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The Perils of Moving from Oil to Synthetic Fuel for Vehicles

by | published August 29th, 2011

What happens in a place like Uzbekistan does not usually have an immediate impact on distant energy markets.

Sure, the former Soviet republic nestled in Central Asia has an abundant supply of natural gas; it's the 18th-largest natgas producer in the world. But the policy decisions coming from capital city Tashkent rarely prompt anybody in the West to even look it up on a map…

Until recently.

What's happening in Uzbekistan right now has great relevance for the rest of us – especially when it comes to how we power our vehicles.

The (Synthetic) Fuel of the Future

Uzbekistan has its share of infrastructure, economic, currency, and consumer problems. But several years ago, the government decided there was one problem it could do without: reliance on foreign oil.

Everybody from President Islam Karimov on down signed on to a new initiative. Beginning in 2012, all new cars registered in the country would have to operate on natural gas, not on oil. More specifically, the government mandated that synthetic fuels like CNG (compressed natural gas), LPG (liquefied petroleum gas), and LNG (liquefied natural gas) would be the fuels of the future – not gasoline or diesel.

It was a bold move, but then, there were prospects for a great deal of natural gas being extracted in the country. And Tashkent was playing to what it regarded as a national strength.

Now, much of the country's natural gas has low pressure, and that complicates its usage as a conventionally extracted and transported energy source.

So they decided to augment this policy by building a gas-to-liquids (GTL) facility – the first in Eurasia and only the third of its kind in the world (after Qatar and Malaysia). The plan was for the plant to produce annually more than 1.4 million tons (10.3 million barrels) of diesel, jet fuel, naphtha (a distillate product best known as a feedstock for high-octane gasoline), and LPG.

An agreement with Malaysian oil major PETRONAS and South African Sasol Ltd. (NYSE:SSL) followed in 2009 to create the joint venture charged with building the GTL plant. Sasol owns the technology and has built the other two GTL plants in existence.

Then the problems started…

This Is an Expensive Endeavor

A GTL project is a capital-intensive endeavor anywhere, and investors have to wait a long time for payback.

Estimating how much one of these gas-to-liquids facilities will cost is always a tricky proposition. But Uzbekistan has additional problems, owing to its geographical location, infrastructure problems, and low economic growth rate.

The primary problem emerged in attempting to estimate how much the resulting value-added products (CNG, LPG, LNG) would actually cost.

Hardly helps matters if trying to solve one problem merely creates another – like consumers going broke trying to fill their tanks!

One of the largest shortcomings of GTL is the efficiency of the overall process. There is a significant loss of raw material during the chemical reactions involved in the GTL cycle, making the overall cost effectiveness a very debatable matter.

(Sasol perfected the process for the South African economy during Apartheid, when international sanctions prevented the easy importing of energy. That may well have spurred on a technological breakthrough, but it hardly resulted in low-cost consumer products.)

In Uzbekistan, Sasol is now saying the GTL plant will cost considerably more than the $2.7 billion revised price tag offered last year. And PETRONAS is downsizing its partnership position in the joint venture supposed to build the plant.

This is becoming a major crisis in a country that intended to lead the world in moving from crude oil to natural gas as a vehicle fuel.

They have plants being built to retrofit vehicle engines, and they have a network of CNG and LPG stations going up nationwide to service those vehicles.

Unfortunately, they no longer have a guarantee that there will be fuel to put in them…

Why This Matters to Us (as Consumers and Investors)

In the U.S., there is an overabundance of unconventional gas from shale, coal bed methane, and tight gas wells. In fact, the current production base could easily increase the amount of natural gas being extracted by 25% to 30% a year, if the volume had a ready end use.

There are several outlets for new volume, like the additional transfer from coal to natural gas as the feeder energy stock for electricity generation, or the export of LNG to the hungry European and Asian markets.

However, the real prize would be using that gas to power our own vehicles.

Until the use of gasoline and diesel for transportation is confronted with a viable alternative fuel – capable of broad-based expansion and having a sufficient infrastructure for supply and service – we remain a crude oil-based economy.

Now there have been some dramatic developments, both in building (and retrofitting) vehicle engines to work on gas-based fuels and in providing a wider network for fuel dispensing (primarily CNG pumps, at the moment).

Already, fleets of trucks that used to run on diesel, and metropolitan buses that used to run on gasoline, are now using natural gas-based fuels.

Yet to make a transition genuinely possible, it is the passenger market that needs to be breached.

Even then, there will remain a need for gasoline and diesel availability during a transition period – and beyond.

