1160
Energy & Fuels 2005, 19, 1160-1164
Comparative Analysis of Costs of Alternative Coal Liquefaction Processes Qingyun Sun* and Jerald J. Fletcher Natural Resource Analysis Center, West Virginia University, P.O. Box 6108, Morgantown, West Virginia 26506
Yuzhuo Zhang and Xiangkun Ren Shenhua Group Corporation, Shenhua Tower, 22 Xibinhelu, Andingmen, Dongcheng District, Beijing 100011, China Received June 11, 2004. Revised Manuscript Received February 1, 2005
As the cost of production is a key determinant of long-term viability, developing methods that reduce the cost of direct coal liquefaction has posed a challenge to scientists and industrial organizations worldwide. This paper summarizes recent developments in technology and processes and explores the overall economic competitiveness of direct coal liquefaction using the China Shenhua Group Corp. (Shenhua) project as a case study. A comparative analysis of the costs and economic competitiveness of the Shenhua approach and a variety of conceptual designs outlined in U.S. studies is presented. The comparison shows that the economic competitiveness of direct coal liquefaction is dependent on production costs that consist primarily of raw material, operation and management, and capital costs. Capital cost is shown to be a primary determinant of the cost of production. The relative competitiveness of the plant and supporting facilities depends heavily on the economic alternatives relevant to a particular plant site. Initial results indicate that the Shenhua direct coal liquefaction plant is relatively competitive given the cost allocation assumptions made. Long-term financial markets as well as safety and environmental factors are all issues that may affect the analysis and ultimate conclusions.
Introduction The program to make fuel oil from direct coal liquefaction (DCL) processes carried out by the U.S. Department of Energy (USDOE) from 1973 to 1999 led to significantly improved technologies and accompanying improvements in the economics of direct coal liquefaction.2 Although the technologies developed have not been implemented commercially in the United States, this research program provides much of the research base that the People’s Republic of China Shenhua Group Corp. (Shenhua) is using to develop the first commercial system to transfer coal to oil using direct liquefaction processes. While the Shenhua decision was influenced by both the continuing rise in the world price of oil and a desire for increased national energy security, the improvements brought about by U.S. investments in technology were key factors in the decision to proceed. The long development process of direct liquefaction technologies without achieving commercialization leads * To whom correspondence should be addressed. Phone (304) 2934832 ext. 4465. Fax: (304) 293-3752. E-mail:
[email protected]. (1) Anastasi, J. L. SASOL: South Africa’s Oil from Coal Storys Background for Environmental Assessment, EPA-68-02-2635; EPA600/8-80-002; Environmental Protection Agency [EPAORD], Jan 1980, 41p. (2) Burke, F. P.; Brandes, S. D.; McCoy, D. C.; Winschel, R. A.; Gray, D.; Tomlinson, G. Summary Report of the DOE Direct Liquefaction Process Development Campaign of the Late Twenty Century: Topical Report; DOE Contract DE-AC22-94PC93054, CONSOL Energy Inc.: South Park, PA, 2001.
