Credit: Business In Vancouver
A refinery proposed for Chetwynd would use B.C.’s abundant natural gas, water and electricity to make low-carbon gasoline – but do the economics work?
In this fourth instalment in its ongoing climate change series, BIV looks at one of the emerging technologies that could harness B.C.’s rich natural gas reserves to create lower-carbon transportation fuel. Previous instalments in the series include “Climate change looms as major threat to key B.C. industries” (issue 1320; February 17–23); “Shrinking timber supply sends B.C. companies on U.S. mill buying spree” (issue 1321; February 24–March 2) and “Local ski hill business hit with warm weather woes” (issue 1322; March 3–9).
Imagine a type of gasoline that is made without oil, produces fewer carbon emissions than a conventional oil refinery and even produces some water as a byproduct.
Sounds too good to be true, right?
In fact, separating the hydrogen and oxygen atoms from a water molecule and then using it – along with natural gas – to make a low-carbon synthetic gasoline is technologically feasible, given a sufficient amount of power.
As with all alternatives to fossil fuels, the biggest hurdle is cost, not technology.
Juergen Puetter, founder of Aeolis Wind Power Corp. and Blue Fuel Energy, thinks the time is right to build a “renewable” gasoline plant and that Chetwynd – on the edge of B.C.’s prolific Montney gas fields – is the ideal spot for it.
For one thing, B.C. has abundant, cheap natural gas – one of the inputs. More importantly, B.C. has a low-carbon fuel standard and almost all of its power comes from renewables: wind and hydro.
Because electricity and water would produce a small amount (about 3%) of the fuel’s basic building blocks (hydrogen and oxygen), it would qualify for the low-carbon fuel standards that B.C. has adopted and that other jurisdictions, like Oregon, are implementing.
The first phase of the Sundance Fuels refinery project would produce low-carbon gasoline. A second phase would be a methanol plant.
The proposal is getting support from the West Moberly First Nations and mayors of Chetwynd and Dawson Creek.
Rich Coleman, B.C.’s minister of natural gas development, also seems to think the project could be a good complement to the province’s nascent liquefied natural gas (LNG) industry.
“Generally, fuel production associated with these types of projects can help B.C. to meet low-carbon standards by supplying a cleaner alternative than gasoline refined from oil,” he said. “This type of value-added production could complement our emerging LNG industry.”
The $4 billion question is: will investors buy in?
Puetter needs to raise $50 million in private placements to bring the project to a final investment decision. He estimates the two-phase project will cost $3 billion to $4 billion.
But Arno de Klerk, professor of chemical and materials engineering at the University of Alberta, thinks that estimate is low. He ballparks the kind of refinery Puetter is proposing at $10 billion.
Although it would use natural gas as a component, the Sundance Fuels refinery is not to be confused with gas-to-liquids (GTL) refining, in which gasoline is made from hydrocarbons other than oil – natural gas, coal or biogas.
The key difference between the Sundance Fuels project and conventional gas-to-liquids refining is the production of hydrogen and oxygen from water to make methanol.
When dehydrated, methanol forms water and dimethyl ether, which can be used as a clean-burning (low-sulphur) fuel. The water produced can be recycled back into the front end of the refining process.
“We are the first and only project, as far as I know, that will bridge renewables and fossil fuel,” Puetter said.
While the refining process is different from conventional gas-to-liquids, it’s vulnerable to the same market dynamics that have relegated new GTL plants to the back burner.
Royal Dutch Shell (NYSE:RDS-A) – which built the world’s largest GTL plant in Qatar – has shelved plans for a new one in the U.S., and the International Energy Agency predicts no new gas-to-liquids plants will be built in the U.S. between now and 2040.
The problem is the price spread between oil and natural gas. As recently as November, the economics were much better. Puetter admits that if oil stays at US$50 per barrel, the project wouldn’t be viable.
“If we were right now in the market, yes it would [be uneconomic],” he said. “However, it’s our firm belief that, by the time we go into production, oil prices will have to be north of US$80. However, we can live with US$60 per barrel.”
De Klerk agrees that B.C. has many of the key fundamentals to make such a refinery work, and he said Blue Fuel Energy’s technology approach is sound, although he thinks the process the company is using could be simplified.
But technology has never been the biggest hurdle to creating low-carbon fuel from the hydrogen extracted from water. Any high school student can pull pure hydrogen and oxygen from water with two test tubes, baking soda, a couple of carbon rods from a D-cell battery and an electrical charge.
It’s the huge amount of electricity needed in the catalytic process that makes it hard to compete, especially with an abundance of shale oil driving global prices down.
The Sundance Fuels refinery would require 150 megawatts of power – more than some of the largest mines in B.C. consume.
“There’s nothing wrong with the synthetic fuels business, but it’s expensive,” de Klerk said. “There’s nothing wrong with using electricity to do water splitting, but it’s expensive.
“Based on my past experience, if I just look at the blocks that’s drawn here, I cannot see how they can make this work and make money, unless the taxpayer subsidizes it.”
Given that 24% of all carbon emissions in Canada come from transportation, Vicky Sharpe, board director and senior fellow at the International Institute for Sustainable Development, thinks innovations like renewable gasoline should be subsidized.
Ten years ago, similar arguments about cost were used against solar power, which now competes with coal-fired power. But it took government subsidies to get there, and if governments are serious about tackling climate change, subsidizing technology that reduces carbon dioxide from cars is a good approach.
“To me the issue is parallel to solar,” said Sharpe. “You haven’t got people clamouring to have low-carbon energy, necessarily, but it is building.”
But she thinks subsidies are needed to accelerate high-capital-expenditure clean technologies because in a low energy price jurisdiction like Canada, private investment will take too long to get in the game.
“If we want to see change faster, then I think we need to incentivize it.”
Sharpe said governments could encourage more institutional investment in renewable fuel technology through initiatives like Ontario’s green government bonds.
“I could see the province in B.C. raising capital from the retail market, as well as institutional investors, and direct money toward these kinds of projects.”