Wednesday, April 19, 2006


With oil prices passing $70 per barrel, it's easy to lose sight of the fact that our energy problems encompass more than just petroleum. Natural gas is trading at triple its historical average price, and if that's bad for consumers and power companies, it's been disastrous for chemical manufacturers. Increasingly, they are forced either to send their manufacturing offshore, where gas is cheaper, or shut down operations that can no longer compete with imports. But others, as this informative article from the New York Times describes, are looking at coal as an alternative feedstock. This is much more practical than it sounds, and at current natural gas prices, it ought to be profitable, as well. At the same time, though, it raises new challenges for the chemical sector to address.

Much of the fertilizer in this country is produced from ammonia derived from natural gas. These ammonia plants were mostly built in an era when natural gas cost between $1.00 and $2.50 per thousand cubic feet, compared with its recent monthly range of $5.00-10.00. Some of these plants have found it more profitable to shut down and resell their contracted gas supplies to others, than to continue producing fertilizer that is undercut by imports from countries where gas still costs about what it did here 20 years ago. But if gas is available from processing coal at $4.00, as the article suggests, the US fertilizer and chemicals industry can reconfigure itself around a raw material that is still abundant in this country.

There are two pitfalls associated with this strategy, and neither of them is technology-based. The process for gasifying coal and other high-carbon feeds such as petroleum coke and the other residues from oil refining has been in continuous use for decades, all over the world. My own gasification experience in the early 1980s was at a Texaco-licensed gasification pilot plant at a German petrochemical complex. Building a gasifier to supply fertilizer or chemical plants is straightforward, but it isn't cheap. These are significant capital projects, and as such, they expose their owners to a number of risks, including the risk that natural gas prices will fall back to a level that would make gasification unattractive. Given the protracted problems of the US gas industry and the difficulties and cost associated with importing gas in liquefied form (LNG), I think this risk is quite modest.

The bigger risk is environmental. Although the gasification process is very clean, providing simple and inexpensive ways to clean up the typical byproducts of coal combustion, such as sulfur and nitrogen oxides and mercury, it does not by itself address the higher greenhouse gas emissions associated with using coal instead of natural gas. These depend very much on the chemical processes being fed, some of which would incorporate the coal's carbon into the final chemical product. But in the case of fertilizer, in which ammonia is made through the classic Haber process, significant quantities of CO2 emissions would accompany the production of hydrogen from coal gasification.

In a world increasingly focused on climate change and its projected consequences, chemical companies investing in coal gasification as an alternative to using natural gas as a raw material must be prepared to manage greenhouse gas emissions in a systematic way, involving both emissions trading and future technology options such as sequestration, which is ideally suited to work with gasification. Many of these companies are already quite proactive in these issues, but some of the smaller competitors may not yet appreciate the full implications of switching from gas to coal.

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