Distillate fuels from coal-
to-liquids processing
Numerous factors affect CTL economics and the technology for converting different qualities
of coal into transportation fuels, chemicals and intermediates. Potential yields are based on
future market conditions relative to crude prices and conventional refinery operations
T
he historical premise that coal is a
dirty fuel is being countered with
the continued development and
operation of technology to significantly
reduce the environmental footprint of
coal-sourced energy. The hidden benefit
of coal is its versatility. Technology
is available that can turn coal and
petroleum coke into synthetic natural
gas, transportation fuels, chemicals and
intermediates, and even hydrogen.
Can coal-derived transportation fuels
make a significant contribution to the
distillate pool over the long term or will
financial, technical, environmental or
other challenges limit their potential?
Today, the US generates more than 50%
of its electrical supply from coal. A viable
coal-to-liquids (CTL) industry in a major
market such as the US might supply
high-quality middle distillates, in
particular diesel fuel, jet kerosene and
middle distillate blendstock. In this case,
CTL economics, the potential role of the
government and how large-scale
development of this industry might
impact refineries needs to be analysed.
The US market is examined in this case
study due to its coal-based resources.
Coal reserves and quality
The US has been called the Middle East of
coal with approximately 270 billion tons
of estimated recoverable coal reserves,
comprising almost 27% of the world’s
total, according to a report by the
National Coal Council. At the current
consumption of 1.1 billion tons of coal
annually, there are enough reserves to
last for another 250 years. The top three
states ranked in terms of recoverable coal
reserves — Illinois, Montana and
Wyoming — account for 57% of the total
reserves. US coal production for 2005 was
about 1131 million tons, with Wyoming
accounting for 36% (404 million tons).
This coal reserve base is generally
classified by region and type of coal.
Higher-quality coals, typically found in
the Eastern reserves, contain less water
and therefore have a higher Btu/lb
content. The majority of the coal reserves
www.eptq.com
J Mark Landrum and Jon Warzel
Baker & O’Brien Inc
Feed
Coal* coal
handling Gasification
preparation
synthesis
Oxygen
Air Gas
cleaning
Nitrogen
Figure 1 Simplified CTL block flow diagram
are located in the western US, either as
lignite (lowest quality) or sub-bituminous
(medium quality) coal. One ton of sub-
bituminous coal can be converted to
approximately 1.75 barrels of CTL fuels.
Therefore, in “diesel” terms, current coal
production, if converted to liquids, is
equivalent to about 5.3 million bpd, or
approximately 90% of the total US
distillate fuel demand.
The US currently imports over 60% of
the crude oil and products it consumes.
This percentage will continue to increase
as demand outpaces growth in both
domestic crude oil production and
refinery capacity. High oil prices have
renewed interest in gasification and CTL
projects. In particular, the spike in prices
during 2006, when the NYMEX oil
futures contract peaked at a record of
almost $78 per barrel in July, accelerated
interest in CTL fuels among many large
end users of transportation fuels.
CTL process description
CTL can be characterised as the
conversion of syngas generated from coal
via gasification to a slate of hydrocarbon
products. In the simplest terms, CTL is a
process whereby coal or petroleum coke
is converted first to a stream rich in
carbon monoxide (CO) and hydrogen
(syngas). The syngas is then treated for
removal of impurities, before being fed
to a Fischer-Tropsch (FT) catalytic
Sulphur CO2 H2
Gas Fisher-Tropsch
cleaning synthesis
Raw
gas
Product
recovery
Power
generation
block Liquid
fuels
conversion reactor (gas synthesis). The
raw product slate from the synthesis
process unit ranges from a tail gas
suitable as a fuel to waxy products that
are solids at ambient conditions. Once
syngas is generated and cleaned, it can be
utilised to produce power, hydrogen,
steam or hydrocarbon liquids. Captured
CO2 could be utilised for enhanced oil-
recovery applications or sequestered.
The overall product distribution from
a CTL plant depends upon the type of
catalyst utilised, reactor technology and
overall operating conditions. With
additional processing, a variety of end
products such as liquefied petroleum
gases (LPG), paraffinic naphtha, middle
distillates, synthetic waxes and
lubricating base oils can be produced.
Due to the size of the market, high-
quality transportation fuels in the middle
distillate range are the preferred output.
A typical configuration for a CTL plant
(Figure 1) designed for the production of
middle distillates (diesel and jet fuel
blendstocks) consists of six sections:
— Coal handling and preparation
— Coal gasification
— Gas cleaning and CO2 removal
— Fisher-Tropsch synthesis
— Product recovery
— Power generation.
For maximum production of CTL
diesel fuel, a low-temperature gas
synthesis process is desired. The finished
PTQ Q3 2007 127

