04-10-09 Every day, conveyor belts haul about 120,000 tons of coal into an industrial complex here two hours east of Johannesburg.
The facility -- resembling a nuclear power plant, with concrete silos looming over nearby potato farms -- superheats the coal to more than 2,000 degrees Fahrenheit. It adds steam and oxygen, cranks up the pressure, and pushes the coal through a series of chemical reactions. Then it spits out something extraordinary: 160,000 barrels of oil a day.

For decades, scientists have known how to convert coal into a liquid that can be refined into gasoline or diesel fuel. But everyone thought the process was too expensive to be practical. The lone exception was South Africa, a one-time pariah state that had huge reserves of coal and, thanks to anti-apartheid sanctions, limited access to foreign oil.
Sasol, a partly state-owned company, built several coal-to-liquids plants, including the ones at Secunda, and became the world's leading purveyor of coal-to-liquids technology. Now,oil prices are above $ 70 a barrel, and Sasol has emerged as the key player at the centre of the world's latest alternative-energy boom.

China is building a coal-to-oil plant costing several billion dollars in Inner Mongolia and may add as many as 27 facilities -- including some with Sasol's help -- over the next several years, according to a recent tally by Credit Suisse.
In the US, the Defence Department is studying coal-to-oil technology as a way to reduce the American military's dependence on Middle Eastern crude oil. And the National Coal Council, an industry association, is pushing for government incentives to help generate some 2.6 mm barrels of liquid fuel a day from coal by 2025. That would satisfy some 10 % of America's expected oil demand that year. The plan would require 475 mm tons of coal a year, which represents more than 40 % of current annual US production. Industry officials believe America's coal reserves are big enough to allow for the extra production.

Coal-to-liquids "is not going to replace oil," says Lean Strauss, a Sasol executive who directs the company's overseas energy business.
"But it's an important substitute. It is one of the solutions to energy security."
In June, two senators from coal-producing states, Barack Obama of Illinois and Jim Bunning of Kentucky, introduced a bill to offer loan guarantees and tax incentives for US coal-to-liquid plants.

Sasol has found a particularly receptive audience in Montana's Democratic governor, Brian Schweitzer, who says he carries a lump of coal and a vial of liquefied coal with him at all times. He is lobbying coal companies and others to build coal-to-liquid plants across his state, which has some of the biggest coal reserves in the US.
Current estimates indicate the world has just 41 years of known oil reserves and 65 years of natural-gas supplies. It has enough coal reserves to last an estimated 155 years, with some of the largest reserves in the two biggest oil-consuming countries, the US and China.

It's far from clear, however, that the world would be better off -- economically or environmentally -- by burning more coal to fuel cars and trucks. One problem is that coal-to-oil projects are extremely expensive. A single plant capable of producing about 80,000 barrels of oil equivalent a day -- less than 0.5 % of America's daily oil diet - would cost an estimated $ 6 bn or more to build.
Energy analysts reckon that some coal-to-liquids projects can offer an acceptable return on investment when oil is priced as low as $ 30 or $ 35 a barrel, though such ventures might require government tax incentives to reduce operating costs. It seems likely that oil prices will stay above that level for a while, but the longer-term outlook is anyone's guess. An earlier flurry of interest in coal-to-oil facilities in the US during the Carter administration in the late 1970s died after oil prices collapsed.

Coal-to-oil projects also pose serious environmental questions. When the South African facility superheats coal and turns it into a gas, one of the main waste products is carbon dioxide, thought to be a significant cause of global warming.
The Natural Resources Defence Council, a US-based environmental advocacy group, estimates that the production and use of gasoline, diesel fuel, jet fuel and other fuels from crude oil release about 27.5 pounds of carbon dioxide per gallon. The production and use of a gallon of liquid fuel originating in coal emit about 49.5 pounds of carbon dioxide, they estimate. Even some boosters of the coal-to-oil plants describe them as carbon-dioxide factories that produce energy on the side.

"Before deciding whether to invest scores -- perhaps hundreds -- of billions of dollars in a new industry like coal-to-liquids, we need a much more serious assessment of whether this is an industry that should proceed at all," said David Hawkins, director of the Climate Centre at the Natural Resources Defence Council, at a recent US Senate hearing.
Coal-to-oil is one of several promising but potentially polluting technologies that are receiving new attention amid high oil prices. Energy companies are trying to unlock natural gas trapped in shale and other difficult rock formations. They're also tapping oil-soaked sands in Canada and so-called heavy oils in politically challenging places such as Venezuela. Environmentalists fear these new sources will outshine conservation as the way to address the world's growing thirst for energy.

In South Africa, environmental groups say Sasol's facilities have emitted huge volumes of carbon dioxide and pollutants, including sulphur dioxide. They say these have caused a host of respiratory problems in nearby communities. Sasol says its emissions of these pollutants are small compared to emissions by other companies' coal-burning electricity plants in the region.
Sasol officials acknowledge their facilities emit greenhouse gases and that building more coal-to-liquids facilities around the world "could have potentially significant implications, in the longrun, for our commitment to reducing carbon intensity," according to a recent company report on its social and environmental programs.

Sasol says it plans to reduce its greenhouse-gas emissions per ton of product by 10 % by 2015. Sasol and many other coal-to-oil proponents say that future coal-to-liquids plants can be built with newer technologies that trap carbon dioxide and store it, sharply reducing their emissions.
To many South Africans, Sasol is a huge success story. The company's daily production now meets about 30 % of South Africa's transport-fuel needs. The country's 50-rand bank note even features a picture of one of Sasol's plants. Sasol's share price has more than tripled over the past three years. Analysts estimate it earned about $ 2 bn in the year ended June 30, about 35 % higher than the year before -- such a sharp rise that South African authorities are contemplating a "windfall tax" on the company.