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Ortiz, Joel Darmstadter, Brian Shannon Sponsored by the National Commission on Energy Policy A RAND INFRASTRUCTURE, SAFETY, AND ENVIRONMENT PROGRAM Environment, Energy, and Economic Development The RAND Corporation is a nonprofit research organization providing objective analysis and effective solutions that address the challenges facing the public and private sectors around the world. RAND’s publications do not necessarily reflect the opinions of its research clients and sponsors. R ® is a registered trademark. © Copyright 2008 RAND Corporation All rights reserved. No part of this book may be reproduced in any form by any electronic or mechanical means (including photocopying, recording, or information storage and retrieval) without permission in writing from RAND. Published 2008 by the RAND Corporation 1776 Main Street, P.O. Box 2138, Santa Monica, CA 90407-2138 1200 South Hayes Street, Arlington, VA 22202-5050 4570 Fifth Avenue, Suite 600, Pittsburgh, PA 15213-2665 RAND URL: http://www.rand.org To order RAND documents or to obtain additional information, contact Distribution Services: Telephone: (310) 451-7002; Fax: (310) 451-6915; Email: order@rand.org Library of Congress Cataloging-in-Publication Data Unconventional fossil-based fuels : economic and environmental trade-offs / Michael Toman [et al.]. p. cm. Includes bibliographical references. ISBN 978-0-8330-4564-5 (pbk. : alk. paper) 1. Petroleum engineering. 2. Heavy oil. 3. Oil sands. 4. Coal liquefaction. I. Toman, Michael A. II. RAND Corporation. TN871.U49 2008 333.79'68—dc22 2008036873 This research was sponsored by the National Commission on Energy Policy and was conducted under the auspices of the Environment, Energy, and Economic Development Program (EEED) within RAND Infrastructure, Safety, and Environment (ISE). iii Preface Rising concerns about energy costs and security, as well as about greenhouse-gas (GHG) emis- sions from use of petroleum-based motor fuels, have stimulated a number of public and pri- vate efforts worldwide to develop and commercially implement alternatives to petroleum-based fuels. Commonly considered fuel options for the medium term (roughly 10–20 years) include both biomass-based fuels (e.g., ethanol, biodiesel) and unconventional fossil-based liquid fuels derived from such sources as heavy oils, oil sands, coal liquefaction, and oil shale. is report assesses potential future production levels, production costs, GHG emissions, and environmental implications of unconventional fossil-based motor fuels derived from oil sands and coal. e study was sponsored by the National Commission on Energy Policy as part of a larger body of sponsored research to investigate the portfolio of options needed to address cost, energy-security, and GHG concerns about motor fuels. e report is intended to be of use to policy analysts and decisionmakers concerned with each of these aspects of motor fuels, as well as to the general public that will confront the economic and environmental implications of different policy choices in this arena. is study builds on earlier RAND Corporation studies on natural resources and energy development in the United States. Most relevant are the following: Producing Liquid Fuels from Coal: Prospects and Policy Issuest (Bartis, Camm, and Ortiz, forthcoming) Oil Shale Development in the United States: Prospects and Policy Issuest (Bartis, LaTourrette, et al., 2005) Understanding Cost Growth and Performance Shortfalls in Pioneer Process Plants t (Merrow, Phillips, and Myers, 1981). The RAND Environment, Energy, and Economic Development Program is research was conducted under the auspices of the Environment, Energy, and Economic Development Program (EEED) within RAND Infrastructure, Safety, and Environment (ISE). e mission of ISE is to improve the development, operation, use, and protection of soci- ety’s essential physical assets and natural resources and to enhance the related social assets of safety and security of individuals in transit and in their workplaces and communities. e EEED