Air separation
9%
Gasification
27%
Coal
handling/prep
9%
Figure 2 Capital cost breakdown
1.45
1.40
1.35
Diesel crude ratio
1.30
1.25
1.20
1.15
1.10
1.05
1.00
2000 2001
Note: Pricing data from
January 2000 to November 2006
Figure 3 Historical diesel prices since year 2000
diesel fuel from the product-recovery
section is colourless, has a cetane number
of 70+, and is virtually free of sulphur and
aromatics. FT diesel fuel meets all current
ASTM specifications, meets or exceeds the
quality specifications for California Air
Resources Board (CARB) diesel, and does
not require any segregated transportation
infrastructure. If required, commercially
available additives can be utilised to
improve lubricity. The product-recovery
section could also produce a jet fuel, but
currently FT jet fuel (neat or blends) is
not certified for use in the US by either
commercial or military entities.
CTL plant cost
Most of the capital cost for a CTL plant is
associated with the production of the
syngas (including gasification, clean-up
and the air-separation units to supply
oxygen) and the generation of electricity
for plant operations. The total installed
128 PTQ Q3 2007 www.eptq.com
Gas cleaning
and conditioning
20%
Fischer-Tropsch
synthesis
12%
Power
generation
block
18% Product
recovery
and other
5%
USGC no. 2 as % of WTI
LA no. 2 as % of WTI
LA carb diesel as % of WTI
2002 2003 2004 2005 2006
Year
Source: Platt’s Oilgram price report
capital cost (TIC) also depends on the
remoteness of the proposed site,
availability of water resources and
existing infrastructure, and proximity to
end-user fuel markets. Estimates of TIC
range from $70 000–100 000 per bpd of
capacity for larger-scale plants. A typical
breakdown of Capex associated with a
CTL plant is shown in Figure 2.
Potential product yields
The liquid volume yield from a CTL
plant is determined in part by the
marketplace economics associated with
co-production of electricity/hydrogen
and/or CO2 separation for enhanced oil
recovery. Typical yields range from 1.5–
2.1 barrels of liquid fuels per ton of coal
input, depending on coal quality and the
co-production of power or hydrogen.
Thus, the potential liquid hydrocarbon
reserves available in the three largest coal
states alone amounts to 230–322 billion
barrels. Higher-quality coals such as
bituminous coals found in the Central
Interior and Appalachia basins provide
product yields in the upper range.
Yields for finished No. 2 diesel usually
range from 65–75% of the total liquid
volume, depending upon process
configuration, FT technology and catalyst
type, as well as plant operating
conditions. The balance of the liquid fuel
products comprises LPG (5–10%) and
synthetic naphtha (20–30%). The highly
paraffinic naphtha makes an ideal cracker
feedstock for ethylene/propylene
production, or has the potential for
blending with heavy Canadian bitumen
to improve pipeline flow.
The CTL process can also be configured
and operated to produce primarily
distillate blendstocks. Producing a diesel
or jet fuel blendstock allows for greater
product yields and potentially improved
project economics. The CTL plant
operator could, for example, produce a
diesel blendstock with a low cloud point
for use in blending a winter-grade diesel
fuel. Emphasis on the production of a
diesel blendstock could result in CTL
plant distillate fuel yield rising to
80–85%.
The price of FT diesel from a CTL plant
will likely range between ultra-low-
sulphur diesel (ULSD) at the US Gulf
Coast (USGC) refining centre and CARB
diesel, depending on plant location,
access to common carrier or dedicated
pipeline facilities, seasonal market
supply/demand variations, and overall
blending economics utilising these high-
quality fuels. Platt’s historical pricing, as
shown in Figure 3, indicates that a diesel
price in the range of WTI crude oil
multiplied by a factor of 1.2–1.3 is
reasonable for economic consideration.
CTL breakeven economics
Baker & O’Brien Inc analysis indicates
that CTL-produced diesel fuels would
have been competitive with 2006 market
conditions. As the CTL industry develops,
advancements in technology or potential
reductions in capital cost per barrel ($/
bbl) should provide a platform to
improve project economics. A key
consideration for the location of a CTL
plant is the availability and longevity of
the coal reserve. Many of the western
coal basins within the Powder River
Basin (PRB) of Montana and Wyoming
contain in excess of a billion tons of
recoverable reserves at a single site. A
billion ton coal reserve is sufficient to
keep a 60 000 bpd CTL plant operating in
excess of 60 years, assuming a
conservative yield of 1.5 bbls/ton. The
crude oil breakeven economics and
sensitivity to select variables for a 60 000
bpd mine-mouth plant in the PRB are
presented in the following analysis and
Figure 4.
Platt’s Q406 average pricing for USGC

