One of the oldest surviving refineries in the world is in Karns City, Butler County. The plant, owned by Calumet Specialty Products Partners L.P., makes personal care and pharmaceutical products from oil, and is starting to draw international attention. Calumet is working with Ohio-based Velocys Inc. on a new wing to help the plant replace expensive oil with cheap gas using technology that energy entrepreneurs have struggled for decades to make profitable.
A few companies have made the technology work in other parts of the world, but it’s never been profitable in the United States — despite being hyped every few decades. Lipski’s company, Ohio-based Velocys Inc., is the latest to try and turn that corner, using a refinery in Karns City as the trailblazer.
Velocys has been working with the plant’s owner, Calumet Specialty Products Partners L.P., to install the technology in Karns City, with the hope that it could be the first step to widespread commercialization in the United States
“The market is absolutely huge,” said Lipski, chief executive officer at Velocys, a subsidiary of Oxford Catalysts Group PLC in the United Kingdom. “The Calumet facility is kind of a dream project. … They will pave the way for other people to follow. In that respect, they play a really important role.”
Calumet turns crude oil into waxes and white oils, and then into personal care and pharmaceutical products. Velocys is planing to provide Calumet with technology to use gas instead of expensive crude oil. That same process can turn gas into liquid fuels, such as gasoline. It could be a commercial breakthrough that Lipski hopes to sell worldwide.
Entrepreneurs are racing toward the same goal across Pennsylvania and the nation. Last month, one group announced a $200 million project to turn methane into gasoline and propane south of Altoona. Businesses based in Allegheny County and Philadelphia are mulling gas-to-liquids projects, too. Sasol Ltd. could spend $14 billion to build a plant that makes diesel from shale gas delivered to the Gulf Coast.
The potential payoffs are big enough that the federal government has spent billions of dollars and decades researching the technology, largely in Department of Energy labs in the Pittsburgh area.
Business are now trying to export natural gas because it is so cheap and plentiful here. Converting gas to liquid fuels instead could cut costs for drivers and reduce the nation’s dependence on foreign fuels. It could also benefit the environment by using gas that now gets burned as waste in the country’s oil fields.
‘Caution … skepticism’
Energy mavens have been trying to make converting gas to liquid fuels profitable for decades, with only limited success. Nazi Germany and apartheid South Africa successfully made synthetic fuels when they couldn’t get access to the world’s oil markets. Until recently, no one in the free world has been able to make a go of it and beat oil, despite renewed claims every few decades that it might finally be the time.
“My general reaction would be one of caution and healthy skepticism,” said John Hanger, who heard several coal-to-liquids proposals when he led the Department of Environmental Protection under former Gov. Ed Rendell. To do this, “it’s not enough to have momentary cheap gas. You have to have very cheap gas for a very long time to justify the risk of the capital needed.”
The price of gas is the primary driver behind the trend. Shale formations such as the Marcellus have sent gas prices plummeting, while oil is still expensive. Oil cost 3.5 times as much as gas for the same amount of burning power when commodity markets closed on Friday. And while the United States has become one of the world’s leading gas producers, it can barely use it in its second largest fuel sector, transportation, which depends on oil for 93 percent of its fuel, according to federal data.
The good news for gas-to-liquids boosters is that the gap between oil and gas prices is likely to last, said Russell Heinen, an energy and chemical consultant at IHS Inc. in Houston. His company and most market forecasters expect oil to be pricier than gas for about 10 years, he said. The technology also could be a breakthrough, with some new ventures claiming they need just four to five years to pay back investors, he added.
Next step not certain
Companies such as Velocys and Marcellus GTL LLC, the company planning to build near Altoona, are marketing small-scale technology. Velocys is trying to pre-build and install in remote places. With flexibility and capital costs as little as 1 percent of the $14 billion Sasol expects to spend on the gulf, it could make the technology affordable to more people in more places, experts said.
“They have what I consider a reasonable chance of success because the costs are so much smaller,” said Dan Driscoll, who has spent more than 20 years researching coal and gas-to-liquids technology at the National Energy Technology Laboratory in Morgantown, W.Va. “I think it’s incredibly exciting that they’re going up in Pennsylvania, and it would be just great for the area to have the first operating facilities in the entire country.”
Whether the plants go up isn’t certain. Calumet, which has the project that seems farthest along, slowed down what had been a rapid development up until recent months, Lipski said.
Calumet officials are still optimistic the project will happen, but, after the first round of engineering, they decided to delay a final decision until late this year, said Jennifer Straumins, president and chief operating officer at Calumet’s Indianapolis headquarters. The company is trying to prioritize other promising projects that have “a lot more certainty to them,” she said.
“Once things are up and running and established, it builds up a momentum of its own. And until that point, things move more slowly and people are more cautious,” Lipski said, adding that he wasn’t concerned by Calumet’s delay. “Probably the biggest barrier today is that people just don’t know that this is possible.”
Timothy Puko is a staff writer for Trib Total Media. He can be reached at 412-320-7991 or email@example.com.