United States
Environmental Protection
Agency
Office of
Research and Development
Washington, D.C. 20460
EPA-600/7-76-004a
June 1976
IMPACTS OF SYNTHETIC
LIQUID FUEL DEVELOPMENT-
Automotive Market
Volume I. Summary
Interagency
Energy-Environment
Research and Development
Program Report
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RESEARCH REPORTING SERIES
Research reports of the Office of Research and Development, U.S.
Environmental Protection Agency, have been grouped into seven series.
These seven broad categories were established to facilitate further
development and application of environmental technology. Elimination
of traditional grouping was consciously planned to foster technology
transfer and a maximum interface in related fields. The seven series
are:
1. Environmental Health Effects Research
2. Environmental Protection Technology
3. Ecological Research
4. Environmental Monitoring
5. Socioeconomic Environmental Studies
6. Scientific and Technical Assessment Reports (STAR)
7. Interagency Energy-Environment Research and Development
This report has been assigned to the INTERAGENCY ENERGY-ENVIRONMENT
RESEARCH AND DEVELOPMENT series. Reports in this series result from
the effort funded under the 17-agency Federal Energy/Environment
Research and Development Program. These studies relate to EPA's
mission to protect the public health and welfare from adverse effects
of pollutants associated with energy systems. The goal of the Program
is to assure the rapid development of domestic energy supplies in an
environmentally1—compatible manner by providing the necessary
environmental data and control technology. Investigations include
analyses of the transport of energy-related pollutants and their health
and ecological effects; assessments of, and development of, control
technologies for energy systems; and integrated assessments of a wide
range of energy-related environmental issues.
This document is available to the public through the National Technical
Information Service, Springfield, Virginia 22161.
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Final Report EPA-600/7-76-004A
May 1976
IMPACTS OF SYNTHETIC LIQUID FUEL DEVELOPMENT
Automotive Market
Volume I Summary
by
Edward M. Dickson, Robert V. Steele, Evan E. Hughes, Barry L. Walton,
R. Allen Zink, Peter D. Miller, John W. Ryan, Patricia B. Simmon,
Buford Holt, Ronald K. White, Ernest C. Harvey, Ronald Cooper,
David F. Phillips (Consultant), Ward C. Stoneman (Consultant)
Stanford Research Institute
Menlo Park, California 94025
Contract No. 68-03-2016
SRI Project EGU-3505
Project Officer:
Gary J. Foley
Office of Energy, Minerals, and Industry
Office of Research and Development
U.S. Environmental Protection Agency
Washington, D.C. 20460
Prepared for:
Office of Research and Development
U.S. Environmental Protection Agency
Washington, D.C. 20460
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DISCLAIMER
This report has been reviewed by the Office of Energy, Minerals,
and Industry, U.S. Environmental Protection Agency, and approved for
publication. Approval does not signify that the contents necessarily
reflect the views and policies of the U.S. Environmental Protection
Agency, nor does mention of trade names or commercial products constitute
endorsement or recommendation for use.
11
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FOREWORD
*
This document reports the results of a technology assessment of selected
liquid fuels derived from coal and oil shale. These fuels are considered to be
the most likely alternatives to substitute for petroleum-derived fuels or to
augment them in the transportation sector in the 1980-2000 time frame. Critical
decisions about the sources of fuel supply and the nature of demand must be made
in that period due to the steady depletion of the domestic petroleum supply and
the influence of a noncompetitive world market.
The means to overcome the limited supply of natural petroleum may take
several forms:
• Conservation of scarce petroleum energy by stretching out limited
domestic reserves.
• Removal of the national transportation end-use sector from total depend-
ence on petroleum by shifting to other energy forms, particularly those
derived from coal, an abundant domestic natural resource.
• Conservation of energy through incremental savings at every step from
resource extraction to end-use (a difficult problem since many advanced
technologies consume more energy than present processes).
• Acceptance of a lesser level of fuel supply if the social costs of an
entirely new supply industry(s) exceed end-use benefits.
The research reported here treats only a part of the total picture, but it
nevertheless represents a significant step in the portrayal of the large new
industry to meet future fuel demands.
Coal is not being used to manufacture liquid fuels, and thus an industry
of the size examined herein does not exist today. Yet, without reducing the
level of anticipated future energy demands, new supply industries such as those
discribed in this study may be necessary. The results of this analysis clearly
indicate that a significant productive capacity may be difficult to achieve from
a very large and rapidly growing new industry. Moreover, while petroleum energy
may be "saved" by substitution, the synthetic liquids system (from resource to
A study approach that examines many dimensions of anticipated impacts from a
given technology—environmental, economic, social, and energy flows.
111
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end-use) is clearly less energy efficient than petroleum utilization. As a
consequence, policies regarding these fuels should take into account the critical,
constraining impacts examined in this study.
The creation of such an industry may imply private and public sector part-
nerships in planning the industry's growth, the thoughtful siting of conversion
facilities away from coal mines, or designing conversion methods that are pol-
lution-free and low in water consumption. Energy demand conservation and the
world price of petroleum will strongly affect these choices.
The results of this work have been subjected to widespread review through
presentations and papers given at conferences, symposia, and workshops such as:
• "Energy 10," the 10th Intersociety Energy Conversion Engineering Confer-
ence, University of Delaware, August 1975
• "3rd Annual Conference on Energy and the Environment, Oxford, Ohio,
August 1975
• "Future Automotive Fuels Prospects, Performance and Perspectives,"
General Motors Research Labs Symposium, October 1975
• "Workshops on the impacts of alternative fuels development,
University of Montana and Montana State University, December 1975
"Technology Assessment of Energy Alternatives," Rensselaer Polytechnic
Institute, May 1976
"The Future of Alternative Fuels - Impacts and Options," inter-agency
research evaluation seminar, Glen Arbor, Michigan, June 1976
This work was initiated in June 1974, by the Alternative Automotive Power
Systems Division (AAPS) and the Office of Energy, Minerals and Industry of the
U.S. Environmental Protection Agency (EPA). The AAPS Alternative Fuels Program
became a part of the U.S. Energy Research and Development Administration (ERDA)
when it was created in January 1975. Continuations have been funded through the
ERDA Office of Conservation. In the management of this work, substantial coop-
erative effort has been maintained that cuts across traditional organizational
boundaries. F. Jerome Hinkle (AAPS in EPA, ERDA), James C. Johnson (EPA), and
Gary J. Foley (EPA) have shared the role of project manager.
F. Jerome Hinkle
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EXECUTIVE SUMMARY
A. Study Objectives and Method
Domestic supplies of petroleum already fall far short of meeting
U.S. demand for liquid fuels. In 1973, the shortfall was 6 million
3
barrels per day (B/D) (1 million m /D). With plausible growth in de-
mand and decline in domestic oil production, the shortfall may be as
3
large as 18 million B/D (2.9 million m /D) in the year 2000. Of this
3
shortfall, about 6 million B/D (1 million m /D) can be attributed to
the automotive market (cars, trucks, and buses).
It has been widely proposed that synthetic liquid fuels could be
substituted for conventional petroleum. Syncrudes and methanol derived
from coal and oil shale could possibly lessen or avoid future shortfalls.
Several previous studies have examined the technical and economic fea-
sibility of such synthetic liquid fuels. In contrast, the central
objective of this study was to examine the feasibility of these fuels
in a much broader sense—the feasibility when environmental, economic,
social, and institutional consequences are taken into account. These
consequences were to be contrasted briefly with those of an attempt to
reduce or eliminate the shortfall by means of an all-out effort to de-
velop remaining domestic conventional petroleum resources.
The core of the study was the preparation of a Maximum Credible
Implementation Scenario (MCI) for the deployment of a synthetic liquid
fuel industry based on the use of coal and oil shale to produce synthetic
crude oils and methanol. The preparation of the MCI was followed by de-
tailed exploration of the broad consequences if the scenario were to
become a reality.
-------
Far from being an advocated implementation scenario, or even an
expected future, the MCI is intended only to depict the maximum rate
at which a synfuel industry could be implemented under favorable cir-
cumstances. The MCI served, therefore, to identify and highlight those
consequences that would prove most critical to deployment once the
decision was made to have such an industry.
B. The Maximum Credible Implementation (MCI) Scenario
for a Synthetic Liquid Fuels Industry
The MCI rests on building-block descriptions of the technologies
for making syncrudes from coal and oil shale and methanol from coal.
Syncrudes are emphasized rather than synthetic final products such as
gasoline because the corporations most likely to produce and market
synthetic fuels — the oil companies—have strong economic incentives to
make synthetic crudes rather than final products directly.
Production of synthetic crude allows it simply to be added to the
natural crudes still available to refineries, and with relatively minor
*
modifications to the refineries , final products essentially identical
to present fuels result. This approach has the practical advantage of
serving both the needs of oil companies wishing to maintain the useful-
ness of present investments and of insulating the consumer from change.
As a result, syncrudes have received emphasis over methanol in this
study. However, future uses of methanol in stationary energy-consuming
devices could release petroleum for use in the automotive sector.
For reasons of data availability and technological state of the art,
this study has focused on the H-coal process for producing syncrude from
coal, the TOSCO II process for producing syncrude from oil shale, and a
^
As long as the syncrude remains a small portion of the crude accepted
by any given refinery.
VI
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combined process for producing methanol from coal—a Lurgi gasifier
followed by methanol synthesis. For all of these technologies the
required resource inputs (capital, labor, fossil material, water, steel,
and electricity) and the fuel outputs have been specified for the
100,000-B/D (16,000-m3/D) plant size that seems likely to characterize
the industry.
The MCI is summarized in the following figure. Notice that the MCI
alone would not entirely eliminate the 18 million-B/D shortfall expected
in 2000.
10
Q
\
CD
COAL METHANOL
v&SIIS COAL SXNCRUDE
OIL SHALE SYNCRUDE
1975
1980
1985 1990
YEAR
1995
2000
MAXIMUM CREDIBLE IMPLEMENTATION SCENARIO
Vll
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C. Consequences of the MCI
1. Industrial Decision Making
The United States does not have a synthetic liquid fuels in-
dustry in place today because, in the past, such fuels could not be
produced at costs competitive with conventionally produced oil. Even
with the high prices of oil paced by the Organization of Petroleum
Exporting Countries (OPEC) cartel, syncrudes and coal-derived raethanol
are not yet competitive with natural crude oils. Moreover, the rise
in oil prices has made many previously uneconomic conventional petroleum
options worth exploring, and companies are now vigorously pursuing those
that appear economic. Until the risks of such ventures increase to
intolerable levels or the relative cost of producing synthetic fuels
falls, prudent business investment practice will emphasize conventional
petroleum in preference to synthetic liquid fuels. Thus, unless the
market place changes dramatically, or governmental policies provide
sufficient economic offsets or incentives, there will be few or no synthetic
liquid fuels produced—and the MCI will remain only a hypothetical exercise.
2. Capital Availability
The capital investments required by the MCI are large, and
thus there is reason to inquire whether financing a synthetic liquid
fuels industry is in fact possible. Application of a simple model of
the aggregate petroleum industry in the United States indicates that even
if historical rates of return on investment in the oil industry are
maintained, and if the rate of inflation is 5 percent, then a future,
integrated evolutionary natural-plus-synthetic petroleum industry could
not finance the MCI out of its cash flow. There would be a continuing
need for attracting capital to the industry. However, in 1995, new
borrowings would rise to only twice the fraction of national capital
formation presently absorbed by the petroleum industry. Therefore, while
viii
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capital availability may appear to be a major limitation, it probably is
not a fundamental constraint.
3. Resource Depletion
The cumulative amount of coal required by the MCI over the
assumed 20-year lifetimes of the plants is very large. On the basis of
Bureau of Mines estimates of strippable coal reserves, the MCI could be
sustained for about 70 years on strippable coal if no other demands
were placed on that resource. When other demands (such as electric
generation and substitute natural gas production) for this coal are
taken into account, the reserves would last for only about 40 years—
enough for only two generations of synthetic fuel plants. After that,
the more costly, more dangerous to mine, deep reserves would have to be
used.
Net energy ratio estimates have been made for the synthetic
fuels considered here. Such estimates take into account all the energy
resources needed, directly and indirectly, to produce a fuel. The
energy contained in the product fuel is then divided by the quantity
of the energy resources consumed in its production. The higher the
ratio, the more effectively the fossil resource is used. The ratios
shown in the following table indicate that the coal syncrude option is
more conservative of coal resources than the coal-derived methanol option.
Resource depletion under a scenario of rapid growth in consump-
tion such as the MCI occurs far sooner than is commonly appreciated. As
a result, this aspect of the industry is critical to national energy
policy.
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NET ENERGY RATIOS FOR SYNTHETIC LIQUID FUEL PROCESSES
Conversion Resource-tg-Fuels
Step System
Oil shale 2.3 1.6
Coal liquefaction
Wyoming coal 1.5 1.1
Illinois coal 1.8 1.3
Methanol
New Mexico coal 0.66 0,65
Including refining of syncrudes and 1000 miles of pipeline
shipment of syncrude or methanol.
4. Water Availability
Synthetic liquid fuel processes all consume large amounts of
water, Synthetic fuels are also expensive to make and, thus, to achieve
favorable economics, low-cost strip-minable coal must be used as long
as it is available. Most of the available strippable coal is in the
arid West where the location of fuel conversion plants would place
severe stress on available water supplies.
Much of the relevant coal resource in the West is in the upper
Missouri River Basin (specifically, Montana, Wyoming, North Dakota)
where many of the MCI conversion facilities would likely be located.
There would be adequate water physically present in the basin to support
the MCI even in view of other expected future demands. However, this
water resource would almost never be in the same place as the coal re-
source. Therefore, for mine-mouth conversion facilities to be viable,
extensive new water works such as aqueducts and interbasin transfers
would have to be constructed.
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In contrast to the East, where water is abundant and rules
governing its allocation have not been crucial to its equitable use,
water rights in the arid West are complex, uncertain, and often contested.
The rights to the water in the Missouri River Basin that would have to
be transferred, however, are very uncertain, partly because the water
rights of the federal government and Indian nations in the area have not
yet been adequately defined.
For coal, at least, there remains the option of transporting
the coal to water-rich regions for conversion. The transport of coal
by railroad consumes essentially no water while transport via slurry
pipeline can reduce the water requirement to about half that required
for fuel conversion. While there remains considerable uncertainty about
the relative economic desirability of the two modes, the railroads have
been successful so far in blocking several proposed (and competitive)
slurry pipelines.
Oil shale is found primarily in arid northwestern Colorado,
not far from the Colorado River. However, unlike coal, oil shale cannot
be shipped economically for remote conversion. As a result, conversion
must take place near the mine and, consequently, the water must be drawn
from supplies of the upper Colorado River Basin. Other expected future
demands in the year 2000 indicate that implementation of the MCI would
result in a water shortfall in the upper basin because total demand
would exceed Colorado's allocation under the interstate compacts which
allocate the Colorado's annual flow.
However, water earmarked in the inventory for future agriculture
expansion could sustain twice the level of oil-shale syncrude production
shown in the MCI without resort to interbasin transfers.
Because water for irrigation is essential to agriculture in
the arid west, the physical and institutional availability of water for
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the production of synthetic fuels in the dry western states is a highly
charged issue—one that is critical to the future of a synfuels industry
and its ability to augment petroleum supplies.
5. Strip Mine Reclamation
Strippable coals suitable for synfuels are found most abundantly
in the West, Illinois, and Appalachia. In all three regions, reclamation
of stripped mined lands is difficult but it is least difficult in the
Illinois area because of its relatively level terrain, its thick soils
that can be easily revegetated, and its ample moisture. In the West,
arid conditions and thin, poor soils make revegetation difficult even in
the level terrain where most coal is found. In Appalachia, the abundant
moisture works to the detriment of reclamation because strip mining is
done along contours of hillsides and the mined and reclaimed slopes are
easily eroded after mining.
Reclamation of strip-mined lands has become an important
national issue, one that has resulted in strong, but twice vetoed, bills
from Congress. Until reclamation practices are better demonstrated and
until federal and state policy on strip raining and reclamation stabilize,
this issue will remain a critical stumbling block to deployment of the
industry and to the design of generally acceptable environmental pro-
tection measures.
Reclamation following oil shale extraction and conversion is
difficult because the spent shale residue actually occupies more volume
than the raw shale (because of voids) and requires large quantities of
water for compaction and dust control. Spent shale cannot be readily
revegetated. In addition, the leaching and the subsequent runoff of salts
that could pollute ground and surface waters are not easy to control.
Xll
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6. Air Pollution Control
The air pollutant emissions expected from the fuel conversion
plants using best available controls have been compared to emissions
permitted under existing standards for analogous operations. Oil shale
plants will require improvements in control technologies for particulates
and sulfur dioxide to enable single plants to meet plausible (Class II)
ambient air quality standards.
