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A gas-to-liquids plant that is co-owned by South Africa's Sasol is shown here under construction in Qatar (STR/Associated Press)
A gas-to-liquids plant that is co-owned by South Africa's Sasol is shown here under construction in Qatar (STR/Associated Press)

Synthetic fuel sees new life Add to ...

In the early months of 1930, the United States patent office recognized an intriguing bit of hydrocarbon alchemy perfected by a pair of German scientists. Franz Fischer and Hans Tropsch had figured out a better way to turn coal into a liquid fuel - an advance that would later become a pivotal source of Nazi Germany's energy needs, fuelling aircraft, tanks and ships.

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It was a remarkable technology. It worked not only with coal, but natural gas, using heat and chemistry to transform hydrocarbons into very different substances like gasoline and diesel. But when the war ended, the alchemy largely went with it. Fuels manufactured using the Fischer-Tropsch process were just too expensive. It was far cheaper to simply suck oil from the ground and refine it.

Now, amidst an extraordinary shift in North America's energy supply, a series of companies are re-examining the 80-year-old technology, in hopes of using it to transform cheap natural gas into lucrative oil-like products such as diesel.

Talisman Energy Inc. is among the first, sketching plans for a multibillion-dollar new facility near Edmonton that could process as much as a billion cubic feet of gas a day into 96,000 barrels of refined products.

The renewed interest in this science is opening all kinds of windows into a new energy future. Coal producers are laying plans to make clean fuels from a commodity often considered dirty. Even high-tech companies are eyeing a future where they make "synthetic fuels" out of the very air we breathe to power an economy that can no longer rely on cheap oil.

So-called "gas-to-liquids" technology is just the latest in a string of novel ideas to emerge from an industry rapidly adjusting to what has been called a "revolution" in natural gas. The exploitation of enormous new volumes of shale gas - enough to supply the continent for more than a century - is changing how many companies think about energy supply in coming years.

Canada alone sits on 3,223 trillion cubic feet of so-called "unconventional" natural gas, the Canadian Society for Unconventional Gas estimates. Even if only 10 per cent of that is recoverable, it's enough to make 34 billion barrels of fuel - equivalent to more than 20 per cent of the oil sands. And that's just Canada. Estimates suggest the United States has more than twice as much, and that Europe's reserves rival those in the U.S.

Those enormous volumes of gas have sparked supply glut fears, depressing prices so severely that the U.S. Energy Information Agency now suggests they aren't likely to regain strength until at least 2022.

The result has been a scramble for solutions. Some companies are seeking relatively new solutions, such as the export of liquefied natural gas, which could be loaded on to tankers and shipped to Asia.

Others, like Talisman, are considering turning back the clock to the 1930s, wagering on a technology that continues to hold substantial promise - but also continues to be so expensive that some of the world's most-respected oil companies have abandoned similar projects.

Fischer-Tropsch works by using heat and chemical catalysts to break down a substance like natural gas into its molecular basics - and then rebuild them into something else. Think of disassembling a Lego airplane and forming the blocks into a castle.

The logic behind converting gas to liquid fuel lies in the widely divergent economics of natural gas and oil. A barrel of oil contains roughly six times the energy content of a thousand cubic feet of gas. But in recent years, oil's relative value has far surpassed gas, a trend many expect to continue. Since 6 thousand cubic feet of gas is worth about $24 (U.S.), and one barrel of oil is worth about $100, there is a tremendous profit margin if you can convert one to the other cost-effectively.

The conversion, of course, is tricky business. The plants are expensive - Talisman believes a 40,000-barrel-a-day facility will cost $3- to $5-billion - and more than 40 per cent of the gas gets used up powering the chemistry.

But that still leaves a potentially compelling margin, especially for companies like Talisman, which owns gas-rich land in northeastern British Columbia's Montney play. Not only does it have 7 billion barrels of oil-equivalent gas there, but it's so distant from market that it normally sells at a $1 discount.

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