Hydrogenated Coal: The Tipping Point

World demand for oil is projected to increase from 31 billion barrels today to about 42 billion barrels a year by 2030.

In comparison, German oil consumption was 46 million barrels a year in 1938 and 71 million barrels a year in 1943. By 1943, about 50% of Germany’s needs for diesel and gasoline were supplied by the production of synthetic fuel, primarily hydrogenated coal.

In 1929, Standard Oil entered into cartel agreements with I. G. Farben. Standard Oil engineers developed synthetic gasoline production processes in America and transferred these processes to I. G. Farben in Germany.

Hydrogenation of coal allowed a synthetic gasoline with an octane reading of 60 to 72. With the aid of lead tetraethyl, the octane reading could be raised to 87. Standard Oil supplied I.G. Farben with the formula for lead tetraethyl, allowing synthfuels to be used in aircraft engines requiring more power and higher compression ratios.

At the time of the invasion of Iraq, the price of a barrel of oil was $30. Recently, the price has approached $100. Oil is an important input for nearly everything produced by the global economy. My best estimate is that global price levels inflate 15% for every 100% increase in oil prices. Double digit inflation will return in the next few years despite the best efforts of central banks.

The good news is that now we have reached a price point where hydrogenated coal is economically competitive with oil and will soon place an effective cap on oil prices and consumption.

Ethanol from corn is a truly bad idea. It is simply the result of pandering to agribusiness and requires an input of 1 unit of energy for every 1.3 units of energy output. The collateral damage is a huge spike in food prices, including milk and meat. You can't eat coal or feed it to pigs.

The US Air Force is currently using increasing amounts of synthetic fuel. They plan to be running all their jets on pure synthfuel from coal by 2011. Synthetic fuel from coal costs $45 to $60 per barrel, making it a bargain in comparison to traditional oil.

Octane is not an issue with jet fuel, heating oil or diesel. These fuels are heavier than gasoline and rely instead on cetane ratings which measure energy content. Europe has already gone largely diesel and the US will soon follow. The recent increase in oil prices makes liquified hydrogenated coal a sure winner in the 21st century.