Single coal liquefaction plants would be able to meet emissions
and Class II "non-degradation" ambient air quality standards. However,
application of a pollutant dispersion model to a complex of four plants
under worst-case conditions in Wyoming's Powder River Basin shows that
a multiple-plant complex within an air basin would generally require use
of improved air pollution control technology for particulates.
This conclusion remains tentative, however, because many
candidate states for plant locations have not yet specified the non-deg-
radation standard classes that will apply.
7. Boom Towns
The concentration of numerous fuel conversion plants in a
small area—such as might result from implementation of the MCI with
mine-mouth plants—would lead to rapid and sustained population growth
in what are now essentially rural communities. Under the MCI, population
growth could easily be in excess of 9 percent in Wyoming's Campbell
County and 17 percent in the Colorado oil-shale region. Many planners
consider an annual growth rate of 5 percent to be at the edge of manage-
ability. Consequently, the location of conversion plants in the resource
extraction region would set the stage for the creation of boom towns.
Towns undergoing boom growth tend to lack social and physical amenities
and a sense of community. Moreover, tax revenues collected from the indus
xiii
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trial base, which are necessary for the provision of essential public
services, tend to lag the onset of the demand for such services. These
deficiencies result in a social malaise evidenced by high rates of
divorce, suicide, alcoholism, worker absenteeism, and reduced worker
productivity. Frequently inadequate sanitation facilities and poor access
to medical care combine to impair physical health.
The phenomenon of the boom town also creates value conflicts
between the former residents and the newcomers. These value conflicts
in turn deter community agreement on measures to cope with growth and their
implementation.
Mitigation of boom-town effects could be a critical factor in
the establishment of a synfuel industry primarily because of the effect
of the boom town on the reception afforded the industry by the region
and on the quality and stability of the work force attracted.
8. Summary of Critical Factors
Unless they were to be resolved, the several critical factors
that have emerged in the preceding discussion could severely constrain
deployment of a large synthetic liquid fuel industry. These factors
are:
* Industrial decisions to deploy a synfuels technology
* Resource depletion
* Water availability
* Strip mine reclamation
* Air pollution control
* Boom towns
Since most of these critical factors relate to questions of rates of
growth or the geographical concentration of the industry, they point to
controlled growth or dispersion of the industry as possible avenues of
resolution.
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D. Evaluation of Alternatives
1. Evaluation Criteria
In deliberations of the role of synthetic liquid fuels in
national energy policy, it is natural to ask which, if any, of the fuels
considered here should be favored. From a national perspective, as
opposed to a corporate or consumer outlook, there are several important
considerations in weighing the relative attractiveness of the synfuel
options. Beyond the obvious and strictly economic factor of cost are
questions of the allocation of national resources and the balancing of
adverse and beneficial consequences not necessarily adequately reflected
in the economic cost.
Important criteria include
* Resource intensiveness
- Fossil materials used
- Energy consumed versus energy yield
- Water consumed
- Capital invested
- Labor required
- Land area mined
* Geographic concentration
» Social systems impacted
• Ecosystems impacted
• Difficulty of evolutionary adoption
2. Criteria Applied to Synfuel Options
A comparison, on the basis of these criteria, of the coal
syncrude and methanol alternatives using Western, Illionis, or Appalachian
coal and the oil shale option reveals that no one option is best in
every respect; each one has undesirable consequences. Nevertheless, it
xv
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is apparent that mining and processing of Illinois coal to make syncrude
is the least disruptive coal-based option. However, since Illinois
alone cannot support the MCI, deployment of an industry on the scale
of the MCI clearly means acceptance of some less desirable tradeoffs.
Since coal has other potential uses (especially in electricity
generation and gasification) society may, in effect, forego opportunity
by converting coal to liquid fuel instead of converting oil shale, a
resource with no pther use.
3. Synfuels Options Compared with All-out
Conventional Oil Production
Given that the MCI alone cannot close the gap between domestic
fuel supplies and demand and that it would have large adverse conse-
quences, perspective on the future of automotive fuel can be gained by
considering the alternative of all-out development of remaining domestic
conventional oil resources.
All-out development would require production from now until
the year 2000 of more oil than the United States has produced cumulatively
to date and from resources significantly more difficult to extract.
Moreover, imports could not be eliminated by this means.
The primary sources of oil would be Alaskan on-shore, Alaskan
offshore, lower 48 states offshore, and advanced (tertiary) recovery
everywhere. When the same criteria that were applied to the synfuel
options are applied to all-out conventional production, the impacts
turn out to be nearly all adverse. The results of the impacts would be
concentrated in the Arctic and the coastal zones of both Alaska and the
lower 48 states.
Thus, energy policy makers who may view the impacts of the
MCI with alarm should realize that the alternative impacts, while
clearly different in form and location, may be no more acceptable.
xv i
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D. The Effects of Constraining the Growth of a Synfuels Industry
Constraint exercised in the rate of growth allowed a synfuels
industry in any given area coupled with restriction of the plant size
has been found (by analysis) to be an effective means to resolve many
of the adverse impacts of the MCI. In particular, the growth of communi-
ties can be slowed to keep pace with the ability of local governments
to provide and finance public services, to smooth abrupt jumpts in
population size that interfere with orderly growth, and to somewhat
ameliorate the issue of water rights so that it can be approached and
resolved in an atmosphere less tense than might otherwise prevail.
Constrained growth scenarios imply the acceptance of a reduced
schedule of fuel production or the exportation of coal to remote regions
for conversion. If it is presumed that the remote sites chosen are
those with adequate water availability and appropriate socioeconomic
institutions already in place to accept modest growth, the remote siting
concept can also serve as a mechanism to mitigate many adverse impacts.
Although the remote siting approach could not be fully explored in this
*
study , it appears to hold promise.
F. Public Policy Considerations Raised by the Projected
Impacts of a Synfuel Industry
The chief public policy considerations raised by this study concern
the steps that appear necessary if near-term implementation of a synthetic
liquid fuels industry is desired and the consequences that would require
resolution once the industry began to develop. These two classes of
consideration are often intertwined.
*
The concept is currently under examination at SRI in a study for the
Energy Research and Development Administration.
xvii
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1, Financial Aspects of the Industry
Before industry and sources of capital will consider investment
in synthetic liquid fuels, the products must be shown to be soundly
competitive economically. Until then, synfuel investment will be consid-
ered far more risky than alternative investments competing for scarce
capital. Without a massive change in the cost of national petroleum in
the market place, or federal intervention to provide the economic means
to offset the inherently inferior returns (or losses) on synfuel in-
vestments, no synfuel industry will appear.
2. Water Availability
The issue of water availability, both with respect to actual
physical quantities and access to and priorities of water rights must
be greatly clarified. In the meantime, the uncertainties translate
into risks that not only inhibit realization of a synfuel industry but
also inhibit development of alternative water uses in water-poor regions.
The issue of exporting coal from resource-rich regions by coal
slurry pipeline is now before Congress. The subject has acted to broaden
the question to involve the health and vitality of the U.S. railroad
system, which suggests a long and complex debate.
3. Resource Leasing and Strip-Mine Reclamation
These issues are joined because much of western coal and
most of the oil shale is on federal land and mining can take place only
after acquistion of a lease from the Department of the Interior. For
several years, leasing of coal lands has been suspended, but when it
resumes the Department of the Interior is expected to require reclamation
of strip-mined lands largely in accord with rules in the twice-vetoed
strip-mine bills.
xviii
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Clarification and implementation of the new leasing and
reclamation provisions is essential before a sizable synthetic liquid
fuels industry could be developed.
4. Air Quality Control
Since complexes involving multiple synfuel plants apparently
will not be able to meet Class II degradation standards, it is essential
that improved emission controls be developed and/or that the non-degra-
dation air quality standards that will be applicable be decided by the
states. Moreover, until new-source emission standards are issued for
synfuel plants, designers can only use standards for analogous facilities
as plausible guidelines.
Until these issues are clarified, investment in synfuel plants
will be inhibited and states will be unable to foresee adequately the
air quality implications of synfuel plants.
5. Boom Towns
The federal government may stimulate the synthetic liquid
fuels industry as a matter of energy policy. At the same time, and
perhaps through the same mechanisms (such as loan guarantees or public
financing), the federal government might be able to stimulate the
provision of "front-end" money to communities by industry as a means
to avert the tax lag phenomenon largely responsible for the adverse
quality of life in boom towns. Government acceptance of such contri-
butions as a proper cost of constructing and operating a synfuel plant
could legitimatize the practice and make it routine.
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6. The Role of Conservation
The public policy considerations discussed above are concerned
with mitigating various negative aspects of synthetic liquid fuels
developments. Another, more certain, way of mitigating such impacts
would be to reduce the need for synthetic liquid fuels by means of
vigorous energy conservation programs. Although conservation itself
certainly has some potential negative impacts, most would probably be
widely distributed across the country in contrast to the highly concen-
trated consequences of synthetic fuels developments. The federal govern-
ment has already perceived that conservation is an aspect of energy
policy deserving much attention; programs of The Energy Research and
Development Administration as well as the Federal Energy Administration
are attacking the question with increased vigor.
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GUIDE TO THE READER
This report is divided into two volumes. This first volume con-
sists of an executive summary and a synopsis. The second volume contains
chapters devoted to detailed analyses of various aspects of the develop-
ment of a synthetic liquid fuels industry. Each chapter in Volume II
has its own literature citations.
In this first volume, frequent reference is made to chapters in the
following volume so that readers may locate the more complete discus-
sions; this intervolume reference is accomplished by indicating the
number of the chapter of interest as a superscript. All literature
citations are confined to the chapters in Volume II. Many of the figures
and tables in this first volume also appear in later chapters; whenever
this occurs a two digit number is cited as a source (such as 13-10)
to indicate the correlated chapter and figure number in that chapter.
xxi
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CONTENTS
FOREWORD ..............
EXECUTIVE SUMMARY ' v
GUIDE TO THE READER. . . xxi
LIST OF ILLUSTRATIONS. • • xxiv
LIST OF TABLES xxvi
I INTRODUCTION 1
A. Nature of the Problem . 1
1. Automotive Fuel in Perspective 1
2. Future Automotive Fuel Options 4
B. Study Objectives 5
C. Study Methods 5
D. Organization of the Report 6
II ALL-OUT CONVENTIONAL PRODUCTION OF DOMESTIC OIL
SUPPLEMENTED BY OIL IMPORTS: REFERENCE CASE 8
A. Sources of Domestic Supply. . 8
B. Resource Requirements 9
C. Major Impacts of the Reference Case 12
III PRODUCTION OF SYNTHETIC LIQUID FUELS FROM COAL AND OIL
SHALE 14
A. The Technology. ....... 14
1. Syncrude from Coal. 14
2. Methanol from Coal. ...... 15
3. Syncrude from Oil Shale 18
B. Net Energy Ratio 19
C. Economics of Production 22
xxii
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D. Institutional Setting for a Synfuel Industry .... 23
E. Working Premises for a Hypothesized Implementation of
a Synfuel Industry 25
IV CRITERIA FOR COMPARING SYNTHETIC FUEL PRODUCTION OPTIONS 26
A. Purpose of Applying Criteria 26
B. List of Criteria 26
C. Application of Criteria 27
V MAXIMUM CREDIBLE SYNTHETIC FUELS IMPLEMENTATION SCENARIO 31
A. Purpose and Assumptions 31
B. The Scenario 32
VI IMPLICATIONS OF THE MAXIMUM CREDIBLE IMPLEMENTATION (MCI)
SCENARIO 37
A. Impact Issues . 37
1. Industrial Decision Making 37
2. Capital Availability 41
3. Resource Depletion 44
4. Water Availability 45
5. Economic Spin-Off Effects 53
6. Environmental Effects 55
7. Social Consequences 63
B. Summary of Factors Critical to MCI Deployment ... 71
VII THE EFFECT OF INTRODUCING A SYNFUEL INDUSTRY ON A
CONSTRAINED GROWTH BASIS 73
A. Growth Constrained Scenarios 73
B. Implications of Constrained Growth 81
VIII PUBLIC POLICY CONSIDERATIONS RAISED BY THE IMPACT ISSUES 82
A. Financial Aspects of a Synfuel Industry 82
B. Water Rights 84
C. Strip Mine Reclamation and Resource Leasing .... 86
D. Air Quality Control 86
E. Population Growth Control 88
F. Summary 88
xxiii
-------
ILLUSTRATIONS
1 Automotive Energy Demand Compared to 1974 Petroleum Supply
and Demand 2
2 Historical Growth Scenario—Automotive Fuel Demand and
Domestic Supply Projections 3
3 Flow Diagram for Definition of Net Energy Ratio 20
4 Annual Energy Inputs for Construction and Operation of a
50,000-B/D Oil Shale Mining, Retorting, and Upgrading
Complex 21
5 Pre-OPEC Crude Oil Situation 40
6 Post-OPEC Crude Oil Situation 40
7 Projected Cash Flow for Domestic Oil and Gas Industry—No
Synthetic Liquid Fuels—at a 5-Percent Annual Rate of
Inflation 43
8 Projected Cash Flow for Domestic Oil and Gas Industry—
Conventional Activities plus Synthetic Liquid Fuels—at a
5-Percent Annual Rate of Inflation 43
9 Primary Concentration of Major Industrial Sectors Expected
to Supply the Coal and Oil Shale Industry 54
10 Diagram of a Contour Mine 56
11 Contour Strip Mining 56
12 Diagram of an Area Mine 58
13 Area Strip Mining with Concurrent Reclamation 58
14 Underground Oil Shale Mining by the Room
and Pillar Method . 60
15 Basis of Population Multiplier Concept 63
16 Total Population Associated with Individual Plant Construction
and Operation Building Blocks 65
17 Effects of the Maximum Credible Implementation Scenario on
Population in Campbell County, Wyoming 66
xxiv
-------
18 Maximum Credible Implementation Scenario for Oil Shale
Development in Garfield and Rio Blanco Counties,
Colorado 67
19 Ten Percent Constrained Population Growth Scenario for Oil
Shale Development in Garfield and Rio Blanco Counties,
Colorado 75
20 Five Percent Constrained Population Growth Scenario for
Oil Shale Development in Garfield and Rio Blanco Counties,
Colorado 76
21 Five Percent Constrained Population Growth Rate Scenario
for Campbell County, Wyoming, illustrated with Coal
Liquefaction Plants and Associated Mines 77
22 Modified Five Percent Constrained Population Growth Scenario
for Campbell, Wyoming, illustrated with Coal Liquefaction
Plants and Associated Mines 78
23 Five Percent Constrained Population Growth Scenario for
Campbell County, Wyoming, in which only Coal Mines are
Developed 79
xxv
-------
TABLES
1 Domestic Oil Supply, Imports, and Total Demand Under HG3 . . 9
2 Annual Labor, Drill Rig and Steel Requirements for Oil
Under HG3 10
3 Annual Capital Investment in Conventional Oil Production
for HG3 (1973 dollars) 11
4 Resource Requirements for 100,000-B/D (Oil Equivalent)
Synthetic Liquid Fuels Plants 16
5 Net Energy Ratios for Synthetic Liquid Fuels Processes ... 23
6 Application of Criteria to Synfuel Options: Degree of
Impact 28
7 MCI Synfuel Production Schedule 33
8 MCI Cumulative Resource Inputs ... 34
9 MCI Regional Distribution of Synfuel Production 35
10 States and Regions with Strippable Coal Reserves Sufficient
to Support a Large Synthetic Fuels Industry 36
11 Northern Great Plains Synthetic Liquid Fuel Water Demands
in the Year 2000 48
12 Northern Great Plains Projected Annual Consumptive Use of
Water in the Year 2000 48
13 Projected Non-Oil Shale Water Demand in the Upper Colorado
River Basin in the Year 2000 50
14 Comparison of MCI and Five Percent Population Growth
Constrained Scenarios, for the Year 2005 80
xxvi
-------
I INTRODUCTION
A. Nature of the Problem
2*
1. Automotive Fuel in Perspective
Automotive vehicles—cars, trucks, and buses—are fueled by
petroleum products almost exclusively and constitute the single largest
use of petroleum (46 percent) in the United States (Figure 1). It is
well known that, until the Arab oil embargo in the winter of 1973, demand
for automotive fuels was growing steadily while domestic oil production
was beginning to fall. Consequently, interest was renewed in the pos-
sible development, production, and use of alternative automotive fuels.
An indication of the level of alternative fuel production that
may be required in the future for the automotive market is shown in Fig-
ure 2, which is adapted from the Historical Growth scenario of the Ford
Foundation Energy Policy Project. This scenario assumes that, in spite
of higher energy prices, consumers return to their historical patterns
of petroleum use and, thus, that demand for automotive fuel grows
steadily. Three domestic oil supply subscenarios (HG 1, 2, 3) are given
in the Ford Foundation study. In each, domestic oil supplies would in-
crease temporarily somewhat because the higher prices would stimulate
previously unprofitable production; however, this increase could not be
sustained and, toward the end of the century, domestic supplies would
again fall.