research portfolio addresses environmental quality and regulation, energy resources and systems, water resources and systems, climate, natural hazards and disasters, and economic iv Unconventional Fossil-Based Fuels: Economic and Environmental Trade-Offs development—both domestically and internationally. EEED research is conducted for govern- ment, foundations, and the private sector. Questions or comments about this report should be sent to the project leader, David Ortiz (David_Ortiz@rand.org). Information about EEED is available online (http://www.rand.org/ ise/environ). Inquiries about EEED projects should be sent to the following address: Debra Knopman, Director, ISE Environment, Energy, and Economic Development Program, ISE RAND Corporation 1200 South Hayes Street Arlington, VA 22202-5050 703-413-1100, x5667 Debra_Knopman@rand.org v Contents Preface iii Figures ix Tables xi Summary xiii Acknowledgments xix Abbreviations xxi CHAPTER ONE Introduction 1 Background 1 Technical Approach 2 Organization of is Report 3 CHAPTER TWO History and Context of Unconventional Fossil-Resource Development 5 Past U.S. Efforts to Promote Synfuels 5 Energy Information Administration Production Projections 6 Potential Sources of Oil-Sand and CTL-Capacity Investment 6 Policy Drivers for Unconventional Fossil-Based Fuels: Greenhouse-Gas Emissions and Energy Security 7 Concerns About Greenhouse Gases 7 Concerns About Energy Security 8 CHAPTER THREE Carbon Capture and Storage for Unconventional Fuels 9 Carbon-Dioxide Capture 9 Carbon-Dioxide Transport 10 Carbon-Dioxide Storage 11 Enhanced Oil Recovery 12 Geologic Storage 12 CHAPTER FOUR Oil Sands and Synthetic Crude Oil 15 Overview of the Resource 15 North American Oil Sands 16 Resource Base 16 vi Unconventional Fossil-Based Fuels: Economic and Environmental Trade-Offs Production Projections 17 Methods of Extracting and Upgrading Oil Sands 18 Mining 18 Steam-Assisted Gravity Drainage 19 Cyclic Steam Stimulation 20 Upgrading 20 Future Oil-Sand Technologies 21 Potential Constraints on Oil-Sand Production 22 Environmental Impacts and Water Resources 22 Natural-Gas Prices 24 Other Market Constraints 26 Carbon-Dioxide Production, Capture, and Storage 27 Baseline Carbon-Dioxide Emissions from Oil-Sand Production 27 Carbon-Dioxide Capture and Storage for Oil Sands 29 Unit Costs for Oil-Sand Production 29 Current Costs for Oil-Sand Production Without Carbon-Dioxide Management 30 Future Production Costs Without Carbon-Dioxide Management: Capital-Cost Uncertainties and Learning-Based Cost Declines 31 Cost Sensitivity to the Price of Natural Gas 33 Current Carbon Dioxide–Management Costs for Synthetic Crude Oil 35 Development and Learning for Carbon-Dioxide Capture 36 CHAPTER FIVE Coal-to-Liquids Production 39 e Coal Resource Base Relative to Coal-to-Liquids Production Needs 39 Liquid-Fuel Production via Indirect Liquefaction of Coal 40 Methanol-to-Gasoline 42 Potential Constraints on Production of Coal-to-Liquid Fuels 43 Carbon-Dioxide Production and Capture for Coal-to-Liquids 44 Baseline Carbon-Dioxide Emissions from Coal-to-Liquids Production 44 Mixing Biomass and Coal to Reduce Coal-to-Liquids Carbon-Dioxide Emissions 44 Carbon Capture for Coal-to-Liquids 46 Potential Future Unit Production Costs for Coal-to-Liquids 46 Carbon Dioxide–Management Cost for CTL 48 Potential Cost Declines from Learning 50 CHAPTER SIX Competitiveness of Unit Production Costs for Synthetic Crude Oil and Coal-to-Liquids 51 Oil Sands 52 Cost Comparison for Synthetic Crude Oil Produced by Integrated Mining and Upgrading 53 Cost Comparison for Synthetic Crude Oil Produced by Steam-Assisted Gravity Drainage and Upgrading 55 Coal to Liquids 55 Incorporating Energy-Security Costs 58 Contents vii CHAPTER SEVEN Conclusions 61 Synthesis of the Cost-Competitiveness Analysis 61 Broader Conclusions and Implications 62 References 65 [...]