New York Times  [Printer-friendly version]
April 18, 2006


[Rachel's introduction: Germany lost World War I partly because they
lacked access to oil. But they had plenty of coal so after that "war
to end all wars," Germany's chemical giant, IG Farben, prepared for
Hitler's grand war by figuring out how to turn coal into oil, which
they accomplished by 1926. Today, faced with oil costing $70 per
barrel, the biggest remaining unit of IG Farben, the BASF
corporation, is gearing up to make oil from coal once again. The
result seems certain to be ugly because there is no such thing as
"clean coal" despite what the chemical and coal industries want you
to believe. Note that there's no mention of global warming or coal
mine devastation in this coal-friendly article.]

By Claudia H. Deutsch

Coal for fuel? Pretty common. But coal as the main ingredient in wall
paints, fertilizers, even grocery bags?

With oil and natural gas prices showing no signs of plummeting, and
with incentives to use coal built into the Energy Policy Act of 2005,
it just might happen. And chemical companies, which use oil and gas as
feedstocks -- industry jargon for raw materials -- are hoping it will
happen soon.

"We want to be economically feasible in the United States, and coal
enables us to do that," said Andrew N. Liveris, chief executive of Dow
Chemical, which has tripled its research into coal-based ingredients.

That thought is echoed by Frank Mitsch, who follows the chemical
industry for the brokerage firm BB&T Capital Markets: "Coal can mean
the difference between being competitive here or having to ship jobs
and plants elsewhere."

In a sense, the chemical industry is simply brushing off an age-old
idea. As far back as the 1900's, coal tar extracts were used to make
chemicals. And the technologies have long existed to heat coal until
it turns to hydrogen and carbon monoxide gas, use the gases directly
to make ammonia for fertilizer, or liquefy them to use as building
blocks for plastics.

But when natural gas was selling for $2 per million cubic feet, and
oil was $10 a barrel, using gasified coal, which costs about $4 per
million cubic feet, made no sense. Now, with gas prices still above $7
per million cubic feet and oil prices at more than $70 a barrel, it

According to the American Chemistry Council, the industry's cost for
feedstocks hit $40.12 billion last year, up from $34 billion in 2004,
$25.1 billion in 2003 -- and triple the $12.8 billion in 1999.

Feedstocks amounted to nearly 19 percent of the cost of the $213.75
billion in products the chemical industry shipped last year -- up from
17.5 percent in 2004, 14.5 percent in 2003 and just 8 percent in 1999.
For companies that make feedstock-intensive products like ethylene or
propylene, two building blocks for plastics, the percentage could be
double that.

"It may take three or four years to fine-tune the processes and build
the plants, but coal could possibly be the primary feedstock down the
road," said William R. Young, an analyst at Credit Suisse.

In fact, it already is in countries like South Africa, where coal is
plentiful and oil and gas are scarce. Sasol, based in Johannesburg,
has been making and selling coal-based feedstocks for many years.

Several Chinese companies already use coal to make vinyl chloride
monomer, a precursor to the polyvinyl chloride used to make
construction products like pipes. Andrew Wood, the editor of Chemical
Week magazine, said that numerous American and European companies
would open plants in China to make other chemicals from coal, too. "No
one's made real commitments yet, but it is clear that this is very
much the beginning of a wave," he said.

Manufacturers are preparing themselves for an onslaught of orders for
coal gasification equipment. General Electric, which bought
ChevronTexaco's coal gasification business in July 2004, expects to
get most of its profits from projects that use coal gas for generating
electricity. "But in the near term, turning coal to chemicals offers
the most significant opportunities," said Edward C. Lowe, general
manager of gasification for GE Energy.

Mr. Lowe said G.E. had licensed its gasification technology to five
large Chinese companies, and was getting "considerable interest" from
American companies. G.E.'s involvement is in itself drumming up
interest, said Owen A. Kean of the American Chemistry Council.

"When G.E. embraces a technology, it provides yet another form of
credibility," he said.

Coal is certainly available. According to the World Energy Council,
the United States had recoverable reserves in 2004 of about 254.4
billion tons; China has 114.5 billion tons. "Coal and renewables like
corn are probably the only natural resources we won't run out of,"
said Edward S. Glatzer of Nexant, a chemical industry consulting firm.

Miners, meanwhile, are taking a fresh look at old mines. International
Coal owns a large stock of low-grade coal reserves in Indiana and
Illinois that had not previously been economical to mine. Wilbur L.
Ross Jr., the company's chairman, said he was exploring whether to
gasify those reserves for use as feedstock.

"We've got a whole bunch of pipelines within 30 miles of the mines in
each direction, and as long as natural gas stays above $6.50, the math
works very well," he said.

Even in the unlikely event that natural gas prices drop, gas shortages
may still work in coal's favor. Agrium, the Canadian fertilizer
company, has a huge ammonia plant in Kenai, Alaska, that is operating
at half capacity because of gas shortages. Agrium will decide by this
summer whether to invest close to $1 billion to install equipment to
convert coal to feedstock and fuel, as well as capturing carbon
dioxide that it could sell.

"There's enough coal nearby to operate this complex for more than 50
years," said Lisa Parker, a specialist in government and community
relations for Agrium US.

But coal is catching on even in areas where gas is plentiful. Eastman
Chemical, once a part of Eastman Kodak, already derives 20 percent of
its raw materials from coal in the United States, and in September,
Gregory O. Nelson, its executive vice president, told analysts, "We're
asking ourselves, 'What if we could bring 30 percent to 40 percent of
our raw material base from coal?' "

David N. Weidman, chief executive of Celanese, a chemical company
based in Dallas, is asking similar questions. "Coal is easy to access,
it's in politically stable regions, and the technologies exist to
eradicate environmental impacts," he said. "It's been an
underappreciated feedstock for much too long."

It is more expensive to turn coal into a substitute for oil than for
gas, but companies that use oil as feedstock are taking a closer look
at coal.

"Crude oil still seems the most practical raw material for us, but we
certainly are staying abreast of any technologies that could change
the economics of our products," said Barry A. Phillips of Bayer
Material Science, which makes plastics.

BASF, the world's largest chemical company, has committed $121 million
over the next two years to research alternative raw materials, "and
yes, coal is on the list," said John Maurer, a BASF spokesman.

For now, though, most chemical companies are piggybacking experiments
with coal on their strategies for penetrating emerging markets.

Dow Chemical and Shenhua, China's largest state-run coal producer, are
discussing whether to jointly build a plant that would use coal to
make ethylene and polypropylene. Celanese is building plants in
Nanjing, just north of Shanghai, that will use coal-derived feedstocks
to make acetic acid, used in such products as cigarette filters. James
S. Alder Jr., vice president for operations, does not rule out the
idea of eventually converting the company's American plants to coal,

"Coal is a viable long-term feedstock," he said. "That's true for
China, for the U.S., for any place with an abundant coal supply."

Copyright 2006 The New York Times Company