*In this volume, superscripts refer the reader to the chapter in Vol-
umes II and III that discuss the same matter in greater detail.
-------
ioo r
80
o
cr
Q
z
<
5
Ld
Q
(E
LU
60
40
76%
OIL 8 GAS
Source : Figure 2- I
46%
OIL
DOMESTIC
OIL
AUTOMOTIVE
DEMAND
FIGURE I. AUTOMOTIVE ENERGY DEMAND COMPARED
TO 1974 PETROLEUM SUPPLY AND DEMAND
-------
12
10
>-
0
tr
LL)
* a
O
Q
O
cr
CL
u_
3 6
UJ
o:
or
CD
U-
O 4
tn
O
'^
HGI DEMAND^
HGI SUPPLY
HG2 SUPPLY
HG3 SUPPLY
——— PROJECTIONS
HISTORICAL
[HP! IMPORTS
I
0
I960 I960
Source : Figure 2-3
1970
1980
1990
YEAR
2000
FIGURE 2. HISTORICAL GROWTH SCENARIO - AUTOMOTIVE FUEL
DEMAND AND DOMESTIC SUPPLY PROJECTIONS
-------
Recent estimates of total U.S. oil resources and reserves made
by the U.S. Geological Survey (USGS) strongly suggest that of the three
domestic supply curves shown in Figure 2, only the HG3 curve has the
barest chance of being realized.3 Thus, in the year 2000 there could be
an automotive fuel shortfall as large as 6 million barrels per day (B/D)
(1 million m3 /D) . When all other uses of petroleum in the economy are
also considered, under the HG3 supply scenario the total petroleum short-
fall would be about 18 million B/D (2,9 million m.3/D) in the year 2000.
Consequently, at the end of this century, unless alternative
domestic fuel sources are developed or demand is reduced, petroleum im-
ports could be running as high as 18 million B/D (compared to 6 million
B/D in 1973) . The precision of this estimate is sufficient to provide
perspective for the level of alternative fuel production that may be
desirable in the future.
2. Future Automotive Fuel Options
There are numerous conceivable options for future automotive
energy:
• Reduce demand
- Through less travel
- Through improved efficiencies of use
• Change technology (e.g., electric cars)
• Change fuels
- Develop synthetic gasolines and diesels from coal and
oil shale
- Use methanol derived from coal, wastes, and biomass
- Use hydrogen produced from coal or by means of nuclear
power.
Previous studies performed for the Alternative Automotive Power Systems
Division of the Environmental Protection Agency (EPA) examined the tech-
nical and economic feasibility of these and other alternative fuels.
4
-------
The consensus was that until the early part of the next century, the
prime candidates for alternative fuels are:
• Gasolines and distillates derived from coal and oil shale
• Methanol derived from coal.
B. Study Objectives
The basic objective of this study was to assess the feasibility of
these prime candidate fuels in a much broader sense—their total feasi-
bility when environmental, economic, social, and institutional conse-
quences are taken into account. Moreover, these consequences were to be
contrasted to the consequences of an all-out effort to increase produc-
tion of conventional petroleum—especially in Alaska, offshore, and by
advanced (or "tertiary") recovery techniques.
While pursuing this objective, potentially inhibiting factors were
to be identified and those that might prove to be critical impediments
of the realization of a high level of alternative fuel production were
to be singled out for special, expanded analysis.
At the conclusion of the work, a set of criteria were to be devel-
oped to rate the various options to help formulators of public policy
make difficult choices. In addition, public policy alternatives were
to be identified that could increase chances for commercialization of
these fuels, ameliorate the most adverse consequences, and strengthen
any beneficial consequences.
C. Methods of the Study
The study was conducted as a technology impact assessment by a
coordinated interdisciplinary project team. The team took the
following steps:
-------
• Devised systems descriptions of the options from the basic
resources through the end uses.
® Examined the compatibility of the systems with existing fuel
systems to judge the ease of incremental implementation—an
important step because new fuel systems must evolve from pres-
ent ones and must be compatible with existing institutions and
infrastructure investments.
« Focused attention on those parts of the new systems that dif-
fered the most from present fuel systems--because it would be
there that impacts would be most unlike those experienced with
the present fuel systems.
• Characterized the new system elements in terms of "natural
building blocks" (the normal size to be expected from consid-
erations of economies of scale and scales of physical proc-
esses) .
• Determined the resource inputs (coal, water, capital, labor,
etc.) for a given fuel output.
• Constructed a maximum credible implementation (MCI) scenario
to serve as a heuristic device to derive the maximum impact
situation and thereby identify the critical inhibiting factors.
• Identified other critical factors that are, in many respects,
independent of the level of implementation.
• Analyzed in detail the consequences of implementing the MCI
giving special attention to the critical factors.
• Prepared a scenario depicting all-out production of domestic
conventional petroleum—to serve as a comparison for the devel-
opment of synthetic fuels.
D. Organization of the Report
Section II of this synopsis presents the reference case, which is
an all-out effort to increase domestic oil supply by conventional means
and to supplement the supply with imported oil. The Reference Case can
be used as a basis for comparison of the impact of the development of a
synthetic fuel industry. Section III treats the technology, economics
and institutional setting for a synfuel industry. Criteria that can be
used to compare the various synthetic fuel options are applied in
-------
Section IV. In Section V the maximum credible synthetic liquid fuel
implementation scenario is described, and its implications are discussed
in Section VI. Some effects of a synfuel industry introduced at less
than a maximum rate are treated in Section VII. Finally, in Section VIII,
the areas in which public policy actions could influence the development
and consequences of a synfuel industry are outlined.
-------
II ALL-OUT CONVENTIONAL PRODUCTION OF
DOMESTIC OIL SUPPLEMENTED BY OIL IMPORTS: REFERENCE CASE3
As a basis for comparison of essential aspects of a synthetic fuels
industry, a reference supply case was developed in which the alternative
to a synfuel industry was the all-out conventional production of domes-
tic oil supplemented by oil imports. The Reference Case contains a
projection of (1) domestic oil supply and the requirements for imported
oil, (2) the resources required to increase domestic oil production with-
out synthetic fuels development, and (3) the environmental impacts that
could result from this production and importation.
A. Sources of Domestic Supply
Future domestic oil production will depend heavily on the success
achieved in three activities and geographic regimes.
• Alaskan resource development (onshore and offshore)
• Frontier (non-Alaskan) offshore resource development
• Recovery by advanced techniques in all areas.
In the year 2000, about 32 percent of domestic oil will come from Alaska
and about 30 percent from offshore (lower 48 states). Table 1 shows the
projected supply/demand under HG3 (Figure 2).
With or without an all-out production effort, it appears to be im-
possible for domestic oil production to satisfy the demand curve shown
in Figure 2. The recent USGS estimates indicate that the United States
will be hard pressed even to produce oil at a level similar to HG3.
Such production would entail producing more oil domestically in the
next 25 years than the total amount produced previously—and from
8
-------
resources significantly more difficult to extract. As a consequence,
the Reference Case necessarily included an increased level of oil im-
ports .
Table 1
DOMESTIC OIL SUPPLY, IMPORTS, AND
TOTAL DEMAND UNDER HG3
(Source: Table 3-2)
Cumulative
Quantity 1974-2000
10s Barrels per day* (109 Barrels
(% of Domestic Supply) Advanced
Supp ly/Demand
Domestic Supply
Onshore (lower 48 states)
Offshore (lower 48 states)
Alaska (onshore and offshore)
1985
6.8
(52)
3.0
(21)
3.6
(27)
2000
5.0
(38)
4.0
(30)
4.4
(32)
Total Recovery
63 34
28 15
30 16
Total
Imports
Total U.S. demand
13.4
13.4
11.5 18.4
24.9 31.8
121
65
*106 B/D is about 1.6 X 105m3/D.
B. Resource Requirements
Resource requirements for the HG3 scenario in terms of heavy equip-
ment, labor, steel, and capital investment are shown in Tables 2 and 3.
-------
Table 2
ANNUAL LABOR, DRILL RIG AND STEEL REQUIREMENTS
FOR OIL PRODUCTION UNDER HG3
(Source: Table 3-6)
Year
1977
1985
2000
Exploration Drill Rigs in Use
Onshore
Offshore
Alaska
Onshore
Offshore
Offshore Production Platforms in Use
Offshore
Alaska-offshore
Labor--Rig and Platform Crewmen Employed
Onshore
Offshore
Alaska
(Offshore)
Total
Steel—Thousands of Tons* Required
Onshore
Offshore
Alaska
930
240
125
26
90
6
1,400
1,400
200
1,250
500
150
110
200
25
1,700
1,400
400
1,250
500
150
110
200
25
22,000
24,000
3,000
(1,600)
29,000
52 , 000
8,000
(6,500)
29,000
52 , 000
8,000
(6,500)
49,000 89,000 89,000
1,700
1,400
400
Total
3,000
3,500
3,500
*0ne ton is about 907 kg.
10
-------
Table 3
ANNUAL CAPITAL INVESTMENT IN CONVENTIONAL
OIL PRODUCTION FOR HG3 (1973 dollars)
(Source: Table 3-9)
1977 1985 2000
Onshore Recovery
Primary and Secondary 1.4 3.9 3.9
Advanced 1.0 1.0 2.6
Subtotal 2.4 4.9 6.5
Offshore Recovery
Primary and Secondary 0.3 0.9 0.9
Advanced 0.6 0.6 1.3
Subtotal 0.9 1.5 2.2
Alaska
Primary and Secondary 1.2 1.3 1.3
Advanced 1.0 1.0 2.1
Subtotal 2.2 2.3 3.4
Total 5.5 7.7 12.1
Towards the end of the century over 50 percent of domestic oil
recovery should be coming from advanced techniques. That is why the
investment split between primary and secondary recovery in Table 3 is
weighted heavily on the side of advanced recovery. Some of the produc-
tion activities involved in oil recovery, especially advanced recovery,
are expected to be as costly on a unit basis as the production of syn-
thetic crude oils from coal and oil shale, both of which are still
considered uneconomic.
11
-------
C. Major Impacts of the Reference Case
A summary of the salient impacts of the Reference Case follows.
• Alaskan (onshore)
- Rapid changes in human populations leading to boom towns with
low levels of human amenities and environmental protection.
- Disruption of established cultures, economies, and values.
- Damage of fragile ecosystems by petroleum spills, the activity
of exploration and production, and establishment of transpor-
tation corridors.
- Damage to the marine environment resulting from ocean trans-
port (and landing) of oil to other states.
• Alaskan (offshore)
- Same impacts as Alaskan onshore (above).
- Damage to the marine environment from spills and other
accidents.
• Offshore (Continental United States)
- Impingement on other beneficial uses of coastal zones such as
commercial fisheries, recreation, wildlife habitat, aesthetic
values.
- Induced human population in coastal areas owing to increased
petroleum-related activity such as port facilities and
refineries.
• Advanced recovery
- Large increase in demand for the chemicals used in tertiary
recovery with resulting environmental and health hazards in
their manufacture, transport, and use.
- Increased air pollution from fuel burning for steam generation
- Concentration of impacts in heavily populated and polluted
Southern California because past recovery techniques for
heavy California crude oil has left much oil that is poten-
tially suitable for advanced recovery.
12
-------
• Imports
- Economic and political ramifications of economic disruption
in the event of another oil embargo.
- Increased alteration of the coastal zone through increased
ship traffic, spills, and construction of single-point off-
shore moorings and deepwater ports.
- Increased onshore activity for refining and transport of oil
and of induced human population.
Thus, the impacts of the Reference Case will be heavily concentrated
in coastal areas—both onshore and offshore and in Alaska. As will be
seen later, the nation may have to choose between impacts in the Northern
Great Plains and Rocky Mountain states or impacts in the Alaskan and
coastal zones unless demand for liquid fuels is significantly reduced
through conservation.
13
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Ill PRODUCTION OF SYNTHETIC LIQUID FUELS
FROM COAL AND OIL SHALE
A. The Technology
4
1. Syncrude from Coal
Coal is abundant and widely distributed throughout the United
States. It has been realized for many years that coal could be chemi-
cally transformed into liquid hydrocarbons suitable for use as fuel.
However, until recently, abundant U.S. petroleum reserves discouraged
development and engineering refinement of coal conversion. As a result,
the United States has not produced synthetic liquids from coal in
commercial quantities. During World War II, however, the Germans
manufactured coal liquids for the operation of vehicles and for many years
South Africa has produced synthetic gasolines from coal. Coal liquefac-
tion therefore is not a new technology but an old technology ripe for
improvement.
Several improved technologies are already nearing commercial
readiness.4 Among these technologies are (by their commonly used name):
COED, H-Coal, SRC, and CSF. In all of these, the basic procedure is
the production of hydrogen chemically from coal and water followed by
the chemical combination of this hydrogen with other coal. At suitable
temperatures and pressures, the coal and the hydrogen react to produce
a liquid product that is nearly identical to crude oil.*
*Many of the coal-derived syncrudes are superior to natural crude oils
because they are lower in sulfur.
14
-------
The H-coal process has been selected for analysis in this
study because ample data were publicly available, the technology is
among the most advanced, and the product is almost entirely a synthetic
crude oil with few byproducts.
The H-coal process, like all coal syncrude processes, requires
large inputs of natural resources (especially coal, water) and socioeconomic
resources (capital, labor). The magnitude of these resources is indicated
in Table 4, in which they are compared with other fuel processes consid-
ered in the study. The primary residual of the H-coal process is an ash
that derives from the foreign mineral matter originally in the coal.
The published literature and discussions with potential syn-
crude producers make it clear that the natural size of coal liquefaction
building blocks will be 25,000 to 30,000 B/D (4,000 to 4,800 m3/D) during
the first stages of commercialization when business risks overshadow the
desire to reap full economies of scale. However, in a mature industry,
the building block would be about 100,000 B/D (16,000 m3/D);* plants of
this size will have realized nearly all potential economies of scale.
In principle, syncrudes could be further transformed by refining to
yield consumer products at the same site, but in the early stages of the
synfuel industry there is no incentive to do this.
2. Methanol from Coal4
The production of methanol from coal is really a wedding of
portions of two of the presently more advanced synthetic fuels tech-
nologies: synthetic methane derived from coal, and methanol made from
*For comparison, large, modern refineries are often of the 100,000 B/D
(16,000 m3/D) size.
15
-------
Table 4
RESOURCE REQUIREMENTS FOR 100,000-B/D* (OIL EQUIVALENT)'
SYNTHETIC LIQUID FUELS PLANTS
(Sources: Tables 6-4, 6-5, 6-6)
Construction
Capital (millions 1973 $)*
Labor (10s man-yrs)
Steel (103 tons)
Site (103 acres)
Operation
Resource (million tons/yr)
Water (103 acre-ft/yr)
Electric power (MW)
Labor (103 people)
H-Coal TOSCO II
Process Lurgi Oil Shale
Syncrude Methanol Syncrude
670
7.3
110
1
1200
15
200
2
750
5
90
0
.4
.6
18
29
140
1.4
26
30
200
1.8
54
16
170
1.7
*A 100,000 B/D plant produces 16,000 m3/D.
tAbout two barrels of methanol contain the same energy as one barrel
of oil.
^These estimates are taken from the open literature; since 1973
estimates have escalated at a rate that far exceeds the general
rate of inflation in the economy.
16
-------
methane. The latter technology is well developed because it is the pro-
cess now used to make most methanol (from natural gas). Because shortages
of natural gas have been anticipated more commonly than shortages of oil,
the processes for the production of synthetic methane from coal are well
developed (although not commercially deployed). The gasification options
available include Lurgi, Winkler, and Koppers-Totzek, but the synthesis
step is most favorably accomplished by an intermediate pressure process
such as the ICI process. Lurgi gasification has been adopted in this
study because much data for this process are publicly available and it
is a likely candidate for first generation plants.
In the production of synthetic methanol from coal, the first
step is the generation of synthesis gas, a mixture of carbon monoxide
and hydrogen. This is followed by a synthesis step that converts the
gas to methanol.* The methanol process directly yields the final product
suitable for automotive use in contrast to the coal liquefaction processes
which yield a syncrude which must then be refined. The resource require-
ments for methanol production from coal are shown in Table 4.
The production of methanol from coal is amenable to development
of an in situ process in which the coal is transformed underground to
synthesis gas without prior conventional extraction (by mining). In this
case, the synthesis gas would be pumped to the surface where it would be
converted to methanol.* In situ conversion is expected to require less
water and cause far less environmental disturbance than above-ground
methods. However, in situ processes are quite speculative and data ade-
quate to the needs of this study do not exist; consequently, only above-
ground methanol production is considered here.
