SGR Industry Interview http://www.syngasrefiner.com/
Stephen Johnson, president and CEO, American Clean Coal Fuels (ACCF)
SGR: With oil at $118/bbl, what is it going to take to get multiple synthetic transportation fuel-producing projects off the ground in the US?
ACCF: Well, clearly $117-$118/bbl is a great starting point. I get asked this question frequently, and I am always asked if this is so good from an environmental and economic standpoint, why hasn’t it been developed more.
And the short answer to that is that we needed about $40-$45/bbl to begin to make this a growing economic proposition. And up until just a few years ago this simply was not a condition that was present.
Given the magnitude and the lifecycle of development of a project, the industry is actually starting to come up about the most aggressive rate that anyone could anticipate without a major government incentive plan in place.
The organic development of the industry is going on a relatively healthy basis, given the relatively small community of people that really understand this process and technology.
The short answer is high oil prices, time, probably a straightforward and honest discourse on the emissions possibilities from this industry. We have certain groups out there, like the Natural Resources Defense Council that are basically lying through errors, or lying about emissions in what they are telling everyone about the environmental footprint of this technology.
The bottom line is they are opposing the development of the only technology that has the capability of reducing carbon or GHG footprints on a lifecycle basis in a large efficient way, which to me, is counter to their own mandate.
The more quickly we can get the word out that not only can this industry be clean, but it can really set the benchmark for what we should be doing. We think that the more that word gets out, the more investment dollars will flow into this base and the more developers will get interest in coming in and actually deploying.
SGR: CCS is a major capital cost for these projects that could total $300 million in some projects. What do you think its going to have to take to get this CCS side of the projects off the ground, in regards to a regulatory standpoint, as well as an investment standpoint?
ACCF: Well, again there are a number of factors. On the permitting side, CO2 is officially being considered to be a pollutant according to the Supreme Court ruling. And the CO2 issue is something that cannot be ignored by industry anymore, this is something we have to address proactively and upfront in the development process.
Realistically, capture-ready isn’t going to cut it for synthetic fuels production. If the standards we have to meet is for a fuel that is basically on par with conventional fuels, then that means that every synthetic fuels project that is going to move forward in the US, at a minimum, will have to have full carbon capture and sequestration.
So, there is a major distinction between the IGCC industry and the synthetic fuel space, in the standard that is being set there. Now certainly EOR is going to be the first target to be approached by the entire industry, because it allows us to offset the considerable costs of CCS.
So, anything that can be done to enhance the development of pipelines and help write off the extremely considerable costs of developing CO2 pipeline infrastructure will of course make it easier to do.
So once again, $117/bbl of oil helps considerably, but it will not take extremely long to get to the point where there are not anymore EOR opportunities and the industry would be forced to look at pure geological sequestration, which will be a very considerable cost center. When that time comes we will have to look anything that can be done on a policy level to help defray these capital costs for developers.
SGR: What will have to be done to shift from the perception that coal is bad and FT fuel is bad when we are facing a serious shortfall in oil and natural gas?
ACCF: Well, everybody has a high level of awareness of the potential problems associated with GHGs, but really very few people have an understanding of the true state of the global oil production infrastructure.
For the longest time we have been living in a world where everybody says I believe there is such and such amount of oil out there, but don’t have any real data to back that up with.
The bottom line is global oil reserve reporting is not perfect. A lot of this is considered to be a state secret in a lot of areas, but according to the best, educated information that we can come up with, is still not perfect, but we can see that we have a very serious problem coming, in which we should know enough to be able to start really setting up and meeting this problem head on.
Because in terms of real-world economics and at the end of the day, quality of life impacts like this are going to a have much larger and more immediate impact on everybody’s lives than global warming will.
We are just beginning to feel it now with oil hitting $117/bbl, and people are seeing this when they go to pay at the pump. That is why we are rapidly seeing a change in attitude, but the bottom line is that people really don’t understand the simple fact that we have not discovered more oil than we have produced in any single year since 1981.
Now we are pulling three and six barrels out of the ground for every one new barrel of oil that we are discovering. We were out of global reserve/production capacity, and the sooner people learn and understand that fact, the sooner we can begin to realize we have a very serious problem here and we need to start responding to it.
The wonderful thing about this industry is we truly have a mechanism here to respond to this problem and do it in a way that where not only do we produce considerable amounts of new transportation fuel, but we do it in a way where we address the climate change problem and we do it in way without creating a massive land use impact at the same time.
SGR: Do you see USAF plans to produce FT fuels bringing to light what a dire situation this is and how we have to have contingency plans and reduce fuel costs?
ACCF: Well, clearly the national security concerns alone from the USAF is a big consideration, and on top of that, the USAF and the US military have been one of the few proactive elements of the government that have recognized the imminence of the peak-oil issue and they are beginning to do something about it.
Current oil prices are the biggest driver, but the USAF’s testing and qualification efforts for FT fuels, and also their strong support as a consumer of first resort has done more than any other governmental action, by a long shot, to help the development of this industry. They have been encouraging this industry in no uncertain terms not just to do it, but do it cleanly.
SGR: What is the future of biomass, MSW and algae gasification have in this industry?