Capital investment, 70K
$/bpd of liquids
Operating costs, $10
$/bbl
Feedstock cost, $5
$/ton
Diesel price,
$125
% of crude
Oil yield, bbl
Liquid/ton coal
42 44 46
Breakeven crude oil price (WTI) to generate 12% after-tax IRR
Increase in variable
Note: Economics based on 100% equity and do not
assume any favourable tax incentives or other subsidies
Figure 4 Crude oil breakeven sensitivity analysis
No. 2 FO (0.05% S) and WTI (Cushing
spot) of $73.48 and $59.94 per barrel
respectively yields a diesel-to-crude ratio
of 1.22. With a Energy Information
Agency (EIA) reported PRB coal price of
$10/ton for Q406 and, assuming a capital
cost of $85 000/bbl, operating costs of
$15/bbl and a liquid yield of 1.9 bbls/ton
of coal, a crude oil price of $48 or higher
is needed to achieve a competitive after-
tax return of at least 12%.
An economic trade-off of feedstock
price versus yield is involved such that
the price per ton of higher-quality coals
historically has been four to seven times
the value of lower-rank PRB sub-
bituminous coals. PRB coals offer a
feedstock cost ranging from $7–10/bbl of
CTL liquid product.
Government’s role in CTL
The pace of development of coal and/or
petroleum coke gasification projects has
increased substantially since 2005.
Concern over increased energy prices led
130 PTQ Q3 2007 www.eptq.com
100K
$20
$15
$115
2.1 1.5
48 50 52 54
Decrease in variable
to support for certain provisions enacted
in the Energy Policy Act of 2005 and
subsequent legislative proposals in the
109th and 110th sessions of Congress.
Significant events include:
— The Department of Defense (DOD),
under the direction of the Office of
Secretary of Defense and leadership by
the Secretary of the Air Force, has
initiated a programme (Total Energy
Development) focusing on the
certification of FT jet fuel including a
B-52 flight test
— The Energy Policy Act of 2005 provides
investment tax credits and loan guarantees
for eligible gasification projects
— The US Internal Revenue Service and
US Department of Energy announced
the first round of projects eligible for
investment tax credits
— The Safe, Accountable, Flexible,
Efficient Transportation Equity Act of
2005 provided for a $0.50 per gallon
excise tax credit for coal-based FT
transportation fuels
The government is proposing
additional financial incentives for the
development and construction of CTL
plants. Federal and state leaders from
coal-producing states, project developers,
technology licensors and coal resource
owners are working to supplement the
transportation fuels market using
domestic coal resources. Legislation
reintroduced in the 110th Congress may
help create the infrastructure needed for
commercial-scale production of CTL
fuels. The extension of the Fuel Excise
Tax credits and funding of a key DOD
56 initiative to integrate CTL fuels into the
military would support investments in
CTL technology.
Potential CTL development
Smaller-scale CTL projects (below 20 000
bpd) are under consideration east of the
Mississippi River in Illinois, Pennsylvania,
West Virginia and Mississippi. However,
larger CTL plants, with capacities in
excess of 40 000 bpd, are more likely to
be built in the western US. Limited
electrical transmission infrastructure to
wheel power long distances, as well as
the restrictions on longer-term electricity
purchases from fossil energy sources by
California utilities, cast doubt on the
widespread adoption of integrated
gasification combined cycle (IGCC) in
western coal fields.
Western US CTL plants would produce
distillate fuels capable of meeting the
specifications on common carrier
pipelines moving petroleum products in
PADD 2 and PADD 4. Such production
could result in a shift in regional refining
distribution patterns for jet fuel and
diesel fuel blendstocks.
Given the current interest in CTL,
higher crude oil prices and continued
government support, it is feasible that
four to six large-scale western CTL plants
could be on-stream within the next 10–
15 years. In this scenario, CTL production of middle distillate
blendstocks could account for up 20% of the current PADD 2
demand of approximately 1.25 million bpd, or exceed the
current PADD 4 demand of approximately 180 000 bpd.