investors, public or private, to question the viability of direct liquefaction processes. This paper seeks to address these concerns by comparing and analyzing Shenhua data and currently available information on alternative coal liquefaction processes. Information is drawn from both publicly available and internal resources that summarize information from the early 1980s to the present on a number of approaches (see Table 1). While preliminary, the results of the analysis to date indicate that the Shenhua direct coal liquefaction plant provides a relatively competitive alternative to traditional sources of fuels given the cost allocation assumptions made. Economic Feasibility of Shenhua Liquefaction Process. The economic competitiveness of coal liquefaction processes has been the primary obstacle to commercial development. The production costs for indirect liquefaction are lower and known with a greater degree of certainty. Initial U.S. studies in the early 1980s estimated that the equivalent oil price for products obtained from direct coal liquefaction would exceed $27 per barrel and may be as much as $45.1 While development and design innovations during the last two decades have increased the yields of high-quality liquid fuels, the production cost from direct processes remains a primary concern. Using technology developed in the United States, Shenhua is developing a direct coal liquefaction process that will result in significantly lower total production
10.1021/ef049859i CCC: $30.25 © 2005 American Chemical Society Published on Web 03/04/2005
Costs of Alternative Coal Liquefaction Processes
Energy & Fuels, Vol. 19, No. 3, 2005 1161
Table 1. Summary of Coal Liquefaction Research Programs and Feasibility Studies project/process H-Coala ITSLb CMSLc CMSL(NG)c SH-Id SH-IIe
sponsors
developed by
initial
update
DOE, Ashland DOE, Bechtel DOE, HTI DOE, HTI Shenhua Shenhua
Hydrocarbon Research Inc. Lummus Co.; City Service Co. Hydrocarbon Technologies Inc. Hydrocarbon Technologies Inc. Shenhua, Axens NA, HTI Shenhua Group Corporation
1981 1991 1997 1997 2002 2002
1999 1999 1999 1999 2003 2003
a HRI single-step direct catalytic liquefaction, Catlettsburgh, KY. b Integrated Two-Stage Liquefaction developed by Lummus, New Brunswick, NJ. c Catalytic Multi-Stage Liquefaction by HTI, Lawrenceville, NJ (NG indicates use of natural gas for hydrogen). d Initial production train of the first phase of the Shenhua Coal Liquefaction Project, Inner Mongolia, China. e First phase (complete) of Shenhua Coal Liquefaction Project, Inner Mongolia, China.
Figure 1. SH-I Direct Coal Liquefaction Process. Table 2. Major Products of SH-I product
tones/year
diesel naphtha LPG liquid ammonia total
591 900 174 500 70 500 8300 845 300
cost per barrel of oil equivalent. The technology of the SH-I plant (Figure 1) is based on the U.S. HTI process modified with technologies developed in Japan and Germany and additional Shenhua innovations. The innovation of the process and catalysis results in a low production cost of liquid fuels, less than $22 per barrels lower than previous alternatives and current crude oil price. This $850 million (United States) initial investment for the first production train is expected to produce 830 000 tons of oil products per year by 2007s20 000 barrels per day of ultraclean, low-sulfur, diesel fuel and gasoline (Table 2)6 The SH-I plant is under construction that calls for a daily input of 7000 tons of Shenhua’s subbituminous coal. (3) DOE. Coal Liquefaction-A Research & Development Needs Assessment-Final Report, COLIRN Assessment Panel, 1989; Vols. 1 and 2. (4) EIA. 1985-2000sEIA, Petroleum Marketing Annual, annual reports, 2002. ‚ 2001sEIA, Petroleum Marketing Monthly, Mar 2002; http://www.eia.doe.gov/oil_gas/petroleum/info_glance/petroleum.html (5) Rogers, K. A.; Wilk, A. S.; McBeath, B. C.; Hill, R. F. Comparison of coal liquefaction processes; The Engineering Societies Commission on Energy, Inc.: Washington, D.C., 1978. (6) Wang W.; Chen, X. Economic Analysis and Investment Estimation of Shenhua Direct Coal Liquefaction Project; Sinopec Engineering, Inc.: Beijing, China, 2002.
As part of the development process, Shenhua has built a pilot plant with a six ton per day capacity in Shanghai based on processes proposed for the SH-I commercial plant. The pilot plant will be used to study, fine-tune, and, potentially, improve the DCL technology for commercial development. The startup of the pilot plant was initiated in Nov 2004, and the plant successfully produced liquid fuels in Jan 2005. The operational data from the pilot plant will be directly applied to modify and guide initial operation of the larger commercial plant. Cost Components of Coal Liquefaction. Like other industries, the costs of a coal liquefaction plant can be affected by many factors including technical processes, capacity, location, investment, operation, and management. Compared to the four U.S. concept designs (updated in 1999) and the initial Shenhua design, the first phase of the Shenhua project (SH-II), when complete, is projected to have the lowest selling price equivalent to crude oil and per unit investment cost among the alternatives considered (see Table 3). Consideration of individual cost components will help to understand the overall cost issues and approaches for the development of a cost control plan. For comparison, the costs of each project detailed in Table 3 were aggregated into four primary components: coal cost, natural gas cost, operation and management cost (O&M), and cost of capital (Figure 2). Note that capital cost is the dominant component of total production cost for direct coal liquefaction.