Unless the EPA (or state equivalents) passes regulations outlawing hydrocarbon transport systems altogether, the traditional internal combustion engine will continue to occupy some percentage of the transportation sector – even when most of us are driving vehicles powered by natural gas or electricity (or hydrogen or…).

This is why what is happening more than halfway around the world in Uzbekistan has relevance for us.

To pull off a genuine transition in fuel source, three things are necessary: power systems (engines), a workable distribution system

…and sufficient fuel.

As we move closer to looking at a serious transition in the way we move from one place to another, keep in mind that all three of these are necessary.

It doesn't help if somebody comes up with the new engine or builds the distribution network.

If we do not have enough fuel (preferably at less than an equivalent of $5 a gallon), it won't fly, Orville. And that may be what we're seeing in Uzbekistan right now.

Investing in the sector needs to have the same perspective. Don't expect to make a fortune off of this “Brave New World” unless all three factors are in the cards.

Sincerely,

Kent

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  1. Ronile Jon
    August 29th, 2011 at 11:54 | #1

    All said and done, but the primaryn point was not made. The Uzbekistan
    people and government have guts. Something totally lacking in our political and social system. I believe that the outcome in Uzbekistan
    will be positive while we are still sending out a huge amount of our
    national treasure to foreign and unfriendly nations and governments.

  2. jack gordon
    August 29th, 2011 at 11:58 | #2

    fischer-tropsch synthesis is a high-pressure process requiring large pressure vessels.
    uzbek does not have the capability to fabricate these, in fact very few countries other than japan have this capability.
    u.s.a. has lost the capability since all jobs have been exported to china.
    additionally, large vessels must be transported long distances into central asia.
    there is no transportation network to do this.
    so what were the uzbeks smoking when they dreamed this one up?
    > jack

  3. CECIL BOLIN
    August 29th, 2011 at 12:11 | #3

    Kent, I was wondering if Sasol brought the technology from
    Synfuels International, Inc. Based in Dallas and has a pilot
    plant close to Texas A & M. President Ben R. Weber, Jr.

    Thanks, Cecil.

  4. BH
    August 29th, 2011 at 12:15 | #4

    They were smoking that most potent weed – central planning. More lives have been ruined by it than all other street drugs combined.

  5. August 29th, 2011 at 13:06 | #5

    Kent this is an excellent and incisive article. Thank you.

    What will replace Oil needed for Plastics and all the other uses it is needed ?

    The Infrastructure problem is the same for all Electric Cars. There are very few places where Charging Outlets are available and convenient.The mileage limitations on most of them are ridiculous and extremely limiting, as you well know.

  6. Timothy Queen
    August 29th, 2011 at 13:59 | #6

    Water transportation has taken a huge hit downward. How do you see it shaking out? Which companies to invest in, and how long before a payoff for the investor? Hope to see something related to this soon. Thanks

  7. Rich Davis
    August 29th, 2011 at 15:38 | #7

    I headed up most of the work on alternate fuels for the transit industry @LACMTA and for APTA, then consulted in that area. Transit buses were diesel powered not with gas. CNG powered buses have been successful all over the world-the LACMTA fleet is 100% CNG. Heavy duty applications in Australia, New Zeeland, Austria have been running for 25 years or so. LNG is being used at Houston and Orange County. Hybred buses have been working in NYC. We also looked at fuel cells, methanol, particulate traps and low sulfur diesel fuel. Also built the first heavy duty emmision testing facilities. There have been problems with adequate refueling infranstructure cost, ie. needs centralized fleet operations to hold down cost. There has been some success with small CNG home refueling in British Columbia. The future looks good for heavy duty CNG applications. Personal vehicles will tend toward hybred electric and battery applications. Battery cost and durability need more work. The total economic conversion costs will be substanial and take time. Not sure we have the political leadership to make it happen. The ethanol from corn joke is an example of wasted funds.

    Enjoy your reports,
    Rich Davis

  8. Tib Csabai
    August 29th, 2011 at 15:58 | #8

    Uzbekistan dropped the natural gas idea not becuase “much of the country’s natural gas has low pressure”, an item that is not correct and is irrelevant.

    The problem is the central planners forgot how to distibute the gas in a useable form. Further, the “under the table ” payoffs to government officials was much higher with the SASOL approach than the field distribution of mid-pressure natural gas.

    We may have effective lobbyists in Washington DC but “you ain’t seen nothin” until you see the graft in Tashkent. Ergo the SASOL approach … the public be damned.