Advantages and barriers to CTL development

The advantages of using commercially available and proven
CTL technology to convert coal into transportation fuels are:
— Coal represents a large percentage of fossil energy reserves
in some countries (eg, nearly 90% of fossil energy reserves in
the US)
— Lower-quality coals such as sub-bituminous and lignite can
be economically converted to liquid products at current
prices
— CTL plants could enjoy less expensive feedstock costs,
perhaps one-fifth of those of an oil refinery
— The liquid product composition can be adjusted to a
significant degree to meet market requirements
— Transportation fuels from CTL plants could be compatible
with the existing pipeline and distribution infrastructure
— CTL plants could come online with the advent of non-road
diesel fuel standards for the locomotive markets in 2012
— Beneficial environmental impacts result when CTL fuels
are used in compression ignition engines. The final liquid
product has a high cetane number, is virtually free of sulphur
and nitrogen, and exhibits better efficiency than transportation
gasoline.
However, there are a number of hurdles to overcome before
a commercially viable CTL industry can be established:
— The capital cost per barrel ($/bbl) of daily production is
high for CTL plants compared to grassroots petroleum refining
capacity or incremental expansion of existing refineries
— The plant configurations are complex, with challenges for
integrating the different technologies
— Terminal access for neat CTL distribution or new blending
and storage facilities for CTL blendstocks could be required
— Location of coal reserves does not allow easy access to
distillate markets or ethylene/propylene crackers.

Conclusions
Based on current technologies and capital costs, CTL processing
in the case of the US market appears to be competitive at about
$48/bbl. CTL plants will likely be geared towards production of
high-quality middle distillate fuels and blendstocks. Eastern US
coal appears more applicable for use in IGCC facilities for power
generation. CTL plants are more likely to be built in the western
part of the country due to lower feedstock costs and long-life
coal reserves.
If there are larger-scale (40 000 bpd and larger) CTL plants
built, regional supply/demand balances and product movements
between PADDs could be impacted and refineries may need to
make changes in historical distribution patterns. CTL plants are
likely to be constructed primarily in PADD 4 (generally Rocky
Mountain region), a region that has a relatively low demand for
jet fuel and diesel. Refiners in PADDs 2, 3 and 4 should consider
whether CTL diesel represents a potential opportunity to create
additional value from blending operations. CTL jet fuel will
require certification and is not currently a viable production
option for the US market.

This article is based on a presentation (paper # AM-07-27) from the

March 2007 NPRA Annual Meeting in San Antonio, Texas, USA.

J Mark Landrum is senior consultant with Baker & O’Brien Inc in

Dallas, Texas, USA. Email: jml@bakerobrien.com
Jon Warzel is senior consultant with Baker & O’Brien Inc in Dallas,
Texas, USA. Email: jw@bakerobrien.com

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