Seeking New Markets

Many Kentucky coal producers are touting the potential of new markets in liquid and gas coal products. Coal-to-liquid involves the conversion of coal to liquid fuel such as diesel. This process starts by gasifying coal and then converting the gas to liquid form. Some political leaders have supported this concept as a potential boon for the state’s coal industry in tough economic times. They argue that coal-to-liquid plants in Kentucky would increase the demand for Kentucky coal and create an innovative economic niche in an economically distressed region.

The conversion of coal into liquid fuel is not new. In the wake of the 1973 Arab oil embargo, several coal gasification projects were undertaken in the Appalachian coalfields. However, after the investment of more than $500 million in pilot projects in Appalachia, as gas prices fell, most were abandoned before they even got off the ground.⁴⁰ As oil prices rose again in the past five years and soared in 2007 and 2008, many proponents decided the time was right to revisit the issue.

Gas prices aside, there are two major limiting factors associated with coal-to-liquid: cost and carbon. Liquid coal produces roughly twice the climate change pollution of gasoline, making it a risky endeavor at a time when carbon caps and increasing regulations of such pollution are imminent. Even if current carbon capture and storage technologies were applied successfully, liquid coal would produce more pollution than gasoline.⁴¹ A 2006 report from the Kentucky Office of Energy Policy notes that Kentucky already ranks seventh among the states in carbon emissions, making technologies that increase that pollution a huge economic challenge for the state.⁴² Furthermore, coal-to-liquid technologies are extremely expensive. A 2004 Department of Energy report estimated construction costs alone for a single coal-to-liquid plant at $7 billion.⁴³ This does not include the cost of adding CCS technologies. Like CCS, coal-to-liquid will require large public subsidies if it is to succeed in the state or in the nation. Both the monetary cost and the carbon cost of coal-to-liquid will be substantial.

Coal-to-gas involves the creation of synthetic natural gas through coal gasification. This technology is cheaper and simpler than coal-to-liquid technology. According to the University of Kentucky’s Center for Applied Energy Research:

The production of synthetic natural gas … is a way of converting coal into the equivalent of pipeline quality natural gas. The technology involved in SNG production is much less cumbersome than for CTL [coal-to-liquid]….SNG [synthetic natural gas] from coal is particularly attractive in situations where relatively cheap coal is available while there is demand for natural gas (methane) which can be logistically transformed or when natural gas prices are high enough to sustain the economics.⁴⁴

Because Kentucky imports a large percentage of its natural gas from other states, coal-to-gas is appealing from an energy independence perspective. For these reasons, a large investment in coal-to-gas operations is proposed in the Governor’s 2008 energy plan.⁴⁵

Despite the fact that coal-to-gas is cheaper than coal-to-liquid, there are considerable unknown costs with this technology. The U.S. is home to only one operating coal-to-gas facility, located in North Dakota. While coal-to-gas plants include carbon capture as part of their design requirements, estimated costs do not include costs of transporting and sequestering carbon once it is removed. Furthermore, it would take seven years for a coal-to-gas plant to be up and running in Kentucky. In the meantime, given the current political climate, it is quite likely that additional limits on carbon emissions will be imposed.⁴⁶ The adoption of coal-to-gas technologies in the state would result in significant monetary and carbon costs—some of which are not reflected in state estimates.

40. Meuller, Lee. 2007. “Pike County Re-energized by Alternative Power Push.” Lexington Herald-Leader, May 31.

41. Sierra Club. 2007. Liquid Coal: A Bad Deal for Global Warming. Retrieved March 20, 2009 (http://www.sierraclub.org/coal/downloads/2007-04liquidcoalfactsheet.pdf).

42. Kentucky Office of Energy Policy. 2006. “Media Excerpts: A snapshot of state and national energy issues .” Kentucky Energy Watch 7(25), June 22. Retrieved November 5, 2008 (http://www.energy.ky.gov/NR/rdonlyres/B8CD4E60-A534-47CF-B0EE-898406CA60D8/0/KentuckyEnergyWatchV7No25.pdf).

43. National Energy Technology Laboratory. 2006. Economic Impacts of U.S. Liquid Fuel Mitigation Options. Department of Energy. Washington, DC, Management Information Services, Inc. See also Beshear, Governor Steven L. 2008. Intelligent Energy Choices for Kentucky’s Future: Kentucky’s 7-Point Strategy for Energy Independence. Frankfort, KY, p. 178. Retrieved January 3, 2009 (http://eec.ky.gov/NR/rdonlyres/3BB23D1C-F42C-4E3D-808D-CF7588926BD3/0/FinalEnergyStrategy.pdf).

44. Gray, D., D. Challman, A Geertsema, D. Drake and R Andrews. 2007. Technologies for Producing Transportation Fuels, Chemicals, Synthetic Natural Gas, and Electricity from the Gasification of Kentucky Coal. Center for Applied Energy Research. University of Kentucky. Lexington, Kentucky.

45. Beshear, Governor Steven L. 2008. Intelligent Energy Choices for Kentucky’s Future: Kentucky’s 7-Point Strategy for Energy Independence. Frankfort, KY. Retrieved January 3, 2009 (http://eec.ky.gov/NR/rdonlyres/3BB23D1C-F42C-4E3D-808D-CF7588926BD3/0/FinalEnergyStrategy.pdf).

46. Beshear, Governor Steven L. 2008. Intelligent Energy Choices for Kentucky’s Future: Kentucky’s 7-Point Strategy for Energy Independence. Frankfort, KY, p. 85. Retrieved January 3, 2009 (http://eec.ky.gov/NR/rdonlyres/3BB23D1C-F42C-4E3D-808DCF7588926BD3/0/FinalEnergyStrategy.pdf).