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Coal-Based Ethanol Is Just Down the Road

Trevor Curwin, |Special to CNBC.com
Monday, 13 Jun 2011 | 9:58 AM ET

With gasoline prices still stubbornly high, a new fuel from an old source could keep America moving more cheaply in the near future.

Celanese plans to invest $700 million in its own TCX technology to produce ethanol from coal.

“We were able to take [existing] technology and, with some breakthroughs, make ethanol,” said Celanese CFO Steve Sterin, who also heads up the firm’s advanced fuel technology team. “We can do it at a fraction of the cost of (food-derived) ethanol without relying on food feedstocks.”

Sternin said the company’s goal is to have two plants operating in China by 2016, converting 400,000 metric tonnes of coal to ethanol annually, with potential annual production around 135 million gallons.

Celanese’s integrated chemical complex in Nanjing, China.
Photo: Celanese
Celanese’s integrated chemical complex in Nanjing, China.

Their first goal is to supply the $5 billion industrial ethanol market, “half of that in China” said Sterin—where the product is used in coatings, inks and pharmaceuticals.

But the real upside could be in supplying the global ethanol fuel market, expected to reach 20 billion gallons a year by 2012.

Currently, ethanol-as-fuel works well in countries with the right ethanol infrastructure, such as Brazil, where vehicles have been running on domestically-grown, sugar cane-derived ethanol since the country was crippled by high oil prices in the 1970s.

But the U.S.'s corn-derived ethanol fuel is relatively expensive—about $1.55 to $1.74 per gallon compared to 71 cents to 90 cents per gallon in Brazil—and so is heavily subsidized to allow gasoline producers to meet federal renewable fuel standards.

And with 40 percent of the U.S. corn crop now going to ethanol production, a four-fold increase from 2002, the competition for corn from food processors could keep those prices high.

Celanese claims its TCX process can produce a blended gasoline-equivalent fuel at $1.50 a gallon, equal to refining crude oil at $60 a barrel, and well below current levels at the pump.

Although coal-based ethanol would be ineligible for federal mandates that require 8 percent of fuels in the U.S. come from renewable sources by 2011, cheaper ethanol could take some pressure off gasoline prices by displacing some of the expensive corn-based ethanol elsewhere in the market.

Meanwhile, coal’s main market of electricity generation continue to wane, said Chris Huntington, partner at energy-focused hedge fund New Energy Fund Advisors, a trend likely to continue as natural gas pushes coal aside as a fuel source for new power plants.

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“The bigger issue is what are we going to do with all of the coal we have,” he said, adding that recent efforts by the coal sector to brighten its image may just be [public relations] at this point, but the reality is we have a lot of coal.

“You’ll never get rid of the carbon embedded in coal; it doesn’t go away, so you have to figure out what to do with it,” Huntington adds, pointing out that turning coal into synthetic fuels is probably “most analagous to the Canadian tar sands,” where heavy bitumen is refined into oil with a great deal of energy and waste.

Celanese's Sterin said the Chinese market is also sensitive to how coal is used, despite common misconceptions that it’s an “anything goes” environment.

Don Farrall | Photodisc | Getty Images

“There’s hundreds of years [of coal supply in China] but they’re very restrictive on uses for that coal,” he said, adding the country “banned over 12 different technologies using coal in their latest five-year plan.”

In high growth areas of the developing world, where new vehicle infrastructure is being built from scratch, ethanol as a fuel could have a huge future.

But in the U.S., promoting fuel ethanol is complicated by the needs of the existing vehicle fleet, its relative low energy content and energy security politics.

“There’s nothing inherently wrong with ethanol as fuel—it’s a great fuel,” said New Energy Fund's Huntington. “But it’s very important how you create and how you refine it.”

The Brazilians “seem to have a good process for sugar cane-based ethanol” he said, while U.S.'s corn-based fuel is “just barely energy positive” once you get it to the pump.

While Huntington says he’s indifferent to the feedstock sources for ethanol, the irony of creating ethanol—the original biofuel meant to push fossil fuels aside—from a fossil fuel isn’t lost on the cleantech sector.

We’d be better off to stop talking about ethanol as a fuel at all, said Dallas Kachan, managing partner at cleantech research boutique Kachan and Co.

In recent months, he said, finding inexpensive, drop-in replacement biofuels to replace refined crude oil products has become the holy grail of the biofuels sector, potentially holding the key to future energy security.

Energy and You - A CNBC Special Report
Energy and You - A CNBC Special Report

Celanese’s Sterin said non-fossil fuel renewable feedstocks like biomass and waste will also be considered as their process advances.

While this could provide huge opportunity for firm’s like Celanese to fuel vehicles on American roads with a cheaper, domestically produced fuel, it’s still unclear where the ethanol fuel market is headed.

Subsidies for corn producers are under fire in a new environment of government austerity, potentially leveling the biofuel playing field, said Kachan.

“Why pursue ethanol—with its energy balance, temperature-based performance and storage limitations—when we can now create bio-based fuels without those limitations?” he asked.

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