  9. H.A. Carrington
    August 29th, 2011 at 16:36 | #9

    I see a lot of interest in CNG, LPG, LNG, etc; however, I do not see any hard numbers on equivalent conversion to MPG. Butane and Propane with gasoline conversions have been around for over 60 years, but I still don’t know how they compare in Miles Per Gallon with the three grades of gasoline. I had an experience in Argentine with a private cab driver in which we traveled from Buenos Aires to Vijique (about 250 km) and he stopped to fill up twice before we finished the trip. I don’t know about the size of his tank so can’t make a gas about km/liter.His Volvo had 4 passengers and a good of amount of baggage so the car was pulling hard. I think some data on equivalents in mpg compared to gasoline would be very helpful in evaulating the viability of the gas to liquid possibilities. Thanks

  10. Wojtek Mlodziejewski
    August 29th, 2011 at 17:55 | #10

    Kent, you are mixing up two concepts. For cars to run on LNG or LPG you need to install a gas tank plus some other small gadgets. It would cost you a couple of hundred of $. Thousands of cars using such technology drive in Europe and elsewhere. The SASOL technology allows petrol driven cars to drive on, well, petrol, albeit synthetic. No changes necessary in modern cars

  11. rex alfonso
    August 29th, 2011 at 22:19 | #11

    Dr.K, Uzbekistan does not need ‘synthetic’ gas liquids. Someone is selling them a bill of goods. They have the stuff (NG), all they need to do is to configure their cars and trucks to use is a CNG. Thailand (today) operates an estimated 25% (my count) of their 18-wheelers on 8-bottle CNG tanks behind the cab. At least 1/3 of the taxis (probably 10,000+ of the taxis in Bangkok run on CNG. Configuring cars and trucks to burn CNG is do-able as should be distribution. It mya take some pipelines and compressor/dispensers at truck-stops and filling stations or distributed by large CNG transporters, but it’s definitely doable, at a fraction of the cost of a gas-to-liquids solution which only makes use of the existing infrastructure at the cost of billions of unnecessary $$.
    rexx

  12. August 29th, 2011 at 22:26 | #12

    Australian Company Linc Energy is using the fischer-tropsch system to convert insitu coal to diesel in Australia and setting up in US. They advise that they can produce syngas at a price that allows them to produce diesel and Jet Fuel at about $30 per barrel. Is this feasible in the long term?

  13. Bill Metrailer
    August 29th, 2011 at 22:53 | #13

    The “Brave New World” is here. Buy a Honda Civic Natural Gas car [automobiles.honda.com/civic-sedan/civic-gx.aspx] and fill it at one of currently over 900 CNG filling stations throughout the US [afdc.energy.gov/afdc/fuels/stations_counts.html] at about $2.00 to 2.50 per gallon gas equivalent [cngprices.com/index.php]. In a few years, GM will be selling CNG vehicles in the US using Westport Innovations’ superior technology. Passage of the NAT GAS Act of 2011 will hasten the replacement of OPEC oil with American gas and jobs.

  14. filthy fiffi
    August 30th, 2011 at 02:31 | #14

    We could re-look at using that stuff out of the tap, H2O, for augmenting the fuel return on our cars, by splitting off the Hydrogen.
    Of course, the biggest pitfalls with this is that it doesn’t need a new distribution network and there’s nothing in it for Big Oil.
    BMW and the likes are over-engineering it to keep the public on the hook and using the Big Oil controlled outlets.
    (Exscuse me while I duck now…..look out…here comes a big one !)
    filthy fiffi

  15. Willem de Meyer
    August 30th, 2011 at 03:08 | #15

    I find Dr. Moors’ comments and insight generally very well informed and valuable. That is why I am somewhat surprised that he seems to be unaware of the GTL plant operated in South Africa initially by Mossgas, now PetroSA (note – not Sasol), since 1992. At that time it was the biggest GTL facility in the world and it retained this status until the plant in Qatar ramped up to (almost) full capcity recently.

  16. Ilya Shambat
    August 30th, 2011 at 03:55 | #16

    While much has been written and studied about such energy solutions as solar energy, wind energy and biofuels, there has not been enough written about a clean energy solution that, besides solving global warming, also stands to solve freshwater depletion, deliver convenient round-the-clock water and energy, and replace two infrastructures with one integrated system of pipes.

    The solution is Hydrogen Transmission Network (HTN). The Hydrogen Transmission Network will use solar energy to perform electrolysis of ocean water and send the resulting hydrogen through pipes to all places of energy and water consumption, there to react with oxygen in the air to create clean energy and clean water at once. The hydrogen will be plentiful and available around the clock, delivering convenience to the user. No carbon will be involved in the process at any stage.

