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Is the Coal to Liquid (CTL) Tata-Sasol $10 Billion Plant an appropriate use of India’s resources?

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Introduction to Coal To Liquid (CTL) and Sasol

The Tata- Sasol Joint Venture has been working to set up a massive $10 billion coal to liquid (CTL) plant in India’s Orissa state with a capacity of 80,000 barrels of oil per day. South African petrochemicals giant Sasol is the world leader in coal to liquid (CTL) and gas to liquid (GTL) technologies which converts natural gas and coal into petroproducts like diesel , naptha etc. This technology was pioneered by Sasol in 1955 when it built the first big plant of its kind at Sasolburg in South Africa.Its Secunda plant in South Africa with 160,000 barrels of day capacity is the world’s largest facility of its kind and provides for a significant portion of South African motor fuel demand.Sasol is also partnering with Qatar and Chevron to build the first large scale commercial Gas to Liquid plant in Qatar.

Pros and Cons of  Coal To Liquid (CTL) Technology

High oil prices and the relative abundance of coal over oil deposits has been the major driver for CTL projects.Sasol has managed to earn huge profits in 2008 due to high oil prices as its raw material coal costs remained at a low,fixed rate.The proposition of high oil prices in the future has made it  an attractive project of the Tata Group .However the huge project costs($5-10 Billion)  and long gestation times (around 10 years) has made it a niche technology.Sasol is also collaborating to set up a similar sized Coal to Liquid (CTL)  in China as well.However I think that this project might not the most effective use of India’s scarce land and mineral resources.Note that one of the primary reasons behind building the Secunda plant by Sasol was the oil embargos faced by South Africa due to its apartheid policies. Coal to Liquid (CTL) Technology might make sense from the profitability point of view and may have some specific niche applications but large scale usage is a waste of resources in my view.Here are the some reasons as to why.

  1. It will use up 3000 acres of land in Orissa where Land is a precious and scarce resource.Mega projects like that of the Posco steel plant are  facing civil rights agitation due to Land problems
  2. The conversion of coal into liquid to generate energy will be much less efficient than using coal to generate energy.Instead of coal to power Vehicles through liquid fuels,it would be much more energy efficient to power Electric Vehicles (EV) through coal generated electricity
  3. Tata and Sasol will set up the 80,000 barrels per day project at an estimated cost of $10 billion.Setting up an equivalent oil refinery would cost much less.Though not an appropriate comparison,it  shows you that the high capex cost required to convert coal into liquid than the normal processing of crude oil into petro products.

Sasol, Tata in $10 Billion Coal-to-Motor Fuels Venture in India – Bloomberg

Sasol Ltd., the largest producer of motor fuel made from coal, plans to spend $10 billion in India in partnership with the Tata Group, following similar investments in Indonesia and China.

The South African company plans to produce 80,000 barrels a day of motor fuel by 2018 from a coal block in the eastern state of Orissa, Mark Schnell, president of the company’s Indian unit, said in a interview in Mumbai today. Sasol and India’s Tata Group own equal stakes in the venture, he said.

“It’s going to be a mega project of the magnitude of $10 billion by the joint venture,” Schnell said. “At this stage, the focus is on understanding the resource and making sure of the economics of building a plant here.”

PG

Sneha Shah

I am Sneha, the Editor-in-chief for the Blog. We would be glad to receive suggestions, inputs & comments on GWI from you guys to keep it going! You can contact me for consultancy/trade inquires by writing an email to greensneha@yahoo.in or call me on +913340606492.

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5 Responses so far | Have Your Say!

  1. A Skanda Kartikeyan

    I’m sorry abishek, but I’m going to have to disagree with on all 3 points; you state:

    1)It will use up 3000 acres of land -> uses too much land
    -Sorry but that is a fallacy, Oil fields and oil infrastructure (pipelines, crude transport, roads, depots, reservoirs, etc.) use an order of magnitude more land for an equivalent amount fossil oil production, not to mention the space refineries take up (in addition to the crude oil infrastructure).

    2) The conversion of coal into liquid to generate energy will be much less efficient than using coal to generate energy.
    -Sorry, but again that is just not true, transmission, loses, battery leakage, energy conversion loses thru-out the electric car supply chain disproves your point of this issue. While it is true that coal thermal electricity generation plants can achieve high efficiencies, (70% at best) all of the above reduces the final energy delivered by the car to 20-30%. Electric cars only make sense if your electricy comes hydro or nuclear power plants, not coal. So direct hydrocarbon based transportation is more efficient.

