Progressive Engineer: Editorial - Gas-to-Liquid Fuels

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Gas-to-Liquid Fuels Can Give Us Energy Independence

By Michael Moorehead

For decades, western economies have supported Middle Eastern states that essentially have one product to offer in trade -- oil. Our dependence on Middle Eastern oil is so complete that U.S. foreign policy and our national security are held hostage by the knowledge that if the region becomes unstable to the degree that oil no longer flows, western economies collapse, energy prices skyrocket, and the standard of living of the industrial world plummets. No other common energy source exists in enough quantity or form to replace oil.

In our deal with the devil to ensure stability in that region, we support governments whose state-sponsored press is very hostile to the West. A recent Gallup poll suggests many people in that area harbor deep anti-western beliefs. Vast sums flow into this region in exchange for oil. This money is then made available for causes these governments find important. Governments like Iran, Kuwait, and Saudi Arabia have great wealth and, because of our dependence, political power. Is this healthy? Is there a practical alternative?

I offer a solution that would allow us to pay a slightly lower price for petroleum than we do today, at the same time creating a two-to-five-year economic boom for most of the world. Why hasn't it been done? Put simply, it would require the U.S. government to implement the largest single construction project the world has yet seen. But with all its benefits, and at a lower petroleum price than today's, can we afford not to?

The U.S. currently imports 12 million barrels of petroleum a day of our 20 million barrel consumption. This imported oil, equating to roughly $110 billion a year at $25 a barrel, could be replaced entirely by building gas-to-liquid (GTL) fuels plants. This technology was used by the Germans during World War II to produce gasoline and other fuels from coal when they were cut off from oil supplies. In short, giant plants use chemical catalysts to convert natural gas into a synthetic gas, which is further turned into refined products such as gasoline and diesel fuel. Considerable advancements have been made in the cost and technology of these facilities over the last 60 years.

The economics of the plants are dominated by the initial construction costs, which would be just over $300 billion for 14-million-barrel-per-day facilities. Over a 20-year period, the revenues from the fuels would amount to over $2 trillion.

The major oil companies have teams working to be the first company to use GTL commercially. Exxon and Shell have each spent more than $500 million in the effort. Several are currently on the economic threshold, working to reduce costs and risks before making multi-billion-dollar investments. They are just years away, even without government support. Their entry, however, will not be large or fast enough to break OPEC or give us petroleum independence. Our ten largest oil companies combined could not finance $300 billion in new projects in just two to three years. Only the U.S. government can do this.

If these plants were financed directly by the U.S. government, the zero-subsidy prices of petroleum products would be lower than today's prices. In other words, we Americans could pay the same price for our gasoline using our own GTL plants as we do now buying it from OPEC and others. At the same time, we could save our military the cost and burden of securing our oil supplies and no longer be hostage to Gulf Arab political turns.

What would it take to do this? We need to procure several very large so-called stranded gas fields, immense fields of natural gas that have been discovered but are too far from developed gas markets to have any value. Over one thousand of the largest class of these fields have already been discovered. Our government would have to forge agreements with a few friendly nations to purchase rights to produce this gas and convert it to liquid fuels on location. We would also require the right to protect the fields and plants on their territory with our own armed forces.

The construction of these plants would give the world a shot in the arm economically as the benefits of such activity cascaded throughout the global economy. The foremost benefit of such a plan is the control of our own energy supply. We would no longer rely on imported oil or those countries that supply it. We as Americans, along with allies that joined the plan, would have physical control and sovereignty over the fields our petroleum was produced in as well as the facilities used in refining it into fuels and products. We would no longer have to cater to the Saudis and other major oil producers. It is this effect, the decoupling from the Middle East and oil supply security, that will have profound political and economic benefits. Imagine how many tens of billions of dollars we could save every year in reduced military costs by no longer protecting Middle Eastern and other nations' oil reserves.

The greatest benefits come from reduced military costs and reduced costs from event shocks such as the Arab Oil Embargo of 1973, the war with Iraq, or the oil price shocks of 1980-81. It's estimated that as much as a third of our military exists to secure our oil supplies abroad. Our armed forces would welcome the renewed focus on true homeland security and fewer Middle Eastern entanglements.

When the new fuels started coming to market, they would create a glut of oil production the world has never seen before. The worldwide price of oil would collapse to less than $10 per barrel. The extreme reduction in oil prices around the world would provide an economic boom for all nations except OPEC and other significant producers such as Norway and Mexico as producer prices and consumer fuel bills fall significantly. The wealth, along with the political power of OPEC nations, would vanish. Extremist groups would also lose some of their larger bankrollers.

A further effect of the plan would be a cleaner environment, through several means. First, it would come through the reduced production from the Middle East and other producers of dirty oil and gas flarers and then through the reduced emissions from the cleaner fuels produced by the technology. The U.S. government classifies GTL fuel production as a green initiative, as it reduces the level of emissions considerably.

Moving the project forward takes several initial steps. The government would need to immediately begin negotiations to secure the gas fields, initiate discussions with other nations to join a fuels alliance, prepare foreign policy for the political reshaping, and initiate planning for the construction projects.

Alternatives to a full-scale project would carry most of the same benefits. We could produce half of our current imports and still break OPEC, without becoming self-sufficient. We could also use coal instead of natural gas as a feedstock, which would prove easier politically but would cost more. If Japan or Germany does the project before us, we would not be self-sufficient but would still get the benefits of fallen oil prices from a broken OPEC. We could even choose to subsidize them directly or indirectly through naval support.

Does our political leadership have the courage to undertake such a monumental task? Perhaps September 11 has given them renewed strength and purpose. Given the many benefits of our own fuel supply, at lower prices than today, let's hope so.

Mike Moorehead of Houston, Texas is president of Universal Energy Consulting and retired V.P. of Strategy and Investment for Conoco Global Power, Inc.

This was originally published in Environmental Protection magazine, with permission to reprint it granted by Stevens Publishing Corporation.

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