*Under different conditions, methane can be produced from this same syn-
thesis gas.
17
-------
3. Syncrude from Oil Shale4
Certain marlstones contain trapped organic material called
kerogen; such minerals are called oil shale. When the stone is pulverized
and heated, the kerogen is transformed and a very viscous oil-like sub-
stance is released. Vast deposits of oil shale rich in kerogen are found
in Colorado, Eastern Utah, and Northwestern Wyoming. The richest deposits
are found in a two-county area of Colorado called the Piceance Basin.*
Throughout this century there has been sporadic interest in
the oil shale hydrocarbon resource. Because it is the consensus in the
oil industry that oil derived from oil shale would be less expensive
than liquid fuels derived from coal, considerable attention has been
given to oil shale technologies—both above ground and in situ conversion.
In all forms of the technology the basic steps are to crush
the rock into small lumps or particles (to facilitate heat transfer and
release of the kerogen), to heat the crushed shale, and to collect the
viscous oil. Some technologies use hot gases to heat the shale, while
others use hot solid materials. In both cases, the heat is generated
by combustion of some of the kerogen or recovered shale oil. For
in situ processes, combustion of the kerogen is the sole source of heat.
Among the candidate above-ground conversion processes are Paraho, TOSCO
II, and Union Oil.
The TOSCO II process has been selected for this study because
much data is publicly available—especially from an environmental impact
analysis of the once planned Colony Development Operation oil shale plant.
Unfortunately, there are few publicly available data on in situ proc-
esses .
*This is not a drainage basin; the name refers to the basin-like shape
of the geological strata.
18
-------
No matter which conversion process is used, the viscous oil
must be "upgraded" before it will flow readily as a fluid. Upgrading
requires the production of hydrogen and its chemical addition to the
raw shale oil. Upgrading also lowers the sulfur and nitrogen content
of the raw shale oil.
The mining and retorting of oil shale consume large amounts of
natural and socioeconomic resources (shown in Table 4). However, unlike
the two coal processes whose only residual is an ash that is 10 to 20 per-
cent by weight of the coal consumed, above-ground oil shale processes
produce enormous quantities of "spent" oil shale. Indeed, because of
voids, the spent shale actually occupies a volume some 10 to 30 percent
(depending on the process) greater than the raw shale. This residue
requires disposal—an activity that consumes large amounts of water for
compaction, dust control, and revegetation. It also requires large
amounts of land.
B. Net Energy Ratio5
To extract, transport, and convert coal or oil shale to a form suit-
able for end-use requires energy—both directly in the form of fuel and
electricity and indirectly in the form of energy intensive materials.
Systematically accounting for all these energy inputs to compute the
energy consumption necessary to deliver the energy present in the prod-
uct can be accomplished in several ways. For this study the net energy
ratio mode of expressing this information has been chosen.
The net energy ratio, as illustrated in Figure 3, is defined as the
energy content of the product (Eprod) divided by the sum of three terms:
the energy that was originally present in the raw fossil resource but
thermodynamically lost in processing (E - E ,), the fuel or elec-
res
trical energy that must be used to run the fuel conversion processes
(Ef -,) , and the energy that has been expended in preparing, assembling
19
-------
and delivering materials used in the process (Emat). Such accounting
has been applied to all steps in the sequence from resource extraction
to final conversion to products suitable for end use.
• res
ENERGY
CONVERSION
PROCESS
Eprod
Efuel
Emat
NET ENERGY RATIO =
Source '• Figure 5- I
Eprod
Eres -
Efu«l
FIGURE 3 . FLOW DIAGRAM FOR DEFINITION OF
NET ENERGY RATIO
Figure 4 shows the application of the concept to an oil shale con-
version process. To account for the total use of resource energy in
the conversion processes, the energy inputs are reduced to the amounts
of original fossil fuel resources required to supply the actual energy
forms and materials used. Such resource energy requirements are shown
as triangles in Figure 4.
As expressed here, the higher the net energy ratio, the more effec-
tively the process utilizes the nation's energy resources. A ratio of
1.0 simply means that the resource energy consumed in making the fuel
20
-------
MINE
CONSTRUCTION
$1.3 X I06
(
1 •
..
MINE PLANT CATALYSTS MAINTENANCE
AND
SUPPLIES CONSTRUCTION SUPPLIES
CHEMICALS
$4.6XI06 $I5XI06 $2.9XI06 $3.4X10*
,
ROOM AND
PILLAR MINING
— ~ !' 1 T
/1,L SHALE^ °'L SHALE RETORT'NG /^VNTHET,C
\I23 x lO12/ ( Tosco H Process) \94xl012
' '
DIESEL
XO-68 >
FUEL
Notes : All resource energy inputs and product outputs are in Btu
All dollar figures are in 1973 dollars per year
Source'. Figure 5-5
FIGURE 4. ANNUAL ENERGY INPUTS FOR CONSTRUCTION AND OPERATION A 50,000 - B/D
OIL SHALE MINING, RETORTING, AND UPGRADING COMPLEX
-------
available is equivalent to the energy contained in the final product
fuel; for the three fuel conversion processes considered in this study,
a ratio less than 1.0 does not mean that the process, in effect, drains
society of energy. For example, a net energy ratio of 0.5 means that of
three units of energy initially available, one is delivered to end use
while two are used in processing. With our definition, electric genera-
tion from coal has a net energy ratio of about 0.36 (counting transmis-
sion losses). The case of electricity shows that society sometimes
willingly accepts a low net energy ratio as the price of converting
energy into a desirable form.
Table 5 shows the net energy ratio for the processes considered in
this study. Because there is no intermediate product in methanol produc-
tion, the net energy ratio for the syncrude alternatives are shown both
before and after refining to facilitate comparison with methanol. Sev-
eral important conclusions can be drawn from Table 5. First the coal
resource can be used more effectively if syncrude is made than if meth-
anol is made. Second the oil shale process has the most favorable net
energy ratio. However, comparison of ratios is more valid for alterna-
tive processes using a single resource than for trans-resource compari-
son. Perhaps the most important use of net energy ratios is in choosing
among alternative processes those which are most conservative of basic
resources.
C. Economics of Production
As Table 4 shows, the investment requirements for synthetic liquid
fuel plants are very large. The estimates shown in Table 4 are in dollars
of 1973 value and the more recent estimates are even larger.*
*The escalation between 1973 and 1976 is larger than the general rate of
inflation because plant construction costs have been inflating more
rapidly than other costs.
22
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Table 5
NET ENERGY RATIOS FOR SYNTHETIC LIQUID FUELS PROCESSES
(Source: Table 5-8)
Conversion Resource-to-Fuels
Step System*
Oil shale 2.3 1.6
Coal liquefaction
Wyoming coal 1.5 1.1
Illinois coal 1.8 1.3
Methanol
New Mexico coal 0.66 0.65
*Includes refining syncrude and 1000 miles of
pipeline shipment of syncrude or methanol.
Recent studies conducted for EPA clearly show that the price of
syncrude from coal was about two-thirds determined by the initial plant
investment. The next most important determinant of cost was the coal
feedstock, while the cost of obtaining water contributed very little
to the cost of the final product.
To date, potential operators of commercial synthetic fuel plants
have concluded that these synthetic liquid fuels cannot be produced and
sold at a reasonable profit at competitive prices (even with the present
high cost of imported petroleum).
D. Institutional Setting for a Synfuel Industry9
Currently, corporations consider synfuel investments to be fraught
with too much risk to undertake without some kind of supportive government
23
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intervention. This judgment stems from two basic considerations: First,
the fuels produced would cost at least as much as imported oil, even at
the high prices set by The Organization of Petroleum Exporting Countries
(OPEC); yet OPEC could easily lower the price of imported oil and drive
synfuel ventures into bankruptcy. Second, the individual synfuel plant
investment requirements are so large and uncertain that it appears to be
less of a risk to make smaller individual project investments in explor-
ation for natural crudes; moreover, synfuel plant investments have no
exit points that allow capital-saving withdrawal if changing evidence or
situations warrant.
The only private institutions likely to undertake synfuel ventures
are the oil companies, either singly or in consortia, because they have
the most compelling incentive—an existing business with pipelines,
refineries, and market facilities that requires a continued supply to
remain economically productive. These extant facilities also provide
the oil companies with great flexibility to integrate the new fuels
smoothly into their existing businesses without establishing new mar-
keting activities. This latter feature also has the property of insul-
ating the consumer from technical change because all such change would
be absorbed by the fuel producer. The combined questionable profita-
bility and difficulty of market entry would certainly discourage other
potential entrants to the industry (such as the large chemical companies).
This dominating interest by the existing oil companies will inevit-
ably shape the choices of synfuels to be produced. For example, rather
than producing directly a final consumer fuel in a single step, the oil
industry prefers the production of syncrude because this allows full and
flexible use of their existing investments in technology and marketing
(including intercompany sales and exchanges).
The study team has concluded, therefore, that the voluntary adoption
of the methanol option for automotive fuel is extremely unlikely because,
24
-------
unlike syncrudes, methanol would not fit as readily into the existing
system and would require a separate distribution system and modification
of marketing facilities.
Nevertheless, the scenarios developed later in this report depict
methanol production on a large scale in the expectation that it will be
used in large stationary facilities (such as electric utilities). Since
such use would release petroleum for possible use in the automotive mar-
ket, this production of methanol still fits the objective of the study.
E. Working Premises for a Hypothesized Implementation of a Synfuel
Industry
The corporations that can be expected to play the dominant roles in
commercialization of synfuels do not perceive the technical options as
equally ready for deployment. Oil shale conversion is generally thought
to be the first synthetic liquid fuel option likely to occur. Thus, the
rest of the study is based on the following working premises:
• Syncrude is the most institutionally preferred product and will
dominate.
• Oil shale will be the first source of syncrude.
• Methanol technology is closer to being commercially ready than
coal syncrude technology and would play an indirect role in the
automotive market by releasing petroleum supplies.
25
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IV COMPARISON CRITERIA FOR SYNTHETIC LIQUID FUELS OPTIONS
A. Purpose of Applying Criteria
Besides the obvious comparison of economic cost that will be applied
by industrial participants, consumers, and the federal government, sev-
eral other noneconomic criteria should enter the determination of which
synthetic liquid fuels should be produced and the relative rate of in-
dustrial development that should accompany production. These criteria
are necessary because of the widespread and long-lasting consequences
that would result from the deployment of a synfuel industry.
While, in principle, such criteria could be used to rank the candi-
date fuels and resources, one cannot expect all stakeholders to agree on
the rankings. Since each stakeholder will bring different values to the
process, each will give different weights to the various factors. There-
fore, it is too much to hope that a clear-cut preference for one alter-
native will be reached by all stakeholders. What can be hoped, however,
is that the application of these noneconomic criteria will assist stake-
holders to perceive more readily the interactions among the consequences
of the several options and the tradeoffs that may be necessary.
B. List of Criteria
The SRI study team believes that the following criteria should be
considered in synthetic liquid fuels development:
• Technical
- Resource use intensity (amounts needed to produce a given
amount of fuel) of water,, energy minerals, labor; capital,
and land.
- Net energy ratio of fuel systems
26
-------
• Environmental/social
- Geographic concentration of development
- Impacted human populations (number, proximity, culture)
- Impacted living forms (number, degree affected, reversibility
of effect)
• Economic/institutional
- Feasibility of evolutionary adoption of new fuel into existing
systems
- Opportunity costs (what is foregone by these uses of a resource)
These criteria have evolved from the considerations in this study -
The summary application of the criteria presented below is based on the
findings synopsized in the remainder of this volume and on their fuller
presentation in Volume II.
C. Criteria Application
The criteria are applied below to seven variants of the fuel options:
• Syncrude from oil shale
• Syncrude from coal
- Western
- Illinois
- Appalachian
• Methanol from coal
- Western
- Illinois
- Appalachian.
Table 6 ranks the variants in terms of the criteria set forth above.
The degree of impact (resource consumption, net energy ratio, geographic
concentration, humans and ecosystems affected, and the potential for
evolutionary integration into existing systems) is designated by "Most,"
27
-------
Table 6
APPLICATION OF CRITERIA TO SYNFUEL OPTIONS:
(Most, Average, Least)*
DEGREE OF IMPACT
Resource Intensity
Fossil material used
Energy consumed
Water consumed'
Capital invested
oo Labor required
Land area mined
Geographic concentration
Humans impacted
Ecosystems impacted
Syncrude
Oil Shale
Colorado
Most
Least
Most
Average
Least
Most
Most
West
Average
Average
Most
Least
Least
Least
Least
Coal
Illinois
Least
Average
Least
Least
Least
Average
Least
Appalachia
Least
Average
Least
Least
Least
Most
Least
West
Most
Most
Most
Most
Most
Least
Least
Methanol
Coal
Illinois
Most
Most
Least
Most
Most
Average
Least
Appalachia
Most
Most
Least
Most
Most
Most
Least
Most
Most
Difficulty of Evolution-
ary adoption Least
Average Least
Average Least
Average Average
Most Average
Least
Least
Least
Most
Least
Least
Most
Average
Most
Most
With respect, only, to the options shown in this table.
Relative to availability.
-------
"Average," and "Least." The result is a coarse measure of the favora-
bility of developing each of the variants.
Even though the criteria and the rating systems are coarse indi-
cators of the degree of favorability, it is apparent from Table 6 that
no single option is most desirable in every respect. Instead, pursuit
of any of the options will necessitate acceptance of social, economic,
institutional, and environmental tradeoffs. For example, it is apparent
that the methanol option is inferior to the syncrude option and that
development in Illinois has generally fewer adverse consequences than
development elsewhere. However, Table 10 (Section V) shows that the
Illinois area could not itself sustain the industry for long. Therefore,
less favorable options would also have to be pursued if the synthetic
liquid fuel industry were to become as large as hypothesized in the
Maximum Credible Implementation (MCI) scenario presented in the next
section (V).
The manner in which these criteria will be weighted depends heavily
on who are the decision makers. Pragmatically, one must anticipate that
the most economically related criteria will be the first, most heavily
weighted ones. Other criteria may ultimately be translated into a form
that will allow their inclusion into the economic framework,* but until
then criteria such as reversibility of environmental damage will have
to be considered separately.
One important additional criterion that is poorly suited to presen-
tation in the form of Table 6 is the "opportunity cost" of using a re-
source. Opportunity cost is a term used in economics to measure the
value of a foregone opportunity. To some extent this cost is included
*By such measures as pollutant taxes, or the cost of achieving control
of air pollutant emissions.
29
-------
in the economic cost of acquiring the resource, but since much of the
coal resource and most of the oil shale resource are on government lands
and made accessible by government leasing on a competitive basis, it is
highly unlikely that the total opportunity cost to society will be in-
cluded. Opportunity cost is a concept that is particularly useful in
differentiating between coal and oil shale. There is no known "economic"
use for oil shale other than oil recovery, while coal can be burned to
generate electricity and provide heat, or it can be used to produce syn-
thetic gases that can substitute for natural gas. Therefore, using coal
for liquefaction processes may very well entail larger societal opportunity
costs than oil shale conversion. It is possible that when all the trade-
offs have been examined, there may be a national consensus that oil shale
should be developed up to an "acceptable" level if only to stretch out
the more versatile coal resource.
30
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V MAXIMUM CREDIBLE SYNTHETIC FUELS IMPLEMENTATION SCENARIO6
A. Purpose and Assumptions
As a device to uncover and elucidate the maximum impact situation,
a scenario was prepared that attempts to depict the maximum rate at
which a synthetic fuels industry could be deployed. Examination of the
maximum impact situation was selected so that the adverse and beneficial
consequences would stand out in boldest relief, and, as a result, deci-
sion makers might better perceive factors that might critically impair
deployment of the industry.
The Maximum Credible Implementation (MCI) scenario assumes, for
purposes of impact analysis, that all fuel conversion activities will
occur close to the mines. While the nature of the oil shale resource
requires this assumption (because the quantities of raw ore are so large
they cannot conceivably be transported long distances economically),
coal could be shipped long distances from the mine for conversion.
However, to allow processing facilities to be distant from the resource
would introduce a complex multitude of options that are beyond the scope
of this study.*
A key underlying assumption, of course, is that there is an eco-
nomic incentive for the industry to develop. This necessarily means
that the fuels can be produced at a profit and yet be sold at prices
*A subsequent study at SRI, funded by the Energy Research and Develop-
ment Administration (ERDA), is addressing remote siting options for
coal conversion facilities.
31
-------
competitive with imported natural petroleum. It also is assumed that,
once begun, there is a continuing incentive to deploy the technology.
Since such a climate does not now exist, the scenario is not a predic-
tion of the industry that will develop but is merely an outline of a
plausible situation.
