Introduction

Substitute natural gas (SNG) is steadily becoming an established commodity in the US because of its significant commercial advantages in the natural gas trading market and its distinct ability to be used as a feedstock in existing natural-gas combined-cycle power plants and petrochemical facilities, as well as supplementing future domestic gas supply.

As a totally fungible commodity, SNG actually has an advantage over diesel production using coal-to-liquids (CTL) technology because SNG easily meets pipeline requirements while Fisher-Tropsch diesel is not exactly the same as petroleum-derived diesel.

Proposed Hunton Energy plant that will supply SNG to Dow Chemical's Oyster Creek plant in Freeport, TX.

Another substantial advantage of SNG is that no new infrastructure is required because it uses existing natural gas pipelines, which has been a deterrent to using different fuel types in the power generation industry in the past.

It is much easier for project developers to obtain a long-term offtake contract for SNG and it can be hedged like any other commodity. SNG is also a way for integrated energy companies to secure new natural gas reserves and is equivalent to developing a one-to-two-trillion-cubic-foot gas field. Energy companies such as ConocoPhillips and BP would rather develop US natural gas reserves by using SNG than exploring and operating in openly hostile countries.

The international coal-to-chemicals or industrial gasification market has become strong very quickly overseas and is now starting to grow in the US. The coal-to-power IGCC market is mostly made up of domestic applications in the US - the leader in coal-to-power.

The US began the year in 2007 with over two-dozen announced coal-based IGCC plants, but only one has been announced since then. Four of the projects that were most advanced were shelved recently and converted to use natural gas. There are three other viable projects but these have had significant delays stemming mainly from slow regulatory closure.

The cost of carbon capture has become the all-important issue for US coal power projects and there is a lot of confusion and claims of what can be done and a lot of barriers. Companies such as ConocoPhillips and Worley Parsons are working to evaluate performance and cost impact at various levels of carbon capture, not just capture ready, but also commercial technologies.

Climate mitigation has become a global imperative and US developers are being pressed to use CO2 capture and sequestration (CCS) or use the CO2 for enhanced oil recovery (EOR), but this is not possible in the current regulatory framework.

All of these delays and uncertainties are turning the US back to natural gas for combined-cycle generation and to the plants that were built just six years ago. Now all the country has to do is find enough natural gas to meet the demand as LNG faces challenges all along its supply chain and as Canadian and Alaskan projects are delayed.

SNG is part of the answer to increase domestic US natural gas reserves because it is fungible and hedgeable and one of the most traded commodities in the US. SNG customers have existing pipelines and SNG is an already proven process.

Five years from now, the US will have only a few operating IGCC plants as loan guarantees and tax credits are not as beneficial to project development now because of escalating costs. There will be more SNG plants than IGCCs and gasifying coal blended with biomass will be the norm.

In about 10 years, there will be a 25% growth in the number of gasifiers around the world from 400 gasifiers at present, but these additional 100 gasifiers will see gasification operating in the US with profit tied to EOR.
The regulatory framework will not be in place in 10 years and that will be a major problem, but SNG is ready and the ball is in industry's court to get the legal regulatory framework ready after 30 years of hard work and now that high-energy prices appear sustainable.

Join us at the Designing and Operating Substitute Natural Gas Plants conference in Houston, April 10, 2008, hosted by SYNGAS Refiner and Zeus Development Corp., to discuss the future of SNG production in the US.