Thursday, March 18, 2004

Making Lemonade
A recent article on the prospect for further tightening of the global market for metallurgical coke, the carbon source for steel production, triggered an odd train of thought. At the same time that this higher quality, coal-derived coke for steel production is becoming pricier, the world is being glutted with lower quality coke derived from petroleum, much of it produced in the US and Venezuela. Simultaneously, the price of natural gas has risen to historical highs in the US. The combination of these two factors creates an opportunity.

Petroleum coke (petcoke) is the byproduct of upgrading heavy oil into lighter oil, as done in a number of projects in Venezuela, or turning the heavy, tarry residue of petroleum refining into more valuable, lighter products, such as diesel fuel. Petcoke is similar in appearance and consistency to coal, and about as desirable from an environmental perspective. By virtue of being the absolute "bottom of the barrel", it concentrates the sulfur and metals from the source oil to much higher levels. As more upgrading capacity comes on line, more coke is produced and prices of this "fuel grade" coke fall.

But petcoke is an ideal source of carbon for the gasification process, in which low value, high carbon materials such as coal, coke, or residual fuel are converted into a so-called synthesis gas, resembling very low-grade natural gas. One of the main attractions of gasification is that contaminants such as sulfur and metals emerge in forms that are much easier to handle and remediate than if the same fuel were burned in a conventional power plant.

Although the resulting synthesis gas is not a direct substitute for the natural gas we burn in our homes, it can displace natural gas used in gas turbines for electricity generation.

Three or four years ago, this kind of "integrated gasification combined cycle", or IGCC, with its high investment cost, was nearly competitive with conventional coal power plants, but quite a bit more expensive than gas turbines running on natural gas. But with gas prices having doubled and tripled, and with cheap petroleum coke widely available as a feedstock, these economics should be reevaluated.

Perhaps we can kill two birds with one stone: helping to alleviate a very tight natural gas market in the US, while reducing the mounting piles of petroleum coke produced by the increasing number of heavy oil upgrading projects around the world.

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