Energy Investing: The Gasification of Coal - dummies

Energy Investing: The Gasification of Coal

By Nick Hodge, Jeff Siegel, Christian DeHaemer, Keith Kohl

Coal investors are interested in cleaner coal, but you should know that, in addition to burying or scrubbing coal emissions after the fuel is burned, there are other ways to make coal cleaner. By converting coal in a gaseous or liquid fuel, it can be used for much more than just boiling water to make steam.

Several publicly traded companies break apart and recombine coal molecules into their varying components. This process, called gasification, separates and removes the various chemicals. It’s the most environmentally friendly use of coal for energy needs because it removes up to 99 percent of all pollutants. It also improves power plant efficiency from 40 to 70 percent.

Gasification has been around for hundreds of years. Jan Baptista van Helmont, a Flemish scientist, discovered a vapor that escaped from wood and coal when heated. In 1609, he coined the term gas. Helmont’s discovery was commercialized in Germany in 1825 when the town of Hannover made gas by blowing oxygen and steam through coal while applying heat.

After coal is turned into gas, it can be further synthesized by using the Fischer–Tropsch technique. It’s a complex process that’s important for investors because it refines the gas from coal into synthetic oil products. Unlike with other clean coal processes, this one offers pure play investment opportunities.

The Fischer–Tropsch process was used by Nazis to provide fuel for their war machine because oil was hard to come by. It was further improved during the apartheid period in South Africa. Over time, the process of turning coal into liquids was advanced. Today, the market leader in coal-to-liquid technology is Sasol (NYSE: SSL) of South Africa.

Due to the economic embargo that resulted from apartheid, historically South Africa lacked access to oil imports and was forced to turn to coal-to-liquid technology. The fuel is used in automobiles and as jet fuel. In fact, about 30 percent of South Africa’s gas and diesel requirements come from coal.

Coal-to-liquid works in countries that have a large supply of coal but have to import expensive oil. The upside is that liquid fuels from coal work just like regular gasoline. They’re distributed from your standard gas pump and fuel your standard gas burning car or truck.

Sasol (NYSE:SSL) is the leader in this field and, like many South African blue chips, it has gone global. The company is currently building the first major refinery in the United States, near Lake Charles in Louisiana. It will be situated to take advantage of the end of the natural gas pipeline and the transportation path of the Mississippi River.

Sasol’s new plant will produce 96,000 barrels a day of diesel fuel and is estimated to cost $10 billion.

Another company you may want to check out in the space is Rentech (NYSE: RTK), which owns the patented Rentech Process. Based on Fischer–Tropsch chemistry, Rentech converts syngas from coal or other biomass into usable hydrocarbons, including jet fuel, diesel, chemicals, and waxes. The stock doubled in 2012 as the market began absorbing new ways for the world to cleanly use its vast coal reserves.