    3) [The] cost of [the projectis ] $10 billion.Setting up an equivalent oil refinery would cost much less.
    -Sorry,, but again this is not true, since you ignore the huge costs, of oil exploration, crude-oil storage, transportation (via pipelines and ships), crude-oil extraction facilities, port facilities, etc. The refinery is only the last leg in the entire cost chain for Crude-Oil based fuel. In addition, the people sinking money into this project, will have a thorough due diligence to determine this projects IRR (internal rate of return), Tata would NOT be sinking $5Billion of it own money, they weren’t very sure of making a strong profit.

    I think Indians need to learn to stop being so cynical on their own country’s accomplishments, they ought trying to stop being followers or poster-boys of conventional Western fads (like the disgraced Dr. Pachauri) and take a more assertive and optimistic view of the direction their country is taking. Anything to reduce India’s dependence on crude oil imports (oil spills ? have seen the gulf of mexico lately) is a net environmental & security benefit for India.

  2. Abhishek

    Thank you Kartikeyan for your views on this article.I am not being cynical of India’s accomplishments.I Disagree respectfully with your arguments though your Electric Vehicles being not as efficient is valid.

    1) Would this much land have been been used if Coal is directly transformed into Energy rather than being converted to a Oil Product? I don’t think the equivalent Energy being generated through a Coal Plant would take up so much land.I assume that the Oil generated would take also use the same oil infrastructure (pipelines, crude transport, roads, depots, reservoirs, etc.)
    2) I agree that the Electric Cars are not as efficient today but they are getting more efficient with each passing year and by the time the plant is completed in 2018,I think it will be a much more efficient process.Aside from this argument,I don’t think a coal electricity based transport infrastructure is any better than the current Oil based one.Both are equally harmful to the environment.
    3) I think there are huge costs to exploration of coal as well plus this coal based Oil Product is using the same infrastructure .I have no doubt the IRRs are very good for the companies who are investing in it. Sasol has been under fire for generating windfall profits in South Africa and there was a proposal to tax these massive profits.

    I don’t think this CTL project will be much of an Indian achievement as the Technology is being provided is Sasol which is doing similar projects in China and Qatar.

  3. Anant Bhatia

    @Abhishek

    1. What about the energy used up to replace the millions of currently running Gasoline/Diesel cars into Electric cars?

    2. What about the environmental impact of trying to dispose off Solid waste coming out of the Electric cars every 3-5 years(i.e. Batteries)?

    3. So you only feel that a cheaper to implement technology should not come into use because the company who took the pains to develop it is making Windfall profits? The article mentions that even the Gestation period is 10 years. Don’t all businesses exist to make money? Because by this assumption, Henry Ford would have never been let to manufacture the Motor Car and Horse carriages would have been the norm even now.
    Are you taking these into consideration while making your assumption?

    A typical CTL plant is able to produce oil at a nominal cost of $20/barrel. Compare that to the current price ($85/barrel) of Crude and you will know what benefits we have from this technology. Even at a capacity of 80,000 barrels/day, it will save India an Import bill of $1.9 Billion every year! This $1.9 Billion can be effectively used to provide better roads / healthcare / infrastructure and generate a LOT of jobs.

    Coal India should have done this instead of the Tata Group!!

  4. Abhishek Shah

    Hi Anant,
    1) All Fossil Fuels are harmful and polluting ,Substituting one for the other does not help.In fact coal extraction and usage is the dirtiest of all the fossil fuels
    2) Lead Acid Batteries are in general recycled.Also electric cars don’t use lead acid batteries but lithium chemistry because lead acid batters are too heavy because of low energy density
    3) From what I know Jindal and Tatas are only going to use the Sasol technology and are in no way involved in developing this technology.The Sasol Group does not have a great record in ethical and environmental matters either.South Africa’s desperate energy condition blame can in some measure be laid on its total dependence on Coal.

    The problem with the world right now and the energy shortages can directly be blamed on the fact that the public goods cost is not accounted for in the price.Do you think that $20/barrel includes the pollution costs,health hazards,land and other benefits.The price of coal and fossil fuels is much higher,its just that we don’t recognize the costs to us and the future generations.

  5. Anant Bhatia

    Exactly my point. The typical life of a Modern Petrol / Diesel car is 2lac KM. 28% of all the CO2 it will generate in its life cycle is generated while making the car. This percentage is higher when we consider a fuel+electric Hybrid(Because of the 2 motors under the hood).

    The average time a modern Indian New car buyer keeps a new car is 5years / 60k km.(=30% of its life) By this time, the car has produced 50% of all the CO2 it will produce in its lifetime. In the subsequent 1.4Lac km, it will produce the remainder 50% of its CO2.

    Moral: Used cars are 233% CO2 Efficient as compared to new cars. If you want to save the environment, buy used cars. Killing them will only create more CO2.

    Anyways, an All-Electric vehicle is only green if the electricity used to charge it comes from a Green source and not a Coal Powered power plant(as you seem to suggest).

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