Michael Richardson: Coal fires up hopes for big energy users

Coal is making a comeback as a key source of energy for generating electricity in the Asia-Pacific region and is becoming a vital transport fuel as well.

As oil prices hover at near-record levels, China and the United States are changing the way they supply energy to their economies and armed forces.

The results are barely visible yet. But the technology they are harnessing promises to ease and eventually reduce their dependence on foreign oil.

In terms of future self-sufficiency, coal is the most attractive source for China and the US, the world's largest energy users. Each has limited and declining reserves of oil and gas, but huge supplies of domestic coal.

India is in a similar position. One of the most promising methods of substituting petrol, diesel, jet fuel and other products derived from oil is by turning coal or natural gas into a similar array of liquid fuels.

The technology has been around for more than half a century but only started to be commercially profitable in the past few years, when oil cost more than US$35 a barrel. It is now more than double that level and widely expected to remain high.

The standard oil-based jet fuel used by the US military is known as JP8. Next month a giant US Air Force B-52 bomber will take off from a base in California with two of its eight engines burning a mix of half JP8 and half an alternative made from natural gas.

If successful, the US military plans to buy increasingly large amounts of gas-based or coal-based fuel, starting with an order for 200 million gallons (757 million litres) in 2008.

This would be only a fraction of the five billion gallons (18 billion litres) of jet fuel the military burns each year, but it could induce the emerging coal liquefaction industry in the US to raise output, refine production methods and improve cost-efficiency.

US civilian airlines, which used nearly 20 billion gallons of jet fuel last year, are watching the experiment closely. They, too, will switch to alternative fuel if it costs no more than oil. Airlines in other coal- and gas-rich countries will follow, providing the basis of an industry with products that can be traded internationally.

Last March, a helicopter turbine engine in the US was successfully powered by jet fuel that was 50 per cent made from coal. The scientist in charge says the mixed-fuel meets or exceeds almost all the requirements of JP8 and its civilian equivalent.

China is believed to be conducting similar experiments but maintains a veil of secrecy over them. However, it appears to be well ahead of the US in establishing a commercially viable coal-to-liquids industry, the products of which will be available to the military and the civilian economy.

This is not a quixotic search. Sasol, the South African energy company, makes 30 per cent of South Africa's transport fuel from coal and says it does so profitably without Government subsidies.

Sasol is one of several leaders in coal liquefaction working with China to build new plants that will be among the most advanced in the world.

China has proven coal reserves of more than 100 billion tonnes, enough to last at least 50 years at the present rate of production and use. The US is even better endowed. It has nearly 247 billion tonnes of coal in the ground, enough for 240 years.

By contrast, China and the US will run out of domestic oil in about 12 years, says the latest annual BP Statistical Review of World Energy published in June.

Around 30 large-scale projects to turn coal into transport fuel are under construction or in the detailed planning stage in China. They have a projected output equivalent to 10 per cent of China's oil demand, now just over 7 million barrels a day. The US, too, is aiming high with coal liquefaction. For both countries, it has become the modern version of alchemy.

* Michael Richardson, a former Asia editor of the International Herald Tribune, is a visiting senior research fellow at the Institute of Southeast Asian Studies in Singapore.