August 22, 2006

Why So Little Fischer Tropsch So Far?

One of the great mysteries of energy, for me, has been why on earth have we had $70+ oil when we can make $32 diesel from coal. Sure, the investment is stiff but with that much profit on tap going forward, this is a no brainer. Today, the clues came together

First here:

I absolutely get the idea that actual costs matter, but you know, maybe I can explain what I mean by "population response" by looking back at Toyota and GM. The future we got (Ford and GM in various states of trouble) came not from actual prices, but from those players inability to predict (or accept) them.

I saved a link from back in July '05 when a GM spokeswoman said something astonishing:

"Our indicators show that oil will go down, not up," she said, pointing to information she gets from the federal Energy Information Agency, which is part of the Department of Energy.

By 2010, the agency expects a barrel of oil to fall to $26, she said.

Now, I get that CTL and GTL will be driven by actual prices ... but will also be driven by who's believing the EIA's $26 estimates, yes?

So off to the EIA which publishes yearly estimates of energy prices. Their current 2010 estimate for crude oil prices is $47.50 (averaging their high and low estimates). That's a huge difference, the difference between very good profitability and going bust on an enormous capital investment. Looking back at the previous year's estimates, I couldn't find high and low numbers and the estimate wasn't actually $26. It was $25.

But even today, the EIA's low price estimate drops down below $32/bbl in 2013 and stays there through 2030. That means that there's significant risk that a plant built today might turn unprofitable prior to making a decent return on the investment. For that risk to go away with today's numbers, FT synthesis cost would need to drop below $28/bbl to shake loose the most conservative of investors.

Then again, EIA issues numbers every year. Next year's low price projections might be beyond $32.

Posted by TMLutas at August 22, 2006 12:03 PM