1162
Energy & Fuels, Vol. 19, No. 3, 2005
Sun et al.
Table 3. Breakdown of Cost Estimates by Coal Liquefaction Project process
H-Coal
ITSL
CMSL
CMSL(NG)
SH-I
SH-II
update year hydrogen source yield bbls/day coal feed ton/day coal(Mt):oil (Mt) $/ton AR plant cost capital cost $MM/year coal cost $MM/yr natural gas $MM/yr $/M3 AR O&M $MM/year total cost/year RSP premium eqcrude RSPc per unit investment cost $/(barrel/Day)
1999 coal 50 000 26 370 3.3 20.5 4592 689 178
1999 coal 69 000 25 415 2.3 20.5 4239 636 172
1999 coal 51500 18 090 2.2 20.5 2914 437 122
184 1051 63.70 1 63.70 91 841
138 946 41.55 1.07 38.81 61 439
87 647 38.01 1.2 31.73 56 580
1999 NG 51 500 13 400 1.6 20.5 2714 407 91 71 0.105a 81 651 38.25 1.2 31.90 52 699
2002 NG 19 057 5671 1.9 10.95 731 68.46 19.19 42.46 0.0783 41.92 172 29.12 1.1b 26.47 38 349
2002 coal/NG 57 095 21 463 2.4 10.95 1960 153.85 72.63 40.52 0.0783 154.44 421 23.81 1.1 21.65 34 328
a U.S. industrial use natural gas price in 1999 is $2.96/Mcf; China uses 0.65RMB/M3. b The average liquid yield of crude oil refinery is about 91%. c Required selling price equivalent to crude Oil. Source: DOE/PC 93054-94 (Burke et al., 2001).
Figure 2. Primary cost components of direct coal liquefaction.
1. Cost of Coal and Natural Gas. Coal is the primary raw material for liquefaction and can serve as a hydrogen source and fuels for a liquefaction plant as well. Coal cost usually accounts for 11-19% of total production cost, though the proportion varies by process and location. Coal cost is determined by price, consumption, and quality. According to the U.S. DOE, the U.S. studies are based on the use of bituminous coal with a cost of $20.50/ton. The Shenhua project will use subbituminous coal but with a significantly lower prices $10.95/ton (¥100RMB/Mt). Although SH-II is expected to consume slightly more coal than the U.S. processes, the total coal cost is lower (e.g., SH-II’s coal cost is about $1.20/bbl less than that of the CMSL(NG) process). The cost of hydrogen is an important consideration in the economics of coal direct liquefaction technologies.3 If natural gas is used as the hydrogen source, the price of natural gas determines the cost of the hydrogen input into the production process. While using coal gasification to make hydrogen may be less expensive, it is considerably more complex. The final choice will depend on site, availability, and market factors. For example, the first train of the Shenhua project, SH-I, is designed to use natural gas to make hydrogen; natural gas costs account
for over $7 per barrel of the totalsover twice the cost of the coal input. SH-II will use a combination of natural gas and gasifying liquefaction residuals as hydrogen sources. The natural gas input cost for SH-II will be about $5/bbl less than SH-I and even $2/bbl below CMSL (NG) process (using a natural gas supply price of $0.078/M3 (China) and $0.105/M3 (United States)). Comparing SH-II to CMSL(NG), two processes that use natural gas, the cost of coal and natural gas of SH-II ($6.39/bbl) is $3.14 less than that of CMSL(NG) ($9.53/ bbl). 2. Operation and Management Cost. U.S. studies define the inputs included in operation and management cost (O&M) differently than the Shenhua study, so comparison requires some redefinition. Following the economic studies available from the U.S. DOE, the cost of O&M includes raw materials (excluding coal and natural gas), fuel, power, labor, manufacture, repair, sales, and management costs (excluding depreciation). Technical and process improvements have led to significant reductions in O&M cost since the development of the H-Coal process. The O&M costs of SH-I and SHII are higher than the U.S. designs except for the earlier H-Coal process (Figure 1), which may be caused by
Costs of Alternative Coal Liquefaction Processes
Energy & Fuels, Vol. 19, No. 3, 2005 1163
Figure 3. Capital and production cost vs per unit investment cost for six processes. Table 4. Components of Capital Cost of Coal Liquefaction Alternatives process
plant cost ($MM equity %)
H-Coal ITSL CMSL CMSL(NG) SH-I SH-II
