 | DrumBeat: April 13, 2008 | The Oil Drum | Gail Tverberg's Talk: Expected Economic Impact of an Energy Downturn |  |
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Well, I see everyone is repeating the mantra; CTL is Evil, CTL is Evil.
Yes it is. But think about the consequences.
The way I look at it, coal only costs 10-20% of what oil does on a BTU basis. Which is why it is so popular with power stations. CTL provides a way to transform cheap coal into expensive oil.
One tonne of coal ($50-$100) will produce 5 barrels of oil ($500 worth at $100 per barrel). CTL can never hope to replace more than a couple of million barrels per day of oil supply, so it is not a "solution" to peak oil, but it may be a solution to the problem of "cheap coal".
If CTL ever takes off in a big way, it has the potential to push up the price of coal (now an oil feedstock...) to the point where coal power stations become as expensive as renewables.
Suppose that a few years down the track, oil costs $200 per barrel, and that you can make 5 barrels of oil from 1 tonne of coal at a cost of $300. What would you be prepared to pay for coal? Your gross on 5 barrels of oil is $1000, your operating costs are $300, so you could pay $500 for a tonne of coal and still make a 20% margin.
Suppose it costs $1billion to build a plant that produces 5 million barrels per year. On the numbers above, that's a 20% return, $200 million per year. Coal companies will go for that.
So now you have a mechanism to push the marginal value of coal from $50 per tonne up to $500 per tonne. What does that do to the economics of coal-fired power stations versus solar or nuclear?
I see CTL as a knife through the heart of coal power plants.
...didn't you want to make burning carbon expensive? Here's the equivalent of a 1000% carbon tax.
That's interesting thinking TenThousandMileMargin - that's certainly what happened to grain prices once biofuels became popular. Unfortunately there is so much coal and its quality so varied its just as likely to have the opposite effect. Technologies like UCG mean we can now access coal seams hundreds of metres underground that would never have been mined due to the poor economics. Additionally the very common low grade coals (brown coal or lignite) that are not in demand for export, are likely to remain outside the pricing regime that applies to the higher grade exportable coal.
As oil prices are now in a major speculative bubble (the cost of production is typically around $20/barrel) large scale production of CTL could easily turn this situation around. This may even threaten the viabilty of CTL itself as CTL is a much higher cost alternative.
This is fundamentally flawed thinking. You can as well say that if you set all coal mines on fire this will be good for GW because the price of coal will rise. Never mind that the CO2 from those fires will still enter the atmosphere (and coal fires can last centuries).
CTL is not likely to cause significant coal price rise. The constraints on coal are mostly infrastructural - not enough rail lines, ports, loading capacity etc. CTL will allow liquification facilities to be built near mines that didn't have the capacity to bring their product to market before. Then their end-product (diesel) will be transported or piped much more cheaply and efficiently. This will ultimately allow much more coal that was hardly reachable before to be eventually used and burnt.
Thermal coal, designated for existing coal power plants will hardly be affected by CTL plants.