The rate of industrial deployment depicted in the MCI is determined
mainly by presumed physical, economic, and business risk limitations
rather than by adverse impacts. Of course, adverse impacts will exist.
Their analysis constitutes much of this report's substance.
There are several very important aspects of the MCI that must be
emphasized because they strongly affect the analysis that follows:
• The 10-million B/D (1.6 million m3/D) of oil equivalent energy
of the MCI cannot, alone, substitute for the 18-million-B/D
(2.9 million m3/D) imports projected under the HG3 scenario
discussed previously (Figure 2).
• The MCI is heavily skewed towards the Rocky Mountain and
Northern Great Plains regions of the country for two reasons:
First, the coal and oil shale resources are most abundant
there. Second, the nature of the deposits and the pattern of
government ownership of western resources greatly facilitate
acquisition of the reserves needed to guarantee a plant's
lifetime operation.
• For coal-derived syncrude to be economically competitive with
imported oil, the coal resources used must be low in cost and
this greatly favors use of western coals amenable to strip
or open-pit mining.
B. The Scenario
Table 1 (Section III) showed the building block sizes and their
resource requirements for each technology. Table 7 depicts the MCI fuel
production schedule, and Table 8 gives a schedule of the cumulative in-
32
-------
puts (in 5-year intervals). Table 9 summarizes the synfuel output by
regions of the United States and reflects several variables:
• Location of fossil reserves (Table 10)
• Current state or regional political sentiment towards mining
and synfuel production (because these will affect the siting
of plants in the next decade).
• Institutional barriers such as the ability to acquire enough
coal resource to supply a plant for its lifetime.
Table 7
MCI SYNFUEL PRODUCTION SCHEDULE
(Million B/D)*
(Source: Table 6-1)
Year
1980 1985 1990 1995 2000
Syncrude from oil shale 0.1 0.5 1.5 2.0 2.0
Methanol from coalt 0.05 0.3 1.0 2.5 4.0
Syncrude from coal 0 0.09 0.5 1.5 4.0
Total 0.15 0.89 3.0 6.0 10.0
*10S B/D is about 1.6 X 105m3/D.
fOil equivalent energy.
33
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Table 8
MCI CUMULATIVE RESOURCE INPUTS
(Sources: Tables 6-4, 6-5, 6-6)
Construction
Capital (billions of 1973 $)
Labor (103 man-yrs)
Steel (10s tons)*
Site (103 acres)'1"
Operation
Coal (million tons/yr)*
Oil shale (million tons/yr)*
,,CL^l ^^^ c^iC ^^,yL,
Electric power (103 MW)
Labor (103 people)
Year
1980
1.34
12.9
0.19
1.6
1985 1990
7
38
1
9
Cumulative
.90 26.5
.1 257
.15 3.91
.9 34.1
1995
Amount
54.5
593
8.5
77
2000
89
973
14
132
.2
.2
Annual Amount
13
54
31
0.27
2.6
94
270
196
1
17
350
810
685
.58 4.95
.9 50.5
920
1080
1505
10.5
100
1760
1080
2680
14
162
.0
*106 tons is about 907 x 10s kg.
tlO3 acres is about 4.05 X 10sm2.
*106 tons/yr is about 907 x 106 kg/yr.
§103 acre-ft/yr is about 1.2 X 106m3/yr.
34
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Table 9
MCI REGIONAL DISTRIBUTION OF SYNFUEL PRODUCTION
(106-B/D oil equivalent)*
(Source: Table 6-3)
Year
Coal
Wyoming
Montana
North Dakota
New Mexico
Illinois
Kentucky
West Virginia
Ohio
Oil Shale
Colorado
Total
1980
0.1
0.15
1985
0.5
0.89
1990
1.5
1995
2.0
2000
0
0
0.025
0
0
0.025
0
0
0
0
0
0
0
0
0
0
.06
.125
.05
.08
.075
0
0
0
0
0
0
0
0
.39
.08
.275
.15
.33
.205
.08
0.
0.
0.
0.
0.
0.
0.
0.
99
58
650
20
78
48
18
15
1
1
1
0
1
0
0
0
.95
.6
.05
.20
.4
.90
.45
.45
3.0
6.0
2.0
10.0
*10S B/D is about 1.6 X 105m3/D.
35
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Table 10
STATES AND REGIONS WITH STRIPPABLE COAL RESERVES
SUFFICIENT TO SUPPORT A LARGE SYNTHETIC FUELS INDUSTRY
(Source: Table 6-8)
States
and Regions
Montana
Wyoming
North Dakota
Illinois/western
Kentucky
West Virginia/
eastern Kentucky
Strippable
Reserves
(109 tons)*
43
24
16
16
8.7
Number of 100,000-B/D
Plants Sustainable
for 20 Years
at 20 X 10s tons/year
110
60
40
40
22
*109 tons is about 907 x 109 kg.
36
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VI IMPLICATIONS OF THE MAXIMUM CREDIBLE
IMPLEMENTATION SCENARIO
The MCI has many implications for U.S. society, institutions, and
environments. The seven areas that the study team judged were most im-
portant because of their magnitude or the breadth of their impact are
discussed individually below. Although the discussions that follow
imply that these categories are independent, there are, in fact, many
cross-links in the impacts. For example, in the arid West, the avail-
ability of water is linked with the socioeconomic effects on communities
A. Impact Issues
9 10
1. Industrial Decision Making '
Industrial decisions to deploy commercial-scale synthetic
liquid fuel plants are obviously necessary to achieve the level of pro-
duction hypothesized in the MCI scenario--unless the federal government
decides to develop an enormous nationalized synthetic fuels industry.
Since only the petroleum industry is well-positioned to develop and
integrate synthetic liquid fuels into its business, the perceptions of
the future held by major oil companies and their perceived available
decision options become crucial to the future shape of the synthetic
liquid fuels industry.
37
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Several commonly held misconceptions about the oil industry
are relevant to the future of synthetic liquid fuels. The first mis-
conception is that there is a single "price" for crude oil in the world
market determined by balancing supply and demand. Ever since the OPEC
cartel set artificially high world prices for crude oil, the market
place has not determined price. Moreover,, even without OPEC, there
would be a variation in the price asked for crude oils because of the
variations in quality of oils. For example, because of air quality con-
trols, the sulfur content of crude oils used for burning is a very im-
portant determinant of price. In addition, U.S. oil prices are regu-
jL-
lated by the federal government. Interventions by the federal govern-
ment greatly complicate the process of corporate decision making because
the stability of the regulations is uncertain. Similarly, the institu-
tional stability of OPEC and its oil pricing policies is uncertain.
Another misconception about the oil industry is that there is
a single "cost" of producing crude oil with which the cost of syncrudes
might be compared. In reality, domestic oils are produced at a wide
range of costs that depend on such things as the difficulty of drilling,
ease of extraction from the field (self-pressured or pumped), the rate
of production, and rents or royalties. In general, the longer produc-
tion continues in a field, the less favorable recovery becomes. There-
fore, the operating costs of production generally increase with the age
of a field. In the United States there are hundreds of thousands of
*In an effort to hold down costs to the consumer, oil produced from
wells in operation before 1972 is called "old" and subject to a price
ceiling, while oil produced from wells not in operation in 1972 is con-
sidered "new" and can be sold at uncontrolled prices. Additionally, a
program of "entitlements" designed to spread among refiners the effects
of high cost imported oil is in effect. These definitions have been
changed several times through legislation.
38
-------
so-called stripper wells producing at a rate of less than 10 B/D
(1.6 m3/D); many of these wells represent last efforts to recover oil
from old fields by conventional means.
Compared with the small range in market prices for crude oil,
the range in production costs is very large—from just tens of cents per
barrel for Saudi Arabian oil to many dollars per barrel for most domes-
tic oils. Of course, a company ceases production from any given well
when its production costs equal the price it could bring on the open
market because this would be a zero-profit situation. For a similar
reason, because the oil industry believes that oil shale and coal syn-
crudes will cost more to produce than it would cost to purchase even
high cost OPEC oil, they refrain from starting syncrude production.
To illustrate how oil companies compare syncrudes with their
other options, Figure 5 shows the relationships among crude oil costs
and prices and the expected syncrude costs in 1973 before the Arab em-
bargo and Figure 6 shows the relationships after the Arab embargo, with
syncrude costs still uncompetitive, but less so than previously. The
cross-hatched area in Figure 6 represents possible conventional crude
production activities that were previously unprofitable but which would
now be profitable;* the dotted area represents the new conventional
crude activities that should still prove more profitable than syncrude
production if the world price of oil were to rise further.
Since decision makers in the oil industry see so many conven-
tional crude oil options still available that are more attractive than
syncrudes, it should come as no surprise that oil companies do not build
syncrude plants. Moreover, the possibilities encompassed by the dotted
*As long as OPEC kept its price up.
39
-------
z
o
o
rD
Q
O
DC
Q.
o
Conventional
Crude
Syncrude
Price
PERTINENT COSTS
FIGURE 5. PRE-OPEC CRUDE OIL SITUATION
Conventional
Crude
o
h-
o
Q
O
cc
a.
u.
o
LJ
s
o
>
N
\
\
N
\
Syncrude
PERTINENT COSTS
OPEC Price
FIGURE 6. POST-OPEC CRUDE OIL SITUATION
40
-------
and cross-hatched areas in Figure 6 are so large and so unknown (because
their previous unprofitability had led to their neglect) that oil com-
pany decision makers must consider several major uncertainties:
• The actual amounts of oil that can be found and produced
at costs less than syncrude (cross-hatched area of
Figure 6).
• The rate at which world petroleum prices might rise com-
pared with the time it takes to go from exploration to
production of syncrude.
• The time when syncrudes might be less costly than OPEC oil.
• The possibility that OPEC might reduce prices, again ren-
dering some of the new alternatives uneconomic.
• The question of whether U.S. energy policy will remain
stable enough to accept the risk of producing high cost
crude oils.
These sobering considerations appear to lead oil companies to continue
to study synfuels but to refrain from starting construction on actual
plants.
There is one final and fundamental uncertainty. The opportuni-
ties for oil exploration and production raised in the cross-hatched and
dotted area of Figure 6 are uncertain because no one knows the actual
amount of resources that might be located and produced in that price
range. By contrast, the production of the syncrudes is certain once a
plant is built, but the major uncertainty lies in the actual cost of
constructing and operating the plant for these commercially untried
processes.
2 . Capital Availability8
The MCI implicitly assumes that once the synthetic liquid fuel
industry becomes profitable, deployment on a large scale could be fi-
nanced. Industrial investment is normally financed either through
41
-------
retained earnings or in the national capital market through the instru-
ments of stocks, bonds, and loans.
The assumption that the existing petroleum industry could raise
the $89 billion (1973 dollars) cumulatively required to the year 2000
during a gradual transformation of itself into a synthetic liquid fuel
industry requires scrutiny. The marshalling of such a large amount of
capital must be appraised not only with respect to the industry's fi-
nancing ability but also with respect to its implied share of total U.S.
capital formation. Although financing the synthetic liquid fuels indus-
try stood out as a potentially very critical obstacle, it appears that
the nation could accomplish it readily.
The proper analysis is in terms of the oil industry cash flow.
It must be recognized that each profitable synthetic fuels plant would
generate retainable earnings that could be used to finance more plants.
In fact, because the future conventional petroleum industry will itself
become increasingly capital intensive, adding the financing requirements
for the MCI to the future financing requirements for the conventional
petroleum industry does not change the situation greatly. This finding
is demonstrated in Figures 7 and 8 for an economy with a general annual
rate of inflation of 5 percent. Figure 7 shows the expected cash flow
situation for a future oil industry based on conventional petroleum
alone, while Figure 8 shows the cash flow situation for an evolving
combined conventional-plus-synthetic petroleum industry.^ In both figures,
much of the growth shown arises from the inflation alone (at a 5-percent
*Presuming that the industry can be made profitable; an unprofitable
industry would be impossible to finance.10
tToward the end of the century domestic sources of petroleum will prob-
ably have capital investment requirements comparable to that of the
synthetic liquids industry.3
*The petroleum industry implied by HG1 plus the synfuels industry of
the MCI scenario.
42
-------
03
200 r-
180
160 -
140 -
o 120
Q
LU
100
o
Lu
O
co 80
z
o
_j
55 60
40
20
ANNUAL INFLATION RATE: 5%
INVESTMENT
PLUS DIVIDENDS-
NET INCOME AFTER
TAXES PLUS DEPRECIATION
m^M NEW BORROWINGS REQUIRED
I
1975
1980
1985 1990
YEAR
1995
2000
Source '. Figure 8-3
FIGURE 7 PROJECTED CASH FLOW FOR DOMESTIC OIL
AND GAS INDUSTRY-NO SYNTHETIC LIQUID
FUELS-AT A FIVE PERCENT ANNUAL RATE
OF INFLATION
200 i-
180
160
to 140
OL
120
LJ
cc
OL
O
u.
o
o
100
80
60
40
20
ANNUAL INFLATION RATE: 5%
INVESTMENT
PLUS DIVIDENDS-
NET INCOME AFTER
TAXES PLUS DEPRECIATION
BORROWINGS REQUIRED
I
1975 1980 1985 1990
YEAR
1995
2000
Source'. Figure 8-4
FIGURE 8. PROJECTED CASH FLOW FOR DOMESTIC OIL AND
GAS INDUSTRY - CONVENTIONAL ACTIVITIES
PLUS SYNTHETIC LIQUID FUELS-AT A FIVE
PERCENT ANNUAL RATE OF INFLATION
-------
inflation rate, the general price level doubles roughly every 14 years).
As Figures 7 and 8 show, the industry cannot finance itself from cash
flow alone and new capital must be attracted each year. This continued
need for new borrowing is caused by the inflation because depreciation
credits accrue in dollars of diminished purchasing power that cannot
actually finance plant replacement. In the year 2000, the combined
industry requires about $9.2 billion in new borrowings compared to the
conventional petroleum industry's requirement of $2.2 billion.
In the early 1970s, the petroleum industry constituted about
9 percent of total U.S. fixed business investment, but under the MCI,
by 1995 the combined natural and synthetic oil industry percentage would
double. Given the two decades to adjust, it seems likely that the U.S.
economy could accommodate to this increased fraction of business invest-
ment being made by the fuels industry.
3. Resource Depletion
Table 10 shows that if liquefaction and methanol synthesis were
the sole uses of coal, the demonstrated strippable reserve base* could
sustain about 270 synfuel plants, each producing 100,000 B/D (16,000 ms/D)
for their assumed 20-year long economic lifetimes. Since the coal derived
fuel production of the MCI would require 80 such plants in operation in
the year 2000, the industry could be sustained at that level for only
about 70 years on strippable coal reserves. However, if the very sub-
stantial increases in coal consumption expected for coal gasification
and electricity generation are also considered, then the strippable coal
reserves of Table 9 would last only about 40 years. This implies that
*Estimated in 1974 by the Bureau of Mines. This estimate is optimistic
because it includes inferred but unproven resources.
44
-------
a massive shift to the more expensive, more dangerous-to-mine underground
reserves would be necessary early in the twenty-first century if the
synthetic fuels industry were to continue.
4. Water Availability19'20
a. Legal Situation
In the states east of the Mississippi River identified
as candidates for mine-mouth synthetic liquid fuel plants (Table 5),
precipitation is high and fairly evenly distributed during the year.
There are many streams and large rivers. In those states ample water
appears to be available to supply the needs of the water-intensive syn-
thetic liquid fuel conversion plants.30
The use of water in the water-rich eastern states is
governed by riparian law (stemming from English common law). Under
riparian water law, rights to water are attached to the lands through
which or by which a stream flows. There are complex rules concerning
the transferring of water (from legally entitled lands) to other uses
(such as cities not situated on the streams). However, the abundance
of water in the East has generally left administration of the law flex-
ible and without even an enumeration of claimants and the basis of their
rights.20
In contrast to the East, the states of the West consid-
ered in Table 9 are arid, and precipitation is highly seasonal. As a
result, an entirely different approach to water rights has evolved in
which use of water is governed by the appropriation system. Under this
system, there are no riparian water rights; instead, the first claimant
to water is entitled to it, although he is often required to demonstrate
his claim by removing and using a certain amount of water in a stream.
Because this system does not require the claimant to possess lands near
45
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the stream, the water is often conveyed Long distances in water works
before being used.19
While the appropriation system establishes the basis for
a record-keeping procedure and a means to ascertain ownership of water
rights, in actuality, the situation is not so simple. Besides problems
of inadequate records, there is uncertainty about the relative rights to
water held by the federal government, the states, and the Indian tribes
who reside in the West.
In the aggregate, there is enough water physically pres-
ent in the West for the MCI, but it is almost always in the wrong place
and the rights to it are disputed. As a result, the understanding,
untangling, and resolution of the institutional issue of water avail-
ability in the western states is a critical issue in the development of
a synthetic liquid fuels industry.