ACCF: We believe that biomass is the future of the gasification industry. Certainly coal is critical, it is our most plentiful conventional resource, it’s a resource that can and should be leveraged, as long as it can be done cleanly.
Ultimately switching from oil to coal as a primary transportation fuel source is like jumping out of the frying pan and putting ourselves right back into the frying pan. Transitioning from one geologically constrained fossil fuel resource to another.
We believe that done properly biomass can and should work along side coal, and we can use our immense coal resources to form a bridge that is ultimately going to have to be a sustainable and renewable energy infrastructure.
So, we believe that the most responsible development, environmentally and in the long-term economically, is to do our best to design these facilities that would be forward compatible with an ultimate transition to 100% renewable sources.
Now, this is not exactly within the current envelope of proven technology, but we are not far away either. This technology has the potential to be a bridge to sustainability if done properly.
We think that the technological jump from the gasification of coal and petcoke, to coal and biomass, and eventually to 100% biomass is a lot smaller of a leap than anything that is being proposed for instance with the cellulosic ethanol space.
This is known, commercial, off-the-shelf technology and the ability to gasify biomass has been demonstrated a number of times. We are not talking about is not a big technological leap.
SGR: I have heard that gasifying coal and biomass at commercial scale has not been proven. Do you think that is going to be a problem?
ACCF: That is not our experience in the gasification-technology market. We have seen where coal and biomass have been co-fed to the gasifier at the same facility.
SGR: When EOR opportunities run out, one of the options could be to capture the CO2 and feed algae farms and then gasifying the algae. What do you think about that?
ACCF: That is a technology that has tremendous potential and we are watching it very closely, but the technology isn’t quite there yet even though they’re working on it hard. There is a lot of potential to use a biological route to substantially enhance the carbon- conversion efficiency of these facilities.
SGR: Is ACCF planning any other projects besides the one in Oakland?
ACCF: We are, we have a number of different development opportunities that we are developing and we are also considering possibly expanding the Oakland facility at some point. We are keeping our primary focus on successfully completing the Oakland facility, but our intent is to develop a crack project development team that would take the lessons learned from this and start applying them to additional projects nationwide.
SGR: What areas in the US are you looking at?
ACCF: We are very comfortable with the Illinois basin and region and we are looking at Illinois and Indiana for a place to develop a project. It is a prime location. You have a combination of carbon sinks, available feedstock sources, great transportation infrastructure, and workforce availability.
So, it is a great spot to be doing this first wave of development in this industry and that is where are attention is focused at this time. But there are multiple other locations across the US that are ideal for the development of this type of technology.
Although we are very committed to biomass and will likely do a full transition that way, we are going to be looking at blending coal for at least the next 15 to 20 years. At least as long as our reserves are in place, as the US moves forward with the development of these facilities. Both economically and logistically there really is no reason to look beyond where we are looking today.
SGR: Where do you see your company in the next five years?
ACCF: Well, we are pushing very hard to have this plant online by late 2012. We are trying to set this thing up so we would have the ability to double capacity at the Oakland facility. We also have additional development prospects on the table that we are pursuing at this point. We plan to develop multiple, follow-on projects, but because of the magnitude of the plants, focus and execution are the keys for each one. So, by the end of 2012 we would be looking to fire up the project in Oakland, and turn our attention into developing additional projects through our the US.
SGR: What is the reaction or perception when you go to a financial firm to secure financing for a gasification project like the one in Oakland?
ACCF: It depends on the financial firm you talk to. To give my opinion, financial firms are absolutely thrilled to talk to us once the project is de-risked. The venture capital community is often times very intimidated by the size of these projects, and frankly most of them on the US West Coast, our experience has been when talking to a lot of these companies it is has been difficult to get their attention, because we are not claiming to develop some revolutionary new technology here.
We are developers and we are taking commercial, off-the-shelf technology and putting it together in a new, but low-risk way, to get some actual production capacity on line. Unfortunately, a lot of the US early-stage money for these projects has gone away from a real infrastructure-development focus and is more focused on technology.
Obviously, it’s huge and it is a concern but we have dealt with it very proactively in our business model and from day one we planned to do carbon-capture. I think we were the first US project to announce we would use biomass along side with coal. We have been very aggressive in dealing with the carbon footprint issues upfront.
SGR: Is the rate of return on the investment a big issue for investors?
ACCF: With oil as high as it is, it hasn’t been a large concern. We focused our entire package on risk mitigation. We are vertically integrated with our feedstock source that has calmed a lot of concerns about what happens if our input costs really go up. Most of the considerations are about the development, permitting process and getting the deal de-risked before you look to close construction financing.
SGR: Is there anything I forgot to ask that you would like to add?
ACCF: We view the FutureGen Project delay as being very unfortunate because some full-scale experience with pure geological storage as opposed to an EOR application, we think would become very important, rapidly, as the EOR opportunities will likely be taken up by the first several projects to come online. From our perspective we would like to see that happen as quickly as possible.
SGR: I don’t understand really what the government is doing now with FutureGen. They are talking about studying and financing CCS, but they are not moving forward with any R&D on IGCC now.
ACCF: Well, also the US Congress approved substantial support for the synthetic fuels industry in one of the previous energy bills, and failed to appropriate any money to help those initiatives advance as well. All I can say is the government works in mysterious ways.
