Monday, October 10, 2005

Gas to Liquid technology is moving forward

People's Daily Online -- Experts predict broad use of gas-to-liquids technology in energy industry

Gas to Liquid technology is moving forward around the globe. Many a company has more than one project in the works. It was in the early 1900's when Fischer, from Germany, and Topsch, from Checkoslovokia, invented the method of using an iron ore catalyst, steam and oxygen to convert coal to gas. The best part is that polutants in their gaseous state are easy to remove.

The current price of oil makes coal conversion worthwhile. In 2009, laws in Japan and other nations require cleaner fuel. The big names are stepping up to the plate. ConocoPhillips, ExxonMobil, Sasol, and Shell are all committed to building GTL plants. Three years ago, Headwaters(HDWR) inked a deal to build a plant in China. I believe it will start production this year.

In Wyoming, the Powder River Basin Project will produce 10,000 barrels per day. None of my family members currently have plans to invest in these companies. My Great Grandfather believed that "the time to get into the chicken business is when everyone else is getting out". The situation now is that everybody is getting into the oil business. Profits will go up for a while but eventually new capacity will lower profit margins. One should always remember that the best time to buy a cyclical industry is when profits are low and the best time to sell is when profits are high. The stock prices do not go up when profits are high. Investors never seem to understand why their stock price is not going up when the earnings are huge. Again, the fact is that high profits attract new investment, new investment increases supply and increases in supply reduce profit margins.

In the years ahead, coal will be used for transportation in one of two ways. The coal will be gasified and then converted to liquid (most likely synthetic diesel) or it will be used to produce electricity which will be used to charge batteries in advanced hybrid vehicles.

TOO MUCH COAL! In the spring of 2002, China was shutting down excess coal production. China is both the largest producer and the largest user of coal. It is amazing that only three years ago, the country had too much coal. This was when the contract was let with a division of Headwaters(HDWR) to build China's first GTL plants plant.

Folks, we have been through periods of tight fuel supplies before and we will go through them again. However, unlike the alarmist, I am confident that the world is not going to run out of energy. Not in 100 years, not in a million years; provided the sun still shines.

Our good planet captures just a small portion of the energy from the sun. Even so, the planet captures many times the amount of energy than we use. Indeed the majority is disapated on the "cold" side, as the world turns.

It is difficult to predict when supplies will start pushing down prices. Right now there is a huge gap between the price of crude and the price of gas. We should all say thanks to European refineries for their help in keeping the spread as narrow as it is. Indeed, we should even thank the oil majors who have decided to take a profit hit to hold down the market price.

Demand for gas is off several percentage points. In a few months, US capacity will be back at full strength. Prices are set on the margin. New supplies will eventually push the marginal price down.See other news on this issue:
Coal to Oil
Conversion Plan Picking up Steam
Conversion Pursued by Montana
Black Gold