Because about 50 percent of land in the affected western
states is in the federal domain, much of the water flowing in western
rivers originates on federal land. Potentially, the federal government
can assert claim to this water because it was never transferred to the
states when they were created out of the federal domain. Since federal
law takes precedence over state law, this could render previous alloca-
tions under state law effectively invalid.
Indian water rights are also a central issue because there
are two (still untested) theories of Indian water rights. The first is
that the Indians possess native rights to the water by virtue of being
the first inhabitants of the land. The second is that when the federal
government created the Indian reservations by treaty, the Indians were
also accorded water rights (but of uncertain quantity). Both theories
give Indian rights priority over most other claimants because they are
older than nearly all other claims.
46
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Since Indian water rights, at worst, derive from a treaty
with the federal government, they take precedence over state rights.
Consequently, many existing and relatively recently acquired water rights
may be rendered useless even though the claimants adhered to all the state's
formal procedures for establishing claims.
Although, from the above discussion, the federal govern-
ment and the Indians would seem to be dominant in the water picture of
the western states, historically it is the states that have played the
major role as disbursers of rights. The roles of the federal government
and Indians are only now rising to the fore. Most states have permit
systems for allocating water within their borders, but Colorado did not
institute its permit system before the Colorado River was over-allocated.
The discrepancy between physical and legal availability in the Colorado
River has not yet become important generally only because many rights go
unused or only partially used.
In addition to administering water within their borders,
western states are parties to interstate compacts that divide the waters
in major rivers among the states for further allocation to users within
their borders.
b. Water Quantities19
Table 9 showed major development in three states of the
upper Missouri River basin. As shown in Table 11 the water needed in
these states to support the MCI in the year 2000 is about 1.39 million
acre-ft per year for both mines and conversion plants. Other demands
for water are also expected to grow, including a reservation for mainte-
nance of in-stream values. These other demands are expected to total
2.89 million acre-ft per year as shown in Table 12.
47
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Table 11
NORTHERN GREAT PLAINS SYNTHETIC LIQUID
FUEL WATER DEMANDS IN THE YEAR 2000
(Sources: Tables 6-3 and 19-7)
Quantity
State (10s acre-ft/yr) :
Wyoming 0.584
Montana 0.479
North Dakota 0.326
Total"1" 1.390
*106 acre-ft/yr is about 1.2 X 109m3/yr.
tTotal does not add due to rounding.
Table 12
NORTHERN GREAT PLAINS* PROJECTED ANNUAL
CONSUMPTIVE USE OF WATER IN THE YEAR 2000
(Source: Table 19-6)
Quantity
Use (10s acre-ft/yr)^
Coal gasification and
electric power generation 0.620
Revegetation 0.031
Municipal 0.014
Agricultural 1.900
Fishery habitat and
wildlife improvement 0.320
Total* 2.890
*Wyoming, Montana, North Dakota.
tlO6 acre-ft/yr is about 1.2 X 109m3/yr.
does not add due to rounding.
48
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When compared to the 5.97 million acre-ft per year
o
(7.4 billion m /yr) unallocated and available (measured at Sioux City,
Iowa) in low water years, one can conclude that there is more than ample
water to meet all future needs in the basin in the year 2000.
While there may be ample water on a multistate basis, the
local occurrence of water does not match the distribution of coal and
lignite in these states. As a result, on a local and regional level,
if the MCI were to be implemented with mine-mouth plants, there would
be severe water shortages and shortfalls unless new storage facilities
and aqueducts were built to redistribute the water. Such redistribution
could often involve existing federal water storage reservoirs constructed
by the Bureau of Reclamation. However, nonagricultural use of water in
these reservoirs is being challenged because the Bureau of Reclamation's
enabling legislation specifies that its work should benefit agriculture.
In Colorado, the availability of water for the oil shale
conversion component of the MCI is less favorable. Since it would be
vastly too expensive to transport oil shale out of the basin for conver-
sion and disposal, the conversion industry must either secure water from
the Colorado River or develop the still largely unmeasured ground water
sources. In the year 2000, oil shale conversion plants under the MCI
scenario would use 0.321 million acre-ft per year (400 million m3/yr)
while other demands are expected to total 6.14 million acre-ft per year
(7.6 billion m3/yr) as summarized in Table 13. However, the Colorado
River Compact allots only 5.8 million acre-ft per year (7.2 billion
m3/yr) to the upper Colorado River Basin in which the oil shale lies.
Future withdrawals for any purpose will exacerbate the
already high salinity of the lower Colorado because it will mean less
*A compact among Wyoming, Colorado, Utah, New Mexico, Arizona, Nevada,
and California.
49
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flow to dilute salty return flows in the lower basin. Water delivered to
Mexico is already too saline and desalting plants are planned to honor
U.S. obligations to Mexico.
Table 13
PROJECTED NON-OIL SHALE WATER DEMAND IN THE
UPPER COLORADO RIVER BASIN IN THE YEAR 2000
(Sources: Chapter 19 and Table 19-10)
Quantity
Use (10s acre-ft/yr)*
All existing 3.710
Future
Coal gasification 0.140
Electric power generation 0.475
Mineral production 0.115
Municipal 0.750
Agricultural 0.800
Environmental protection
(fish, wildlife, water quality) 0.150
Total 6.140
10s acre-ft/yr is about 1.2 x 109m3/yr.
The cost of water is only a very minor component of the
total cost of producing syncrude from oil shale. As a result, the oil
shale industry could easily afford to pay much more for water than could
agricultural interests without there being a significant effect on the
cost of their product. By contrast, most agriculture in the region,
which is dependent on irrigation, requires low cost water to produce
crops at competitive costs. Agricultural interests in the Upper Colorado
Basin are concerned that enough political pressure will develop in favor
of oil shale to force future allocations of water away from farming and
ranching to the synfuel industry, partly on the basis of the willingness
of the fuel industry to pay a high price. Water allocations governed by
50
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the willingness to pay for water would certainly result in the diversion
of water from agriculture to the oil shale industry—at least for future
allocations. It is not apparent, however, that existing agriculture
would necessarily lose water because 4 million B/D of oil shale syncrude
(twice the MCI) could be produced with 0.8 million acre-ft/year (1 bil-
lion m3/yr) of water identified in Table 13 as needed for future growth
in agriculture.
c. Transport of Coal to Save Water19
Unlike oil shale, coal can be shipped economically to
water-rich areas for conversion. The two methods of coal shipment po-
tentially most appropriate for western coal are unit trains and coal
slurry pipelines.
A unit train is a train dedicated to a single use; it
shuttles back and forth between the source of its cargo and end use
locations. A unit train that carries coal from mine to processing point
typically consists of 100 cars, each capable of carrying 100 tons (9.1 x
104 kg) of coal. Even though the train returns to the mine empty, such
10,000-ton (9.1 X 106 kg) unit trains are the cheapest method of moving
coal by rail.
Coal slurry pipelines are relatively recent developments.
The largest in the U.S. is a 273-mile (440 km), 5-million ton per year
(4.5 billion kg/y) pipeline that links the Black Mesa mine in Arizona
to the Mohave Power plant on the Colorado River in Nevada. In the for-
mation of a slurry, finely crushed coal is mixed with water in about
50-50 proportions. The mixture can be pumped readily through a pipeline.
At its destination, the coal is dewatered in centrifuges.
Slurry pipelines require only about one half as much water
per ton of coal as a coal liquefaction plant. Thus, by exporting coal
51
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from a mine by slurry pipeline to the location of a coal liquefaction
plant elsewhere, the water demand in the mining region is reduced by
half. Railroads, of course, require almost no water in the mining
region.
Both railroads and slurry pipelines have advantages and
disadvantages. The advantages of railroads include the ability to phase
in incrementally, flexibility of routes, and existing facilities. The
disadvantages of railroads include the susceptibility to labor disputes,
disruption to crossing auto traffic, and noise. The advantages of slurry
pipelines include high reliability, small labor force, immunity to
weather, ability to traverse more rugged terrain than can railroads,
aesthetics of being placed underground, and the movement of coal for
less money and energy cost than that entailed in rail transport. The
disadvantages of slurry pipelines include fixed route, restriction to
single product, and exports of water from water-poor regions.
Currently there is controversy about the relative desira-
bility of slurry pipelines and railroads for coal transport. Railroads
generally oppose slurry pipelines because they want the coal hauling
business themselves. Since slurry pipelines would usually have to cross
railroad rights of way, the railroads have been refusing to grant cross-
ing rights. Congress is considering bills that would grant slurry pipe-
lines powers of eminent domain to enable them to cross railroad rights
of way.
Although, as presented here, the question of the use of
slurry pipelines for coal shipment is centered on the issue of water
availability, it is easy to see that the question quickly broadens to
include the future viability of railroads and their value to society
above and beyond hauling coal.
52
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5. Economic Spin-Off Effects11
The deployment of a synthetic liquid fuels industry will natu-
rally affect many supporting industries and the labor market. The
industrial sectors that will be most affected by the mining of the fos-
sil resources, their transport, and the construction of conversion fa-
cilities are steel (raw and finished specialty goods), railroads, explo-
sives and heavy equipment. Such industries are heavily concentrated in
Illinois, Indiana, Ohio, Michigan, and Pennsylvania. Thus, although the
development of a synthetic liquid fuels industry might be heavily con-
centrated in the resource-rich states of the West, substantial economic
and employment spin-offs would result in the states with the heavy sup-
port industry. Figure 9 shows the geographical concentration of this
economic spin-off.
Steel needed to support the MCI would result in the energy
industry gradually increasing its share of the total steel produced in
the United States from about the current 7 percent to about 11 percent.
While the gross figures for steel availability do not suggest
problems, the availability of specialty steels, castings, forgings, and
special equipment such as mining draglines, compressors, and pumps will
quite Likely present a bottleneck because lead times are already long in
the fabrication industries and they cannot expand capacity rapidly. Cur-
rently, there are only one or two suppliers for some items. In addition,
coal liquefaction, oil shale, and methanol facilities require large pres-
sure vessels made of special steels and will have to compete for these
vessels with the expanding coal gasification and nuclear power industries
Although the MCI assumes conversion facilities near the mine,
transportation of the coal to distant locations is sometimes considered.
Railroads presently carry 78 percent of all coal to market, and this
amounts to 20 percent of all rail traffic. If the MCI coal were all
53
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NOTE : BASED ON 1967 INPUT/OUTPUT DATA
OF THE UNITED STATES ECONOMY
Source : Figure 11-2
FIGURE 9 . PRIMARY CONCENTRATION OF MAJOR INDUSTRIAL SECTORS EXPECTED
TO SUPPLY THE COAL AND OIL SHALE INDUSTRY
-------
transported by rail for conversion far from the mine, over 300,000 more
hopper cars would be required, and this exceeds the expected production
capacity for such cars. These cars also require castings and forgings
adding yet another strain on this component of the steel industry.
6. Environmental Effects
a. Reclamation of Coal Strip Mines13-15
Mining of both coal and oil shale presents severe envi-
ronmental problems that cannot be alleviated simply. As noted earlier,
the high production cost of synthetic liquid fuels from coal will neces-
sitate the use of the cheapest possible coals—those obtainable by strip
mining.
Strip mining for coal requires different equipment and
procedures in different regions of the country because of the variation
in the nature of the coal deposits. In Appalachia, strip mining takes
place along hillsides where thin seams of coal outcrop. Extraction of
such coal entails digging into the hillside until the thickness of the
overburden becomes so great that its removal precludes economical recov-
ery of the coal. For many years, after the overburden was removed it
was merely pushed down the hillside away from the mining activity and
abandoned. As a result, the many mined-out hillsides in Appalachia are
badly scarred with the highwalls, benches, and downslopes spoil piles
(see Figures 10 and 11) as well as a multitude of poorly built, aban-
doned mine access roads. These scars erode easily in the heavy rains
and are slow to revegetate naturally .
Today, most strip mining in Appalachia employs improved
materials handling procedures designed to eliminate much of the downslope
disturbance by returning overburden to the bench and breaking down the
highwall after the coal has been removed. Provided that toxic spoils
55
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OVERBURDEN
HIGHWALL
COAL
BENCH
Source • Figure 13-5
FIGURE 10. DIAGRAM OF A CONTOUR MINE
£-— SPOILS
^$$$mmm
L SITE PREPARATION
2. DRILLING & BLASTING OVERBURDEN
3. REMOVAL OF OVERBURDEN
4. EXCAVATING & LOADING COAL
Source '• Figure 13-6
FIGURE II. CONTOUR STRIP MINING
56
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are buried deep and the best soils are replaced on the top, the disburbed
land can be revegetated. The ample moisture in Appalachia would make
revegetation and reclamation reasonably successful if the hillsides were
not steep. The steep hillsides and large amount of land disturbed per
unit of coal produced makes reclamation in Appalachia costly to achieve
and protect against erosion until revegetation has stabilized the surface,
In the Midwest, the Northern Great Plains, and parts of
the West, where coal lies near enough to the surface to allow strip min-
ing, extraction of the coal is much more straightforward. The overburden
is removed from a large area, coal is removed, and then the spoils are
replaced in the hole. Since the coal underlies relatively flat terrain
in large sheets that are also generally thicker than in Appalachia, far
less area is disturbed per unit of coal removed. Indeed, in parts of
the Northern Great Plains coal, seams are 30 to 100-ft (9 to 30 m) thick
and mining can assume the form of an open-pit operation that resembles
quarrying (see Figures 12 and 13).
In the Midwest, the deep soils, ample rainfall, and rela-
tively level terrain make reclamation fairly successful whenever it is
planned as an integral component of the mining plan. Were it not for the
arid conditions in the West and Northern Great Plains, reclamation there
would be similarly successful. However, the low and very seasonal pat-
tern of rainfall in these regions makes it difficult to reestablish self-
sustaining vegetation. Although some success has been demonstrated,
there has not been time enough to insure that the new vegetation can sur-
vive without continued human care.
Restoration of mined lands is an issue that has stirred
the national consciousness and has resulted in repeated attempts to pass
strict federal and state strip-mine reclamation laws. Because of this
and the likely focus of future strip mining activities in the arid West,
reclamation of mined lands is a critical factor in the deployment of any
57
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Source'- Figure 13-8
BENCH
FIGURE 12. DIAGRAM OF AN AREA MINE
Source: Figure 13-9
FIGURE 13. AREA STRIP MINING WITH CONCURRENT RECLAMATION
58
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significant synthetic liquid fuels industry--even one much smaller than
the MCI.
b. Reclamation of Mined Oil Shale Lands14 >15
The mining and restoration of oil shale lands is a con-
siderably different matter. The volume of oil shale that must be handled
to produce a given quantity of synthetic crude is about three times the
volume of coal that would be handled for the H-coal process (see Table 4)
Not only is the volume of material extracted and processed larger, but
the volume of waste material requiring disposal is also vastly larger
because the volume of spent shale exceeds the volume of raw shale.
Oil shale usually occurs in deposits so thick that the
mining of it underground resembles quarrying (except under a roof) as
shown in Figure 14. Open-pit surface quarrying would often also be
suitable. In either case, in principle, spent shale could be returned
to the mines once mining activities had ceased. In practice, however;
disposal somewhere else would be required during early stages of the
industry. Some additional disposal sites would be required to accom-
modate the excess volume of spent (compared to raw) shale. Since oil
shale country is heavily cut with canyons, the general expectation is to
fill canyons with spent shale. Revegetation of this spent shale has not
been successfully demonstrated on a large scale and over a long enough
period to be certain that it can survive after human attention wanes.
Disposal and reclamation of spent oil shale is a critical environmental
factor.
c. Air Quality16
By any measure, the synthetic liquid fuels plants being
considered here are large, heavy industrial plants and are potential
sources of air pollutants.
59
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Source '• Figure 14- I
FIGURE 14. UNDERGROUND OIL SHALE MINING BY THE ROOM AND PILLAR METHOD
-------
Three classes of nondegradation standards have been de-
fined by the Environmental Protection Agency for regions presently pos-
sessing air quality equal to or better than federal secondary standards:
*
• Class I—only slight degradation of air quality
• Class II--allows modest decline in air quality, com-
patible with light industry or carefully controlled
heavy industry.
• Class III--essentially equivalent to the federal
secondary standards.
Emissions from each of the three processes selected for
this study have been examined under the assumption that the best avail-
able emission control technology would be applied and that the most
relevant ambient standards are the federal Class II "nondegradation"
standards.
The best available controls appear to be inadequate for
a single oil shale conversion plant (with the emission levels available
to this study) "f to meet Class II standards. Particulates and sulfur
dioxide emissions require 85 and 72 percent more control, respectively.