... cost-competitiveness of fuels from SCO and CTL relative to fuels from conventional crude oil: the future price of crude oil changes in the unit production costs of the unconventional fossil-based fuels induced by further technical advances and experience in their production the implications of potential constraints on CO2 emissions for the unit production costs of both conventional and unconventional fossil-based fuels. .. cost-competitiveness of fuels from oil sands and CTL relative to fuels from conventional crude oil: the future price of crude oil changes in the unit costs of the unconventional fossil-based fuels induced by further technical advances and experience in their production the implications of potential constraints on CO2 emissions for the unit costs of both conventional and unconventional fossil-based fuels The future... GHG emissions, and other environmental implications of two fossil-based alternative fuels These are fuels derived from bitumen extracted from oil sands and fuels produced by conversion of coal to liquid fuels The first is often called synthetic crude oil (SCO), while the second is often referred to as coal-to-liquids (CTL) Production of liquid fuels from a combination of coal and biomass is also briefly... some broader conclusions CHAPTER TWO History and Context of Unconventional Fossil-Resource Development Past U.S Efforts to Promote Synfuels The Synthetic Fuels Corporation (SFC) was a U.S government–sponsored program to develop a capacity to produce synthetic fuels in the early to mid-1980s Critics of new efforts to promote unconventional fossil fuels often use the poor results of SFC as an argument for... analysis of oil shale 1 2 Unconventional Fossil-Based Fuels: Economic and Environmental Trade-Offs In the absence of measures to capture and permanently store CO2, SCO from oil sands and CTL, will have higher CO2 emissions/unit of fuel than will conventional fuels The feasibility and costs of limiting or offsetting these higher emissions is one critical consideration in evaluating these fuels Ultimately, it... emissions Fuels derived from oil sands and CTL emit fossil-based CO2 during combustion, just as conventional petroleum products do Thus, even when employing CCS to capture and store CO2 emitted during fuel production, life-cycle emissions of CO2 for these alternative fuels are comparable to those of conventional fuels Large-scale production of these unconventional fuels does not reduce emissions of CO2 Reliance... key background on the energy-security and GHG concerns motivating interest in the alternative fuels, particularly unconventional fossil-based ones Chapters Three through Five review the particulars of CCS, SCO from oil sands, and fuels from CTL Chapter Six examines the cost-competitiveness of SCO and CTL fuels relative to conventional petroleum under different assumptions about technology, crude-oil... biomass-based fuels (e.g., ethanol, biodiesel) and unconventional fossil-based liquid fuels derived from such sources as heavy oils, oil sands, oil shale, and coal liquefaction In this report, RAND researchers assess the potential future production levels, production costs, greenhouse gases (GHGs), and other environmental implications of synthetic crude oil (SCO) produced from oil sands and transportation fuels. .. relative to conventional fuels and the relative costs of mitigating increased emissions from transportation fuels These sets of economic and environmental questions are linked by the fact that the future unit costs of alternative fuels in the market will depend on advances in their technologies and the costs of addressing their CO2 emissions; the competitiveness of the alternative fuels will depend on... 56 Influence of Carbon Dioxide–Emission Costs on the Competitiveness of Unconventional Fuels Compared to Conventional Petroleum, No Carbon Capture and Storage 62 Sensitivity of Competitiveness of Unconventional Fuels with Carbon Capture and Storage to Crude-Oil Price . 10–20 years) include both biomass-based fuels (e.g., ethanol, biodiesel) and unconventional fossil-based liquid fuels derived from such sources as heavy. of Unconventional Fuels Compared to Conventional Petroleum, No Carbon Capture and Storage 62 7.2. Sensitivity of Competitiveness of Unconventional Fuels