Next-gen technology puts fuel focus on southern coal

IF you told the average Western Australian that southern Western Australia could produce a billion barrels of oil, the most likely response would be laughter.

Yet the Esperance hinterland alone has potential to yield a couple of billion barrels of premium quality liquid products such as diesel and urea, from vast reserves of low-quality lignite coal, which is widespread across southern WA.

These reserves have been a conundrum for decades, with their high water content making even onsite power generation implausible.

But with conventional oil supplies in steady decline, and commercial alternative transport fuels still far over the horizon, the potential of these coalfields is back in focus.

The secret lies in new-generation coal-to-liquids (CTL) technology, which can convert the hydrocarbons in low-quality coals to liquid form, typically at a ratio of one barrel for every two tonnes of coal processed.

Basic CTL dates back more than 100 years. The coal is first mined and dried to remove most of the water. It is then 'steamed' (so that it smoulders without burning) to release a gas rich in hydrogen and carbon monoxide. The gas is then stripped of contaminants such as sulphur dioxide to leave a clean synthesis gas, or syngas.

This syngas can then be used to generate power, or fed into a so-called Fischer-Tropsch vessel, where it is condensed and passed over an iron or cobalt catalyst. This triggers a chemical reaction that recombines the hydrogen and carbon in a new form, such as synthetic diesel.

Last week, Leederville-based Blackham Resources revealed lignite resources at its Scaddan and Zanthus deposits north of Esperance had passed 1.1 billion tonnes. In addition, it identified a further 1 billion tonnes of "inventory" coal that is yet to be upgraded to resource status.

A week earlier, AIM-listed Spitfire Oil confirmed that resources at its nearby Salmon Gums project had soared almost 70 per cent to 876 million tonnes.

A successful scoping study by Blackham last year found that Scaddan, 50 kilometres north of Esperance, could produce around 5 million barrels of low-sulfur 'clean' diesel annually, plus substantial volumes of sulphur (used in nickel processing), at an initial capital cost of $US2.5 billion.

That would mean significant benefits for the local mining and transport sectors, Blackham managing director Bryan Dixon told WA Business News.

"There is something like 3.5 million barrels of petroleum products being shipped into Esperance every year, so we've got this massive diesel market at the end of the railway line, which is just 10 kilometres from us," he said.

"So we believe we have a location benefit in being close to the Goldfields diesel market."

Mr Dixon noted that WA's reliance on imported fuel was directly reflected in price, especially in the Goldfields, where diesel typically cost $US9 per barrel more than in Perth.

A plant at Scaddan would also provide a huge economic boost in a region devastated by the closure of the Ravensthorpe nickel mine, generating 1,200 jobs in construction and more than 300 full-time jobs once in operation.

However, any development will have to overcome CTL's reputation as a major polluter, given emissions are typically 30-50 per cent higher than for conventional oil production. Most of this relates to the energy intensive first stage, in which the coal must be mined, dried and heated to 1,200 degrees Celsius to produce gas.

Mr Dixon said advances in technology meant Blackham aimed to at least match, and ideally improve upon, the carbon footprint of conventional diesel production by reducing the energy intensity of the first stage of production.

Blackham's project would also be carbon capture ready once viable carbon capture technology became available, while emissions could be offset by supplementing some feedstock with renewable sources such as oil mallee.

Mr Dixon said the low-sulphur content of the final product would also cut end-user carbon emissions by 10 per cent compared to conventional diesel fuel.

Regardless, dwindling conventional oil supplies and the lack of viable alternative mass transport fuels meant demand for fossil-based liquid fuels still had to be met somehow. Discouraging projects such as Scaddan in Australia would simply export investment elsewhere and leave Australia even more reliant on imported fuel, he said.

"The world is short of oil, so the question is whether you want these projects in Australia, or do you want them in China or Malaysia," he said. "Australia is facing a major energy security issue, and I would have thought our first priority is to make sure we have that energy, including transport fuels, and the second is to do it in the cleanest way possible."

It is a view shared by Spitfire Oil chief executive Thyl Kint, who said CTL was still significantly cleaner than current alternatives such as heavy oil and shale oil.

"And like everything, this technology will improve as we go," he said.

Spitfire itself is leading the charge to reduce the carbon footprint of CTL using a new twist to an old method, coal pyrolysis, whereby coal is heated in the absence of oxygen.

In partnership with Curtin University, Spitfire has been able to achieve liquefaction at half the temperature usually required in CTL. This in turn reduces the energy intensity of the process and cuts greenhouse emissions by 75 per cent. Further improvements are possible by using biomass as a supplementary feedstock.

The lower energy requirements would also halve capital costs compared to an equivalent CTL plant, making it viable at an oil price of under $US40 per barrel, Mr Kint said.

Spitfire was now focusing on how best to refine the resulting crude oil-like product into a saleable product.

"We have two different types of reactors at Curtin University ... and have generated good quantities of oil," Mr Kint said. "But that oil product needs to be upgraded, and that is what we will be working on in this next phase."

Spitfire is targeting an initial production rate of 2,000 barrels a day by 2014, rising to 22,000 barrels a day in 2018; an aggressive timetable Mr Kint said was achievable.

"Only the future will tell ... but at this stage I think there is a realistic chance that we can achieve that," he said.

Meanwhile, Blackham expects to choose its preferred processing route within six months, and then secure a lead partner by mid 2010. Wesfarmers already holds a 30 per cent interest in Blackham's leases.

The signs for that look promising, following Chinese oil giant CNOOC's farm-in at a similar CTL project at Arckaringa, South Australia, last month.

Several other CTL proponents are also at different stages of development in WA.

Still in the initial concept stage, explorer Epsilon Energy is undertaking desktop studies for its 400Mt Balladonia West lignite project, east of Norseman.

Meanwhile, Perdaman Chemicals & Fertilisers plans to invest $3.5 billion to develop Australia's biggest coal-based urea project at Collie, using Shell technology to convert sub-economic coal into 2Mt of the premium fertiliser annually.