A single coal liquefaction plant could successfully meet
Class II standards without additional control of emissions. However,
dispersion modeling of the air quality impact of a complex of four
liquefaction plants in Wyoming's Powder River Basin under worst-case
*Class I standards are so strict that they, in effect, preclude indus-
trial activity, and therefore essentially contradict the assumption
that the conversion plants exist.
tRevised emissions for the TOSCO II process have recently been released
in the draft Environmental Impact Statement for the "Proposed Develop-
ment of Oil Shale Resources by the Colony Development Operation in
Colorado" (December 1975).
61
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wind conditions shows that although a single plant could meet Class II
standards, additional control of particulates would be required to enable
a complex of plants to meet the standards. Since the MCI hypothesizes
about 18 plants in Wyoming in the year 2000, probably with 5 to 10 in
the Powder River Basin area, it is apparent that development and use of
improved air quality controls technology will be essential to meet plaus-
ible ambient air quality standards.
Although it appears that a complex of well-controlled
plants would not result in air quality as bad as that found in many
major cities, there would be major deterioration below present levels.
Since holding air quality deterioration to the level of Class II stand-
ards requires controls beyond the best available today, air quality
control represents a very important critical factor in deployment of a
synthetic liquid fuels industry. If states do not select their ambient
air quality standards uniformly, then the industry will tend to locate
in the areas with the least stringent standards.
d. Urbanization1
Rapid rates of population growth in areas now sparsely
populated leads to the creation of boom towns in which environmental
quality protection measures are usually inadequate. Sewerage, storm
run-off, solid waste disposal, and other environmental protection facil-
ities usually cannot keep pace with the population influx and, as a
result, environmental quality can be seriously impaired at the local
level. In addition, new population increases demands for outdoor
recreation--demands that often result in excessive hunting, fishing,
use of off-road vehicles, and vandalism of archeological or scenic re-
sources. (Social effects of boom towns are described later.)
62
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7. Social Consequences
Establishment of a synthetic liquid fuels conversion plants in
the vicinity of the mines will result in urbanization of previously rural
areas. Table 9 (above) shows the hypothesized MCI geographical distri-
bution of the industry and indicates that some sparsely populated west-
ern states, especially parts of Montana, Wyoming, North Dakota, and
Colorado, would be at the center of much of this activity.
Each mine or conversion plant can be considered to create new
primary employment that would be supplemented by secondary industrial
and domestic support employment for workers and their families. Fig-
ure 15 shows how primary jobs create additional employment. The overall
Resource Mining and Conversion Employment
Mining
Miners
Managers
Conversion Facilities
Operators
Managers
Related
Periphera
Employme
<
|te
•
nt
Support Employment
Created by Domestic
Requirements of
Employees and Families
Families Associated with Foregoing Employment
Source : Figure 23- 2
FIGURE 15. BASIS OF POPULATION MULTIPLIER
63
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population change can be summarized by defining a population multiplier--
a number which, when multiplied by the number of primary jobs, indicates
the total associated population. There is considerable uncertainty in
the exact value appropriate for population multipliers for the industries
in question, but a value of 6.5 has been used since values near this have
been judged appropriate to these areas in the past.
Figure 16 presents time profiles of the total population (in-
cluding the multiplier effect) expected to be induced by the various kinds
and sizes of plants considered in the MCI. For example Figure 16 shows
that a single 100,000-B/D (16,000 m3/D) coal liquefaction facility would
have an associated population of more than 15,000 people during its op-
erational phase. If one considers as an example Campbell County in
Wyoming's Powder River Basin in which the 1975 population is only about
18,000 people, it is evident that even a single coal liquefaction plant
could profoundly alter small existing communities. Figure 17 shows the
effect of the MCI on population growth in Campbell County from now to
2000--presuming that only one quarter of the Wyoming activity indicated
in Table 9 located there. The population growth rate shown in Figure 17
averages about 9 percent per year, but in some years there are large
jumps—as much as 10,000 people in a population of 60,000. Such abrupt
changes are not easily absorbed by communities. Figure 18 shows the
effect of the MCI on the oil shale region of Colorado. The average
annual population growth is about 17 percent.
Whether population growth and community alteration are bene-
ficial or detrimental is a matter of opinion--opinion, which strongly
depends on the background, location, and economic interests of the
holder. For example, some feel that urbanization is beneficial because
of the likely attendant economic prosperity, while others feel that eco-
nomic prosperity is not worth the change in lifestyle and loss of soli-
tude. Still others believe that the attendant environmental effects
64
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05
tn
25
!20
i
!l5
! I0
>
' 5
0
I 10
.
o o
"O IE
c !5
o
tn
° 10
T
j 5
Q.
o
So
10
O =
LiJ O
o-£ 0
TIME-
A. COAL LIQUEFACTION 100,000 B/D
TIME-
B. COAL LIC3UEFACTION 30,000 B/D
TIME-
C. OIL SHALE 100,000 B/D
TIME
D. OIL SHALE 50,000 B/D
Source: Figure 22-I
20
S l5
1,0
S; 5
30
«, 25
T3
I 20
O
,c
T 15
5
0
I 15
o
o 10
I
Q_
O
OPERATION
TIME »-
E. METHANOL 50,000 OEB/D, STRETCHED OUT CONSTRUCTION PERIOD
TIME-
F. METHANOL 50.OOO OEB/D, NORMAL CONSTRUCTION PERIOD
^3'
JSSS-x
(CON"
?^^i
^^
^%5
YEAR-
/////.
5TRUC
&~///>l
m
^fyi
nojyj
OPERATION
TIME-
6. METHANOL 25,000 OEB/D
FIGURE 16 . TOTAL POPULATION ASSOCIATED WITH INDIVIDUAL PLANT CONSTRUCTION
AND OPERATION BUILDING BLOCKS. All building blocks include the mines
that supply the plants. The actual labor force is multiplied by 6.5 to account
for induced secondary employment and families. The data for these building
blocks come from the scaling factors derived for the Maximum Credible
Implementation Scenario.
-------
PERMANENT LABOR FORCE AND
ASSOCIATED POPULATION
CONSTRUCTION LABOR FORCE
AND ASSOCIATED POPULATION
(I ) 30,000 B/D SYNCRUDE
(2) 50,000 OEB/D METHANOL
100,000 B/D
COAL SYNCRUDE
50,000 OEB/D
METHANOL
100,000 B/D
COAL SYNCRUDE
50,000 OEB/D METHANOL
30,000 B/D COAL SYNCRUDE
20 -
10 -
1975 1980
Source: Figure 22-2
1985
1990
1995
2000
YEAR
FIGURE 17, EFFECTS OF THE MAXIMUM CREDIBLE IMPLEMENTATION
SCENARIO ON POPULATION IN CAMPBELL COUNTY,
WYOMING. Assumes that one quarter of all the Scenario's
development in Wyoming occurs in Campbell County.
This assumption is expected to be on the low side.
66
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OPERATING LABOR FORCE
ASSOCIATED POPULATION
CONSTRUCTION LABOR AND
FORCE AND ASSOCIATED
POPULATION
1975
I960
1985
1990
1995
YEAR
Source : Figure 22-10
FIGURE 18 MAXIMUM CREDIBLE IMPLEMENTATION SCENARIO
FOR OIL SHALE DEVELOPMENT IN GARFIELD AND
RIO BLANCO COUNTIES, COLORADO. The resulting
onnuol population growth rate is about 17 percent.
2000
67
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(mining, air pollution, use of scarce water resources, etc.) would be
intolerable, yet some believe that the nation's need for liquid fuels
should override all other considerations.
Certain social consequences of deploying a liquid fuel indus-
try of the size of the MCI in rural areas seem indisputable:
• Creation of a boom town rate of growth and atmosphere.
• Dislocation of the traditional economic base.
• Alterations of the lifestyle of the resource region,
from rural to urban-industrial.
• Value conflicts between the newcomers and old timers.
Each of these effects give rise to important social problems.
a . Boom Towns31'2 3
Population growth rates that lead to boom towns, create
problems in the establishment and maintenance of reasonable community
services. The absence of such services can severely diminish the qual-
ity of life. One of the first manifestations of a rapid population
growth is a housing shortage. When this occurs, especially in rural or
semirural areas with weak zoning, temporary mobile home units substitute
for permanent structures. When rapid growth is sustained, these tempo-
rary buildings tend to become a permanent rather than transitory feature
of the community. This tendency is reinforced because many of the new
residents are uncertain how long they will remain in the community, and,
as a result, they are skeptical of investing their savings in substan-
tially built homes or commercial buildings.
Another problem endemic to rapid growth is the lag of
vital public community services behind their need. There are several
causes: first, the need for public investments generally precedes the
collection of tax revenues that can pay for them. Second, previously
68
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rural communities, possessing an attitude of independence of action free
of social controls urban residents take for granted, are reluctant to
accept the planning bureaucracy necessary to organize and coordinate a
rapidly growing community.
The first community services to fall behind needs are
those that require construction before construction of shelter and busi-
ness can proceed--potable water supplies and sewerage, for example. Next
to lag are those that require trained staff, equipment, and specialized
buildings—police and fire protection, hospitals, schools, and welfare
counseling, for example. In addition to the lag in public community
services, there is usually a lag in privately provided community serv-
ices—doctors, dentists, and recreational businesses such as theaters
and bowling alleys.
Boom towns are usually marked by instability and a high
incidence of social malaise--divorce, mental health disorders, alcoholism,
crime and suicide--partly because of the attitudes of people attracted to
such towns and partly because of the lag in provision of services affect-
ing the quality of life. It is not difficult to see that the effects
tend to be reinforcing. An indifferent sense of community, the preva-
lence of personal problems, and an abundance of temporary or make-do
facilities discourages both economic and psychological investment in a
permanent, more satisfying community. These effects also contribute to
a reduced productivity of workers.
Not all small communities oppose development, and they
often induce industries to locate in their vicinity. Frequently the
inducement is a forgiving of property tax for several years. This prac-
tice naturally adds considerably to the problem of tax lag.
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However, some local governments that anticipate a boom
caused by industrialization have sought to avert the tax lag problem by
requiring prepayment of industrial taxes or requesting, in advance,
corporate contributions for hospitals and schools. Acceptance of this
notion of providing "front end" money to help avert problems of growth
is apparently gaining ground with the major petroleum companies most
likely to develop synthetic fuels. They apparently see the practice as
enlightened self-interest, for they recognize the productivity benefits
of a stable work force living in a satisfying community. Moreover, pro-
vision of substantial front end money to a community often adds little
to the hundreds of millions of dollars necessary to construct any of the
plants considered and has considerable benefit for the corporate image.
b. Value Conflicts31'53
In many of the potentially affected communities in west-
ern states, the idea of development of coal or oil shale mines and fuel
conversion plants is not warmly received because the residents feel they
lack a meaningful voice in the decisions that affect their future. The
origins of such feelings are easy to discover:
» Coal or oil shale mineral rights are generally held
by the federal government while local residents own
the surface rights.
* Mineral rights are paramount over surface rights and
the federal government can lease the mineral rights
without the surface owners' permission.
0 Coal mining, petroleum, and electric power companies
seeking to mine and convert the coal represent "out-
side" interests.
• Pressures for development arise from a national need,
while the most acute social and environmental impacts
would be felt at the local level.
*In effect, sell.
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As a result, the feeling that the local or regional in-
terests are being subordinated to the national interest is common.
Moreover, local people often recognize that once the process of indus-
trialization begins, their attitudes, values, and political orientations
would be displaced by those of the new settlers who will be economically
dependent on the new industrialization.
Because of the very real problems associated with boom
rates of growth, and the value conflicts that arise between the local or
regional interest and the national interest, coping with the social ef-
fects of synthetic liquid fuel development will be very important — so
important that the social consequences of boom towns are a potential
critical inhibiting factor to deployment of the industry.
B. Summary of FactorsCritical to MCI Deployment
Several of the considerations discussed above are critical factors,
for without alteration in their disposition, deployment of a large syn-
thetic liquid fuels industry will founder. The critical factors can be
summarized as follows:
• Economic and risk factors affecting corporate decision making
- Synthetic fuel compared to conventional fuel costs must be
accurately determined.
- Federal policies towards synthetic fuels subsidization re-
quire clarification.
• Water demands compared with its availability
- Physical transfers of water may be indicated.
- Institutional resolution of water rights and their transfer
is essential.
*Conversely, in the country at large, the feeling that the national
interest was being held hostage to narrow local interests could easily
arise.
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• Reclamation of mined lands
- Acceptable procedures that will result in stable ecosystems
after close husbandry ceases must be demonstrated.
- Rules and regulations must be established and stably main-
tained so that business decisions can be made.
• Air pollution control
- Nondegradation air quality classifications must be estab-
lished for candidate regions so that decisions can be made.
- Emissions control technologies must be improved; otherwise
a complex of plants will not meet established standards.
• "Boom" growth rates (especially in the West)
- Planning and mitigation measures must be undertaken before,
rather than after, damage occurs.
- New mechanisms for cooperation among all levels of govern-
ment and industry are needed.
• Value conflicts in the West
- Conflicts between newcomers and previous residents concerning
industrialization will occur.
- Conflicts between states of between regional interests and
the national interest will arise.
Although many of these impacts appear to be extremely undesirable
and could easily give rise to the sentiment that the idea of a synthetic
liquid fuel industry should be abandoned, the impacts of the major al-
ternative course of action—all-out production of domestic oil (Sec-
tion II) would also lead to significant undesirable impacts. Therefore,
the nation and its energy policymakers are faced with an array of very
serious tradeoffs that cannot easily be decided to the simultaneous
satisfaction of large segments of the public.
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VII THE EFFECT OF INTRODUCING A SYNFUEL INDUSTRY
ON A CONSTRAINED-GROWTH BASIS
Many of the impacts raised by the critical factors in MCI deploy-
ment listed in Section VI-B can be alleviated by limiting the number of
conversion plants in a given area since this also restricts the rate of
population growth and the amount of water consumed. This would require
shipment of coal to other regions for conversion. Dispersing the coal
conversion industry, however, does not alleviate problems of mined land
reclamation and corporate risk.
Following the procedures in Figures 17 and 18, controlled growth
scenarios have been prepared so that their implications for fuel produc-
tion, population growth, and water demand can be examined. These con-
trolled growth scenarios are presented and discussed below.
A. Growth Constrained Scenarios33'33
The growth constrained scenarios that follow relate to experience
in urban growth patterns. Annual growth rates of 10 percent or more are
essentially unmanageable because urban services continually lag the popu-
lation and the effects of "boom" growth become chronic. Annual growth
rates of 5 percent are also high and considered difficult, but not impos-
^
sible, to handle.
*During the decade of 1960 to 1970 Santa Clara County, California, one of
the fastest growing counties in the nation, exhibited about a 5 percent
annual growth rate. Yet as part of the four-county urban metropolis in
the San Francisco Bay Area, Santa Clara County was able to draw upon
services (such as hospitals) in nearby communities which would not be
available in the rural resource-rich areas under consideration in this
study.
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It is assumed in the scenarios that existing small cities and towns
serve as nuclei for settlement and receive about 80 percent of the new
population with the remaining 20 percent settling nearby. The population
multiplier applied to primary jobs in mining and conversion facilities
has again been assumed to be 6.5.
Figures 19 and 20 show, respectively, 10 percent and 5 percent popu-
lation growth constrained scenarios for the oil shale region of Colorado.
These seem tame compared to the growth rate of about 17 percent implied
by the MCI and shown in Figure 18. Of course, the fuel outputs in the
year 2000 are correspondingly less than the 2 million B/D (320,000 m3/D)
of the MCI—1.5 million B/D (240,000 m3/D) in the 10 percent case and
0.4 million B/D (64,000 m3/D in the 5 percent case. Water demands also
decline proportionately to the fuel output.
Figure 21 shows a 5 percent population growth constrained scenario
for Campbell County, Wyoming, and can be compared with Figure 17. As in
the oil shale case, the total liquid fuel produced in the region is much
reduced—down from the 600,000 B/D of the MCI scenario to about
300,000 B/D (48,000 m3/D) in the year 2000. In Figure 19 the abrupt
jumps in population, which cause large problems in communities, remain;
however, Figure 20 shows that the abrupt jumps in population can be
avoided by restricting conversion plants to the 30,000-B/D (4,800 m3/D)
size and by carefully phasing the start of construction. In this case
the same 300,000 B/D (48,000 m3/D) can be produced by the year 2005 but
with a population growth history that is considerably more manageable.
Figure 22 clearly illustrates the potential value to the impacted com-
munity of controlling plant size and construction starts while only
delaying the achievement of the 300,000-B/D fuel output by 5 years, to
the year 2005.