    HTN will replace two expensive and inefficient systems – electricity grid and water system – with a single elegant network whose energy efficiency will be greater than that of the current electric grid. It will end the burden on the freshwater resources, that are running out in much of the world. As an added benefit, it will make it possible to fuel a fleet of hydrogen-powered vehicles.

    HTN has been reviewed and found to be technically and economically feasible. It stands to be a full solution. Environmentally, it stands to resolve both the global warming crisis and the water crisis that is taking place in much of the world. Economically, it stands to create vast numbers of jobs to lift the economy and realize vast economic benefit in the long term by replacing two systems – electric grid and water system – with one integrated network of hydrogen pipes. And technologically, it stands to replace a large array of power plants and expensive, wasteful electric transmission lines with much cheaper and more efficient hydrogen pipes connected to one or several ocean-side electrolysis plants.

    Article Source: http://EzineArticles.com/4027254

  17. Tooter Turtle
    August 30th, 2011 at 05:37 | #17

    You believe these people?

  18. Mike Halpin
    August 30th, 2011 at 08:08 | #18

    Kent – all this digested and taken aside, what do yo foresee happening with our own NatGas Act which I understand is still pending before Congress?? Do you see us finally doing something as a nation to divorce ourselves from the awful foreign oil dependence we now have, or are the special interests out there who now control our country going to keep our addiction to oil intact (so as to continue enriching their own very narrow count of exploiters)? Mike

  19. Chuck S
    August 30th, 2011 at 13:49 | #19

    Uzbekistan and Ethanol show the foolishness of going after alternative energy that isn’t as good as conventional. Especially if the government forces it. The government should NOT be forcing nat gas – let people do it voluntarily if it makes sense. Some of your examples of users of nat gas are governments (like buses) which can be very wasteful. Compact Florescent Bulbs are an example of an alternative energy that does work, although there are some problems. The government is banning incandescents, but a lot of people would have changed over anyway.

    It’s ridiculous to talk about reducing dependence on OPEC oil and suggest all kinds of schemes, but not the obvious – drill more US oil. Obama restricted drilling in the Gulf, even though China and other countries are still drilling. I heard that he’s also restricting drilling in North Dakota. Restrict Obama, not drilling.

  20. DingleB
    August 30th, 2011 at 22:10 | #20

    Uh, Kent, “more than halfway around the world” is an impossibility.

  21. Mark
    August 30th, 2011 at 23:06 | #21

    If you want to reduce your dependency on something you must find an alternative. In the case of oil, Uzbekistan is taking a bold move to reduce their dependency on oil. There will be problems such as older vehicles conversion, fuel stations, supply of natural gas. Having said this, if the US wants to reduce their dependency on foreign oil they need to have a plan to replace oil with something else. Setting targets and goals to change the existing infrastructure to alternative energies is a good start. There are alternatives such as electric cars, hydrogen, natural gas. The big problem is fuelling stations. Since oil companies have most to loose, they may want to look at how they could provide these services. Auto manufacturers need prodding to get them to change. The bottom line is that we can do this if we want. There may be a time when we will have to do it.

  22. September 4th, 2011 at 09:51 | #22

    Just tell the EPA to make it easier to convert to CNG cars and we will see a HUGE drop in oil prices. Bi-fuel is the way to go, especially for a commuter. I learned about it on http://www.skycng.com. They dont sell anything. Just information that’s reliable.

  23. Noel Douglas
    September 6th, 2011 at 10:04 | #23

    Curently I am a great believer in Mercedes Benz Bluetec Diesel, as
    I am on my second Bluetec “E” class sedan. This vehical uses Ultra Low Sulphur diesel fuel and weighs 3990 lbs empty- 4990 lbs gross weight. If the Air conditioner is off and on a trip, it usually gets around 34 to 36 miles per US gallon, with close to 500 lbs torque. With the engine warm and clearing the computer in overdrive on a trip, I personally have gotten 42.5 miles per gallon at 50 mph at its best. This vehical is designed with a 7 speed transmission and is available with 2 catylitic converters with the “Add Blue” liquid sprayed into the last converter. Apparently this is the cleanest burning engine available to-day which removes 99.9% of Nitrous Oxide from the environment.I believe Mercedes will test a combination of (LNG-LPG) along with ULS diesel fuel when it becomes available at fuel stations in the future.

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