The Oil Drum

About $6 billion for 100,000 barrel production capacity? $6 billion is what the government of China spent last year on all renewable energy investments.

"Energy is a national security issue," said Michael A. Aimone, the Air Force assistant deputy chief of staff for logistics.

(...)

Ground experiments are scheduled to begin in coming weeks at Wright-Patterson Air Force Base in Ohio, followed by test flights at Edwards Air Force Base in California.

Although the Air Force is leading the project, it is working with the Automotive Tank Command of the Army, in Detroit, and the Naval Fuels Laboratory, at Patuxent River, Md.

The research and tests on synthetic fuel would ultimately produce a common fuel for the entire military, Air Force officials said.

The initial contract for unconventional fuel for the tests will be signed with Syntroleum Corporation of Tulsa, Okla., which has provided synthetic fuel for testing by the Departments of Energy, Transportation and Defense since 1998.

John B. Holmes Jr., Syntroleum's president and chief executive officer, said his firm would sell the Air Force its synthetic fuel for testing "at our cost, and we may be losing a little bit."

Neither Mr. Holmes nor the Air Force would provide cost estimates for the experimental fuel deal in advance of signing a final contract, expected in coming days.

Air Force officials have acknowledged, however, that the cost per gallon of the test fuel will be expensive.

Syntroleum can produce 42 gallons of synthetic fuel from 10,000 cubic feet of natural gas. The raw materials cost about $70.

If the military moves ahead with using the synthetic fuels, the Syntroleum technology could be used by factories elsewhere to produce the same 42 gallons of fuel from just $10 worth of coal, Mr. Holmes said. Military Plans Tests in Search for an Alternative to Oil-Based Fuel

Given that during the .com era investors were willing to fund business models like ordering heavy low-value petfood over the Internet, a CTL plant might not be too much of a stretch as the oil/commodities sector prices get more bubbly.

Last year I asked the president of Exxon Production (one of the subsidiaries) about the economics of LNG versus GTL.  He said that while they were funding a GTL project, he thought that the economics of LNG were superior to GTL.  Robert, any thoughts on this subject?

This is a timely subject for me.  I have been asked by the Dallas Morning News to write a 900 word rebuttal to a cornucopian essay by a writer for Reason Magazine (I'll have to start talking nice about at least some sectors of the MSM).  They are going to run the columns side by side, the pro and con arguments regarding Peak Oil.

As I have outlined before, fossil fuels can be viewed as a continuum, from natural gas, to natural gas liquids, to condensate, to light sweet crude, to heavy sour crude, to bitumen, to coal.  This is a progression from gas, to liquid to solid.  This is also a progression from cleanest, natural gas, to dirtiest, coal.  The world wants Liquid Transportation Fuels (LTF's)---principally gasoline, diesel and jet fuel.  LTF's can be obtained for the least expenditure of capital and energy from condensate and light sweet crude.  It only makes sense that light sweet has been the first to peak.  The industry is upgrading refineries as fast as they can to handle more heavy sour crude.  

But increasingly, we are looking at the endpoints for LTF's--GTL and CTL.   As has been discussed, these are vastly expensive projects, in terms of both capital and energy expenditures.   There is another factor.  Increasingly, we are going to be looking at a bidding war of sorts between companies that want to use natural gas and coal for heating and electricity generation and companies that want to use them for LTF's.   It seems to me that this is somewhat analogous to the battle between food producers and biofuel producers, for a finite supply of land.

In any case, by moving to the endpoints of the fossil fuel continuum, we are only accelerating our rate of extraction of our finite fossil fuel supply.

Take a look at Macquarie Bank, as an example, listed in Australia.  Specialists in infrastructure finance and own assets all over the world.

It is the Project Risk which will terrify the market.  Those sorts of sums can be raised, but the market will cough on the cost overruns/ risk of lower future oil prices problem.

These things will get built when governments get behind them-- China first, I am sure.  Governments will build these things as hedges against things going wrong.

In the West, governments will have to provide some kind of debt guarantee to the Project Finance.  Effectively what happened with Eurotunnel (although there is a UK law against such, effectively the refinancings are only working because the government is sitting behind it).

The UK nuclear industry is another good example of government intervention to maintain an energy option.  Or the French one (the largest in the world).