Sunday, July 24, 2005

Coal To Oil - the Next Big Thing?

India has coal to last us the next few centuries, while the oil reserves will last us only a few more years. But coal is dirtier on the environment and bulkier on the transporters. So what is the solution? Simple - convert coal to oil.

South African SASOL, is the leading coal-to-liquids (CTL) technology and producing company in the world. Since the 1950's the South African government has been promoting the Fischer-Tropsch process that Germany used during WW-II, to get oil from its massive coal reserves. Germany however was facing a global supply blockade, while in SA it was a political decision, though SASOL could never bring its products to within range of commercial oil rates - till oil hit $40 (now its $60).

Four Indian corporate houses are holding talks with SASOL to set up such plants in India. All four are big names in the Indian steel industry - Jindal, Essar, Tata and Bhushan Steel. The talks are at a preliminary stage, but Jindal and Essar are also exploring the Coal-to-Gas technology.

How big can CTL get?

China has huge coal reserves, and SASOL is setting up two plants in China at a total cost of $6bn. Alright $6 bn is a lot of money, but for that kind of money China gets an annual output of 60 million tonnes of oil, which is 60% of the current annual import of 100 mn tonnes. India currently imports roughly the same amount.

Any potential catches?

The process is capital intensive, and scale is important. So China gets an output of 10 mtpa for every billion dollars invested. If the total investment is lower though, the output will be lower still. In India it is doubtful whether state economic muscle will help the four private sector companies. On their part PSU's like ONGC and GAIL are already exploring CTG technologies like Underground Coal Gassification, with Russian and Canadian partners respectively. ONGC however suffered a setback recently when CIL refused to be a part of the project.

Also the fact that all the private sector companies here are steel majors is no coincidence. They hope to use their existing coal licenses/expertise on this. So it maybe unlikely that they would see great synergies from working together on this.

Also CTL needs a certain quality of coal and it is not clear whether such coal is available in the country in huge quantities. Apparently, SASOL "has examined some samples of Indian coal, and found one of them promising."