4592 4329 2714 2914 731 1960
years 25% 25% 25% 25% 35.29% 35.29%
16 16 16 16 15 15
depreciation salvage $/bbl 0% 0% 0% 0% 5% 5%
many factors, such as cost of chemicals, thermal efficiency, and management. As the SH-II that gasifies coal and residue is considerably complex, it has higher O&M cost. The O&M costs of SH-I and SH-II are higher than CMSL processes (about $3/bbl), which will give Shenhua the potential to lower O&M costs through enhancing management and improving efficiency. 3. Cost of Capital. The cost of capital is the single largest component of production cost for direct coal liquefaction. A 1978 review of the economics of seven principal coal liquefaction processes indicated that capital investment in the plant is the largest contributor to the cost index.5 Although improvements in the technology and liquefaction processes have reduced the costs of capital for coal liquefaction significantly, they still account for over 50% of the total production cost of direct coal liquefaction. Comparing the Shenhua processes with the U.S. studies, the cost of capital and production costs are found to be positively related to per unit investment costs ($/bbl/d) (Figure 3). Thus, lowering plant cost is the key for reducing the capital and production cost of coal liquefaction. Understanding the composition of capital cost helps in understanding the cost comparisons. For instance, both CMSL(NG) and SH-II processes have close capacities and use natural gas as a hydrogen source, the capital cost ($8.69/bbl) of the latter is less than onehalf of the former ($23.95/bbl). The reason is that the United States and PRC use different assumptions and calculations for depreciation, finance, taxes, etc. (Table 4). According to the U.S. and Shenhua data, depreciation and loan interest account for 63-90% of capital cost. Thus, management options to reduce depreciation and attention to financing are key determinants in the overall capital cost of coal liquefaction projects.
17.39 11.88 9.98 10.72 7.56 6.71
interest rate $/bbl 8% 8% 8% 8% 6.12% 6.12%
10.8 7 7.53 6.32 6.79 2.96 1.17
property tax rate $/bbl 1% 1% 1% 1% 0% 0%
2.78 1.90 1.60 1.71 0 0
other cost $/bbl
capital cost $/bbl
10.71 6.62 7.81 4.73 1.07 0.82
41.76 27.93 25.71 23.95 11.59 8.69
The depreciation rate for a coal liquefaction plant is determined by two factors: plant cost and depreciation years. Normally the lifetime of manufacturing facilities does not change significantly with location and time. Although the Shenhua cost assumptions are based on a 15-year depreciation period, 1 year less than the U.S. assumptions of 16 years, the Shenhua assumption of 5% salvage values approximately offsets this difference. Therefore, the differences in depreciation period between the U.S. and Shenhua processes have little impact on the depreciation costs that are dependent on per unit investment cost of a plant. Since SH-II has the lowest per unit investment cost, it also has the lowest depreciation cost, $3-11/bbl less than that reported in the U.S. studies. Loan interest, which accounts for the largest proportion of capital cost for direct coal liquefaction plants, is determined by the net equity position and the applicable interest rate. Because the Shenhua project has a higher equity position (35.29%) than assumed by the U.S. studies (25%), the loan and associated interest costs are smaller (Figure 4). Additionally, the average loan interest rate of the Shenhua project is expected to be 6.12% (6.36% in construction period, 6.21% later years, and 5.8% for U.S. dollars), which is lower than the interest rate (8%) used in the U.S. studies. Thus, both the smaller loan and lower interest rate combine to give the Shenhua project lower interest costs, e.g., the loan interest of SH-II is $5.15/bbl less than that of CMSL. In addition to loan and depreciation, other factors affect the costs of capital. For instance, the U.S. studies assume a property tax cost of 1% of the capital stock and a cost for insurance, while there are no equivalent costs in the Shenhua calculations (about a $0.5/bbl).
