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Military's push to turn coal into fuel picking up speed


Associated Press


DAYTON, Ohio - The Pentagon is trying to persuade investors and the energy industry to embrace an 80-year-old technology to turn coal into liquid fuel to power planes, tanks and other battlefield vehicles.

Officials have been crisscrossing the country, meeting with energy companies and state government officials to sell them on the idea. At the same time, military researchers have been testing fuel produced by the process to make sure it is suitable for military vehicles, especially older ones.

Michael Aimone, an assistant Air Force deputy chief of staff, was in North Dakota last week to discuss a search for sites for a plant to turn coal into fuel for jets and trucks. He said a study to explore the idea of a plant to make 30,000 barrels of fuel a day from coal is focusing on North Dakota and Ohio, though other states will be considered as well.

The military is worried that political pressure or terrorist acts could cut the flow of oil from the Middle East or hurricanes or terrorists could destroy U.S. refineries.

"We know what the technical challenges are, but we don't see any show-stoppers," said William Harrison, senior adviser for the Pentagon's Assured Fuels Initiative. "There is still a level of uncertainty, but it looks like the technology is mature enough."

There are roadblocks. Building coal-to-fuel plants is expensive - possibly up to $5 billion. Investors worry that their money could go up in smoke if the global price of oil drops, budding government subsidies dry up, or tougher environmental rules are put into place, said Kevin Book, a Virginia-based senior analyst for Friedman, Billings, Ramsey & Co. Inc.

But then there is coal - lots of it.

The Middle East has about 685 billion barrels of oil compared with 22 billion barrels in the United States. However, there is enough coal in the United States to produce 964 billion barrels of fuel, according to the Pentagon.

Montana, with enough coal to produce 240 billion barrels of fuel, leads the pack, followed by Illinois, Wyoming, West Virginia, Kentucky, Pennsylvania and Ohio.

"We have probably 250 years' worth of coal," said Mike Carey, president of the Ohio Coal Association. "It would have a tremendous impact on the coal industry."

The industry is already on the rise.

Demand for U.S. coal is expected to be a record 1.2 billion tons this year, up from 1.18 billion in 2005, according to the National Mining Association. Production is forecast to be 1.16 billion tons, a 3.2 percent increase over 2005.

Coal is used mainly to generate electricity and in steel-making. Although experts say the coal-to-fuel process works, it is being done in just a few small demonstration projects.

The Pentagon began looking at coal in 2001 when Congress earmarked $13 million to investigate the Fischer-Tropsch process in which coal is gasified and then liquefied into fuel. The technology was developed by Germany in the 1920s and used by South Africa beginning in the 1950s.

The military accounts for about 4 percent of U.S. fuel consumption.

The process promises to produce a cleaner fuel that gives off more energy per pound and be less subject to freezing. It would reduce transportation costs and ease logistical headaches by enabling the military to use one fuel for all its planes and vehicles instead of the more than half dozen different fuels now used.

"See how beautifully clean that fuel is," Harrison said, pointing to a dancing flame inside a large glass tube at a Wright-Patterson Air Force Base lab. The flame turned from orange to blue as the soot was reduced when the fire began to burn fuel similar to what would be produced from coal.

Harrison, chief of the Air Force's fuels lab at the base, has been trying to light a fire in the private sector. He has spoken to state and industry officials in Ohio, West Virginia, Pennsylvania, Illinois, Montana and North Dakota.

Some energy companies are eager to have the military for a customer.

Houston-based DKRW Energy hopes to begin producing coal-based diesel fuel in 2010. The company needs to complete the permitting process and obtain financing for a $1 billion plant that would produce 11,000 barrels of fuel a day in Medicine Bow, Wyo.

Syntroleum, based in Tulsa, Okla., converts natural gas into liquid fuels and is currently involved in several coal-to-fuel projects.

President Jack Holmes said increasing demand for oil should keep the price high and coal-based fuel attractive.

"We think that now's the time," Holmes said. "If we can get these first few plants built and running and get the acceptability in the government and industry, there's a big market to do this."

Others point out that similar talk in previous years evaporated when Mideast producers cut the price of oil.

Dick Bajura, director of the National Research Center for Coal and Energy at West Virginia University advised supporters of the coal-to-fuel idea to make sure "the people in OPEC land aren't going to pull the rug out from underneath you."

Crude oil is selling for more than $60 a barrel. In December, the U.S. Department of Energy scrapped its predictions that oil prices would drop to around $30 a barrel by 2025, saying that costs will persist near or above $50 a barrel for years.

As the military evaluates the fuel made from coal, the Energy Department has funded efforts to refine the process. In January, the department awarded a $100 million grant for the construction of what may end up being the nation's first commercial coal-to-fuel plant, in eastern Pennsylvania. Private financing is still being secured for the $612 million plant, which could be up and running by 2009.

The risk to Mideast oil supplies was underscored in February when suicide bombers in explosives-packed cars attacked the world's largest oil processing facility. The attack was the first on an oil facility in Saudi Arabia and sent world oil prices soaring.

Syntroleum's Holmes said that even though a commercial plant would be expensive to build, it could operate for 30 years or more.

"We're not just trying to build a company, we're trying to build an industry," he said. "The acceptance of a new idea is always difficult. Everybody wants to be the first person to build the second plant."