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PERMANENT LABOR FORCE AND
ASSOCIATED POPULATION
CONSTRUCTION LABOR FORCE
AND ASSOCIATED POPULATION
1975
1980
1985
1990
1995
YEAR
Source '. Figure 22-9
FIGURE 19 . TEN PERCENT CONSTRAINED POPULATION GROWTH
SCENARIO FOR OIL SHALE DEVELOPMENT IN
GARFIELD AND RIO BLANCO COUNTIES, COLORADO
2000
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PERMANENT LABOR FORCE
AND ASSOCIATED POPULATION
CONSTRUCTION LABOR FORCE
AND ASSOCIATED POPULATION
2000
FIGURE 20 FIVE PERCENT CONSTRAINED POPULATION GROWTH
SCENARIO FOR OIL SHALE DEVELOPMENT IN
6ARFIELD AND RIO BLANCO COUNTIES, COLORADO
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PERMANENT LABOR FORCE AND
ASSOCIATED POPULATION
CONSTRUCTION LABOR FORCE
AND ASSOCIATED POPULATION
1975
I960
1985
1990
1995
2000
YEAR
Source: Figure 22-3
FIGURE 21. FIVE PERCENT CONSTRAINED POPULATION GROWTH
RATE SCENARIO FOR CAMPBELL COUNTY, WYOMING
ILLUSTRATED WITH COAL LIQUEFACTION PLANTS AND
ASSOCIATED MINES. The lorger sized plants cause rapid
changes in population.
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PERMANENT LABOR FORCE
AND ASSOCIATED POPULATION
CONSTRUCTION LABOR FORCE
AND ASSOCIATED POPULATION
1975
1980
1985
1990
1995
2000
YEAR
Source • Figure 22-4
FIGURE 22 . MODIFIED FIVE PERCENT CONSTRAINED POPULATION
GROWTH SCENARIO FOR CAMPBELL COUNTY, WYOMING
ILLUSTRATED WITH COAL LIQUEFACTION PLANTS AND
ASSOCIATED MINES . By building only the smaller sized
coal liquefaction plants, large fluctuations in population
can be avoided
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190
ISO -
TJ
c
O
O
CL
O
CL
PERMANENT LABOR FORCE
AND ASSOCIATED POPULATION
CONSTRUCTION LABOR FORCE
AND ASSOCIATED POPULATION
6MINES @5MT/Y
1975 1980
Source : Figure 22-5
1985
1990
1995
2000
YEAR
FIGURE 23 . FIVE PERCENT CONSTRAINED POPULATION GROWTH
SCENARIO FOR CAMPBELL COUNTY, WYOMING IN
WHICH ONLY COAL MINES ARE DEVELOPED. Under
these conditions growth in population can be made very
smooth. By 2000, 54 mines, each producing 5 million
tons/year, would be exporting 270 million tons of coal
per year.
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Figure 23 shows that a coal-rich area such as Campbell County,
Wyoming, can control its future even more by allowing coal mines but
disallowing conversion plants, thereby forcing coal to be shipped to
other regions for conversion. The growth rate shown in Figure 23 is
almost smooth, and yet mining activity reaches a very high level—some
300 million tons per year (270 billion kg/yr) in the year 2000. (This
level of production can support about 17 coal syncrude plants.) This
mitigation measure of exporting coal from the region is much less
feasible in regions with low quality coals, such as the lignite areas of
North Dakota, and is not available at all to the oil shale regions.
Table 14 compares fuel production, water demand, and total popula-
tion for the MCI and the 5-percent population growth constrained sce-
narios of Figures 18 and 20.
Table 14
COMPARISON OF MCI AND FIVE PERCENT POPULATION
GROWTH CONSTRAINED SCENARIOS, FOR THE YEAR 2005
Campbell County (coal)
Fuel production (10s B/D)*
Water demand (103 acre-ft/yr)
Population (103 people)
Garfield and Rio Blanco
counties (oil shale)
Fuel production (103 B/D)*
Water demand (103 acre-ft/yr)
Population (103 people)
MCI
600
300
108
Growth
Constrained
300
80
55
Coal Export
by Rail
-0
52
2000
314
244
400
60
78
*103 B/D is about 160 m /D.
tlO3 acre-ft/yr is about 1.2 X 106m3/yr
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B. Implications of Constrained Growth
While the implications of the growth constrained scenarios are
favorable for the communities involved, they clearly result in much less
fuel production and thus may not be favorable to the national interest.
It seems clear, however, that the difference in fuel production could be
made up by locating conversion facilities in other regions.
Although the local impacts are lessened in the growth constrained
scenarios, many underlj^ing problems persist:
• The need for front-end money for community services.
• Value conflicts between previous residents and newcomers.
• Occasional abrupt changes unless both plant size and con-
struction timing is closely managed.
• Water demands that strain water allocation procedural
institutions.
• Air quality degradation and other adverse environmental
impacts.
Managing these impacts would still require planning to a degree untypi-
cal in such areas. New degrees of government and industrial cooperation
would be required to put growth constraints into practice.
An important side benefit of the growth constrained approach it
permits time for those on whom the responsibility for water allocation
rests to face up to the problems and to devise a solution in an atmo-
sphere that is less tense than it might otherwise be.
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VIII PUBLIC POLICY CONSIDERATIONS RAISED
BY THE IMPACT ISSUES
There are many ways in which public policy — especially at the fed-
eral level — can affect the prospects for realization of a synthetic
liquid fuels industry and thereby help determine the consequences of
such an industry.
The federal government has broader concerns than merely the profit
realized on a synthetic fuel plant. It recognizes the need to provide
a stable long-term domestic source of energy to the nation and appreci-
ates the long lead time necessary to put a new industry in place. The
deployment of synthetic fuels plants is also seen as an instrument of
foreign policy by the federal government. At the same time, since the
government is concerned with human welfare and environmental quality, it
is also rightfully interested in the adverse as well as beneficial as-
pects of the synthetic fuels plants.
A. Financial Aspects of a Synfuel Industry9'1°
For synthetic liquid fuels to be produced commercially, the parties
who must either raise or provide the large amounts of capital needed must
be convinced that the plants will provide a profit and that the associ-
ated risks are commensurate with the expected return on investment. Cur-
rently, the sentiment is that there are many far less risky investment
opportunities open to both the oil industry (such as investing in more
conventional sources of oil or diversifying) and the investment bankers
who have many investment opportunities beyond the energy industries.
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The federal government has been debating measures designed to get
the synthetic liquid fuels industry under way—at least far enough along
to determine more accurately its true economic, environmental, and social
costs. The government has considered various forms of subsidization:
• Loan guarantees
• Federal lending
• Tax incentives
• Price supports
• Guaranteed product purchases.
Such measures have been debated in Congress, but, so far, none has been
accepted. The U.S. Energy Research and Development Administration (ERDA),
however, does have a limited budget allocated to demonstration plants.
One possible federal alternative that has not yet received much
attention is direct federal participation in investment. In World War II,
the federal government financed synthetic rubber plants (because sources
of natural rubber fell into enemy hands) and these plants were operated
by industry under contract. After the war was over, the plants were
sold—usually to the previous operating corporation. Although the
analogy is not wholly apt (because wartime conditions do not prevail
and the alternative of importing oil still exists), this approach appears
to offer several advantages over the more indirect approaches to subsi-
dization:
• Successful historical precedent
• Clear cut federal role
• Involvement of industrial expertise
• Intended transfer of plants to industrial ownership
• Option of aborting industry if impacts warrant.
Besides government intervention in the financial aspects of the syn-
thetic fuels industry, the federal and state governments could, perhaps,
83
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stimulate the industry by clarifying and solidifying policy with respect
to
• Coal and oil shale resource leasing procedures
• Coal and oil shale strip mine regulation legislation
• Crude oil price regulation.
The corporations most likely to develop and operate a synthetic liquid
fuels industry view the present uncertainty in these subjects as a large
risk that inhibits their entry into the synfuel business.
B. Water Rights19
As noted above, the availability of water is potentially an impor-
tant constraint on development of the synthetic fuels industry in many
locations. Federal and state policies with regard to water resources
and rights are at the heart of the matter. Here, too, uncertainty in
either the form of the policies or their stability is perceived as a
risk, not only to industry but to the other claimants to the water.
Several possible federal water-related policy actions could sig-
nificantly mitigate adverse water-related impacts while stimulating the
industry:
o Encourage shipment of coal from water-poor regions for
conversion elsewhere.
• Coordinate federal, state, and Indian interests in water
to eliminate conflicts among the regulators of water rights.
As discussed previously, the shipment of coal from resource-rich
but water-poor regions may sometimes be better accomplished through the
use of coal slurry pipelines in preference to unit trains. However,
until definitive action either for or against the power of eminent
domain needed by the slurry pipeline companies comes from Congress,
neither the pipeline companies, the railroads, nor the potential users
84
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of either mode know the constraints that will be operative in the future.
If the decision goes against slurry pipelines, it may be necessary to
promulgate public policies intended to revitalize the railroads to ensure
that they can handle the traffic implied.
Coordination of federal, state, and Indian water interests will
probably require:
• A comprehensive inventory of federal and Indian rights and
requirements.
• New laws providing compensation for the "taking" (legal sense)
of water rights predating the 1963 Arizona y_£ California
decision.
• Redrawing of interstate water compacts.
• Development of federal-interstate compacts for arid but
resource-rich regions.
The need for additional legislation at the state level is apparent to
set forth
• Preservation of in-stream values (aesthetics, wildlife, etc.)
• Relationships between groundwater and surface water
• Rules governing the transferability of water rights.
At both the state and federal level, the economic value of water
in arid regions should be reexamined because pressures to base new water
allocations on the basis of the highest bid are growing. Historically,
federal water projects have provided water to agriculture at very low
prices. As a result, irrigated agriculture has received an indirect
subsidy; continuation of that federal policy and practice should be
reexamined for its compatibility with future federal policy intended to
stimulate a synthetic fuel industry.
*Even, some argue, below its true cost
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C. Strip Mine Reclamation and Resource Leasing
Much of western coal and most of the oil shale are owned by the
federal government even though the surface estate is often in private
hands. States and Indian tribes control other resources. There has
been a moratorium on federal leasing since 1973. Since leasing is a
contract between private parties (even when the government is involved),
any stipulations that are acceptable to both parties are admissible.
When federal leasing resumes, the Department of Interior is expected to
make it a practice to require that strip-mine reclamation follow rules
very similar to those twice vetoed in strip-mine legislation. Thus, it
appears that much of the rejected legislation will be applied by admin-
istrative action. Although such regulations are stringent, many spokes-
men in the industries likely to develop coal resources assert that the
uncertainty of whether or when reclamation rules will change is more
constraining than the proposed rules themselves.
Reestablishment of federal leasing and a policy of requiring a
standard set of provisions would help remove some uncertainty about
where and when fossil mineral resources would be available to a synthetic
liquid fuels industry.
D. Air Quality Control16
1. Ambient
Federal primary ambient air quality standards are intended to
protect human health and, in principle, are not to be violated anywhere.
Federal secondary standards are intended to protect economic and other
values and are stricter than primary standards but are not so readily
attained. Moreover, in some states, such as Colorado, state air quality
standards are stricter than federal primary standards. It is up to the
states to specify the standard that will apply in a given area. Many of
86
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the resource-rich regions that are candidates for location of the first
synthetic liquid fuels plants have very clean air, and thus one of the
nondegradation standards should apply. (See Section VI-A-6c.) However,
states have been slow in designating the classes that apply. This un-
certainty inhibits deployment of a synthetic liquid fuels industry.
Imposition of standards for sulfates is quite likely in the
future. Since synthetic liquid fuel plants emit sulfur dioxide that can
be photochemically transformed to sulfates in the atmosphere, standards
established for sulfates will affect the synthetic fuels industry. It
would be preferable for these standards to be set before plant design
(and choice of coal resources) is undertaken.
2. Emissions
Since there is no commercial synthetic liquid fuels industry
today, there are no new-source emission standards for the industry to
use in designing synfuel plants. The best designers can do is use
analogous new-source standards that have been set for fossil-fueled
boilers and coal drying. Until actual new-source standards are set for
the coal conversion and oil shale plants, no one can be sure of the ex-
tent to which today's best available controls will be adequate or will
require improvements.
3. Acceptability
Since air quality limitations have been shown in this study to
be potentially a limiting factor in the synthetic liquid fuels industry,
before an industry could be deployed the following regulatory policies
will require clarification.
• Ambient air quality standards to be applied in any given
area.
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• New-source emissions performance standards clearly
applicable to the industry.
• Current disagreement about the acceptability of tall
stacks (these disperse pollutants over a larger region
but often offer compliance with local ambient standards)
E. Population Growth Control (Boom Towns)
Meeting the challenge of producing synthetic fuels while avoiding
the worst aspects of rapid population growth in rural regions and the
creation of boom towns will not be easy. Nevertheless, the federal
government through its control of leasing of mineral rights, its poten-
tial control of vital western water supplies, and its possible financial
participation in the industry, has the opportunity to exert influence on
the rate and location of synthetic fuels development.
It may prove feasible, for example, to require that corporations ac-
cepting federal investment assistance provide advance financial contribu-
tions to impacted communities. Government acknowledgment of such front-
end contributions to communities as a proper business expense would do
much to legitimatize the practice. In a similar fashion, the federal
government might use its mineral leasing contracts to require that any
coal extracted be processed at locations distant from the mine.
Federal and state governments, moreover, could jointly establish
planning assistance grants to impacted areas, perhaps through the Eco-
nomic Development Administration.
F. Summary
The areas in which governmental policy initiatives seem warranted
are mainly those in which there now exists an undue amount of uncertainty
about future federal (or state) action:
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• Financing and mitigating the risks of synthetic liquid fuel
plants.
• Resource leasing procedures and stipulations
• Strip-mine reclamation requirements.
• Uncertainty in water allocation institutions.
• Air quality standards.
• Control of population growth (boom towns).
Clarifying policies in these areas would greatly facilitate the combined
government/industry efforts to assess the viability of a synthetic liquid
fuels industry.
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TECHNICAL REPORT DATA
(Please read Instructions on the reverse before completing)
1 . REPORT NO.
EPA-600/7-76-004A
3. RECIPIENT'S ACCESSIOf*NO.
4. TITLE AND SUBTITLE
IMPACTS OF SYNTHETIC LIQUID FUEL DEVELOPMENT--
Automotive Market
Volume I Summary
5. REPORT DATE
May 1976
6. PERFORMING ORGANIZATION CODE
EGU 3505
7. AUTHORis) tt.M. uicKson,K.v. Steele, E .E. Hughes,
B.L. Walton, R.A. Zink, P.O. Miller, J.W. Ryan, P.B.
Simmon, B.R. Holt, R.K. White, E.C. Harvey, R. Cooper,
D. F. Phillips. W.C. Stoneman
8. PERFORMING ORGANIZATION REPORT NO.
EGU 3505
9 PERFORMING ORGANIZATION NAME AND ADDRESS
Stanford Research Institute
Menlo Park, California 94025
10. PROGRAM ELEMENT NO.
EHE 623
11. CONTRACT/GRANT NO.
68-03-2016
12. SPONSORING AGENCY NAME AND ADDRESS
Office of Research and Development
U.S. Environmental Protection Agency
Washington, D.C. 20460
13. TYPE OF REPORT AND PERIOD COVERED
Final, Series 7
14. SPONSORING AGENCY CODE
15. SUPPLEMENTARY NOTES Work was completed by EPA contract entitled, Impacts of Synthetic
Liquid Fuel Development—Automotive Market, "No. 68-03-2016, covering period June 20,
1974 to June 14, 1976. Work was completed as of June 14, 1976.
16. ABSTRACT
This study assesses the impacts of the development of synthetic liquid fuels
from coal and oil shale; the fuels considered are synthetic crude oils from coal
and oil shale and methanol from coal. Key issues examined in detail are the
technology and all of its resource requirements, net energy analyses of the techno-
logical options, a maximum credible implementation schedule, legal mechanisms for
access to coal and oil shale resources, financing of a synthetic liquid fuels
industry, decision making in the petroleum industry, government incentive policies,
local and national economic impacts, environmental effects of strip mining, urbani-
zation of rural areas, air pollution control, water resources and their availability,
and population growth and boom town effects in previously rural areas.
KEY WORDS AND DOCUMENT ANALYSIS
DESCRIPTORS
coal
oil shale
synthetic fuels
methanol
air pollution
environmental impact
economic impacts
boom towns
water resources
strip mining
control technology
incentive policies
b.IDENTIFIERS/OPEN ENDEDTERMS
synthetic fuels tech-
nology
net energy analysis
COS AT I Field/Group
13. DISTRIBUTION STATEMENT
19. SECURITY CLASS (This Report)
UNCLASSIFIED
21. NO. OF PAGES
110
20. SECURITY CLASS (Thispage]
UNCLASSIFIED
22. PRICE
EPA Form 2220-1 (9-73)
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