1164
Energy & Fuels, Vol. 19, No. 3, 2005
Figure 4. Breakdown of capital cost by equity and loan by coal liquefaction project
4. Comparison of the Costs of SH-II and CMSL(NG). The CMSL(NG) process was finalized in 1997 by HTI, while SH-II reflects technological improvements to date. As both CMSL(NG) and SH-II use natural gas for a hydrogen source and their processes, capacity, and operations are similar, comparison of the cost components reflects the differences in each cost category. The production cost of SH-II is $14.47/bbl less than CMSL(NG), where the difference in depreciation and loan interest accounts for $9.63/bbl, about two-thirds of the total, which leads to SH-II being more competitive. Conclusions Progress in technology and process development has greatly improved the economics of direct coal liquefaction by increasing liquefaction oil yields and reducing per unit costs. The most recent developments included in the Shenhua process employ reliable processes and utilize the newest technology and innovative facility design to achieve a relatively competitive fuel production facility given the cost allocation assumptions made. The cost comparisons presented concentrate on the four primary components of the production cost of direct coal liquefaction: coal, natural gas, O&M, and cost of capital. (1) Coal and natural gas costs are affected by their consumption, supply price, and quality. Gasifying coal or liquefaction waste residuals to make hydrogen can reduce overall production cost if the additional investment results in an effective reduction in the cost of natural gas. (2) O&M cost is determined by technology development and plant location. The comparison results show that the O&M percentage (12-17%) in total costs among the U.S. designs is less than that of Shenhua processes (25-27%), which indicates that the Shenhua project has potential to further reduce its cost
Sun et al.
by improving efficiency, optimizing operation, and enhancing management. (3) The cost of capital accounts for 65-80% of total production cost for the U.S. processes and over 40% for Shenhua processes. Therefore, capital cost is the key to the competitiveness of direct coal liquefaction processes. The cost of capital is related to per unit investment cost of coal liquefaction, which is dependent on technology and project location (country). The cost of capital depends primarily on depreciation and loan interest that vary with scale, depreciation policy, financial conditions, and construction site (country). As SH-II has the lowest unit investment cost ($34328/(bbl/day)), lowest depreciation rate ($6.71/bbl), and lowest interest cost ($1.17/ bbl), it has the lowest overall capital cost ($8.69/bbl), $15-32 below that estimated in the U.S. studies. It is significant to note that none of the studies included an opportunity cost of the equity in the calculation of production cost. This will be investigated further in future analyses, though it does not appear to significantly impact the relative comparison. Overall, the Shenhua project demonstrates the technical progress and economic improvement of the coal liquefaction industry. The PRC low labor, coal, operation and manufacture, and investment costs have significantly reduced the overall production costs of coal liquefaction, down to an estimated equivalent of $21.65 per barrel of crude oil. The Shenhua direct coal liquefaction project improves the competitiveness of direct liquefaction with crude oil in China. It provides an example of a clean fuel industry for those countries short in oil but rich in coal reserves. However, other factors may change the economics of a direct coal liquefaction project and deserve further attention. (1) Environmental, safety, and health considerations may present problems to local areas; pollution may cause damage to people, to the environment, and to the general ecology. Stricter environmental protection regulations may significantly raise the capital and operation costs of a plant. (2) Secondary raw materials such as catalysts and water may significantly affect liquefaction costs. (3) Operation at or near full capacity is a basic requirement to keep oil yields high and costs low, so an inability to reach and maintain full capacity will significantly increase costs. (4) Other factors such as policy and tax system may significantly affect costs and prices of final refinery products significantly. EF049859I
