all US gas demand. Were that to be replicated in China, which itself has massive resources of shale gas, then the future of the chemical industry could begin to look very different indeed.

Shale gas itself is of course not a panacea. There are genuine concerns about its use of water, especially in dry regions, the potential for aquifer contamination (albeit something often overstated by those with a vested interest in seeing shale gas falter), and the use and disposal of fracking fluids. Perhaps more seriously for its green credentials, some very recent studies have claimed that – taking into account the energy expended in drilling and fracturing the rocks – shale gas can actually in some situations be responsible for generating more CO2 than coal.
So it is beginning to look as though it may be a question of which feedstock – coal or shale gas – is best able to answer its environmental critics. In the meantime, a degree of caution on the current coal to liquids boom may be called for.