Don’t call Rentech Inc. a coal company.
“It’s like calling an ethanol company a corn company,” said Chief Executive Hunt Ramsbottom.
Still, to some, the Los Angeles-based producer of coal-based fuels conjures up an image of a red brick building with a smokestack though it’s actually a high-tech company that for 25 years has been perfecting what’s known as the Fischer-Trope process. It liquefies coal into a potentially cleaner fuel than petroleum.
Now, if all goes according to schedule, Rentech will be the first company in North America to produce jet fuel this way when its $900 million Illinois plant is completed in 2010.
Coal liquefaction is intended to be one solution to the declining reserves of oil, which recently sent the price of oil past $80 a barrel. Unlike ethanol production, which is limited by pressures to ensure an adequate supply of corn for foodstuffs, coal-based fuel can tap into the world’s abundant coal reserves, about 30 percent of which are in the United States.
However, environmentalists say coal-to-liquid fuel production would emit twice as much of the greenhouse gases tied to global warming as petroleum. Industry promoters maintain that the gases can be captured while coal is being liquefied and later stored underground indefinitely, a process called carbon sequestration.
Still, the word “coal” the country’s single largest source of carbon dioxide and sulfur dioxide, a cause of premature deaths makes people uneasy.
“Coal is a four-letter word to most people,” said John Thompson, who heads up the coal transition project at the Clean Air Task Force, a Boston-based non-profit. “When asked about coal, most people would say it’s dirty. They’d be right.”
Ahead of curve?
The debate on whether coal liquefaction is harmful for the environment is in practical terms premature. The country has yet to see a single plant that runs on Fischer-Trope technology, first developed in the 1920s when the German government, cut off from crude oil supply, struggled to find petroleum substitutes.
Essentially, the process involves converting coal into gas and then using the Fischer-Trope process for liquefying the gas. Rentech, which has 21 patents on its version of Fischer-Trope, has completed a handful of pilot plants in Colorado. Others trying to raise funds to build liquefication plants include Vancouver-based Baard Energy LLC and Headwaters Inc. in Utah.
“They haven’t solved the carbon problem because they haven’t created the problems yet,” said Todd Glass, an attorney at San Francisco-based Heller Ehrman and co-chair of the firm’s energy and clean technologies practice. “It would be very difficult to envision a massive deployment of CTL technology without figuring out the carbon solution.”
Rentech executives are well aware of the issue, and the company already has a contract with oil recovery company Denbury Resources Inc., which would buy carbon dioxide captured from Rentech’s future Mississippi plant. (The company would then sequester the gas as part of a process that forces oil reserves to the surface.)
Sequestration is not new; some cities like Berlin or Chicago store natural gas underground over the summer then pump them out to use in the winter.
Pulling carbon dioxide out of gas steam, however, is an expensive process. When millions of tons of greenhouse gas are released from a coal plant, they are in a chemically diluted form. It takes an enormous amount of energy to capture it from a smokestack and liquefy it, though that would already be done at a coal-to-liquid plant.
“The ability to store carbon underground is a key technology for stabilizing the climate and coal-to-liquid may be some of the first projects to make it happen,” Thompson said.
If the captured carbon dioxide is stored underground, then the production of liquefied coal would decrease greenhouse gas emissions by 5 percent, according to an August study by the National Energy Technology Laboratory prepared for the U.S. departments of energy and defense. If the greenhouse gas is let loose into the atmosphere, emissions would jump by 80 percent.
However, some other research findings dispute whether any form of coal liquefaction would be less of a greenhouse gas threat than petroleum. In April, the U.S. Environmental Protection Agency released findings that concluded even if carbon dioxide were sequestered when coal is liquefied, these plants would emit 4 percent more greenhouse gas than traditional refineries. Without carbon storage in place, 119 percent more of the gas would be emitted.
The debate is far more than academic: millions of dollars in funding could be at stake on the question of whether or not liquefied coal is cleaner to produce than petroleum.
“You should be cleaner than the fuels you’re replacing,” said Thomas Sayles, Rentech’s senior vice president of government affairs and a former secretary of business, transportation and housing under Gov. Pete Wilson. “If we’re not cleaner, then we shouldn’t be eligible for any incentives.”
Rentech is one of many coal-to-liquid and coal companies lobbying the Congress to pass subsidies for coal comparable to those for alternative fuels, including corn-based ethanol.
Among the incentives lawmakers have proposed are an extension of the current tax credit of 51 cents for every gallon of coal-based fuel sold through 2020; automatic subsidies if oil prices drop below about $40 a barrel and profit sharing between government and coal-to-liquid producers if oil prices stay high; and loan guarantees for six to 10 major coal-to-liquid plants, each estimated to cost about $3 billion.
Illinois starting up
Rentech’s management is located in L.A., but its research and development team remains in Denver, where the company was founded 25 years ago.
For the company’s first 13 years, it got by on $1.2 million in funding, which employed six people, while two of the founders went bankrupt. Texaco contracted the company for its gasification technology in the early 2000. In the past nine years, a group of private investors in Portland financed the company.
Rentech’s first large plant will be a converted fertilizer plant in East Dubuque, Ill., which it purchased for $50 million. Rentech is in the process of raising funds for the Illinois plant, as well as another $3.5 billion for a Mississippi plant that would convert both coal and biomass plant materials into liquid fuel.
The $900 million Illinois plant will generate electricity powered by the steam redirected from the back of the plant and produce both coal-based jet fuels for B-52s and ammonia, or fertilizers, for corn farmers. Revenue generated from fertilizer sales is expected to exceed $130 million this year. The Illinois plant would produce 2,000 barrels of jet fuels a day, the Mississippi plant 25,000.
Neither of the plants has been financed yet. The company expects to raise funds through investment bank Credit Swisse next spring. Ramsbottom said he is in talks with a handful of large companies interested in buying the Mississippi plant. Rentech won’t raise money for that project until spring of 2009.
Two years ago, Rentech’s board hired Ramsbottom as its new chief executive to commercialize the technology that a dozen company engineers had been working on for decades.
“In the late ’70s, when crude dropped down to 12 dollars a gallon, no one really cared about Fischer-Trope,” said Ramsbottom, “but the founders kept at it, which is why we’re ahead in terms of technology.”
Today, including 100 people who run the Illinois plant, Rentech has 250 employees. Ramsbottom sees a future when the company workforce could swell multiple times over.
When South Africa was cut off from crude oil during international opposition to apartheid in the 1980s, a company called Sasol Ltd. built the world’s biggest Fischer-Trope plant. Now, the $4 billion company employs 30,000 people and nearly half of the country’s planes are fueled by diesel made from coal or biomass.
“We now have our backs against the wall too,” Ramsbottom said. “A lot of people would like to see coal go away. But we have to think in terms of what this technology could do for our country.”
