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"Numbering Up"

Why “Number Up” instead of Scale Up?

Traditional FT installations have been built near major sources of coal and/or natural gas feedstock sources. Companies or governments wishing to employ FT as an energy conversion approach first sought out coal or natural gas reserves with a projected life of multiple decades. Only such long-lived proven reserves can justify the significant capital expense required to assemble the multiple technologies required to perform the FT conversion process. While such large-scale facilities have many advantages in terms of daily energy throughput, modern-day energy requirements increasingly call for cleaner energy that is more efficiently produced. Traditional FT approaches are not efficient processes; moreover they tend to produce a wide-range of linear hydrocarbons ranging from naphthas to waxes.

One advantage of the small-scale FT technology used in the current embodiment of our GTL process is that a greater degree of control exists over the statistical distribution of favored (linear) hydrocarbons and thus the process is specifically tuned to produce hydrocarbons that are useful as diesel and jet fuels in high yield. This selectivity in terms of hydrocarbon statistical distribution inherently leads to efficiencies in the overall process, as little or no post-production refining is required. The key to controlling hydrocarbon distribution and selectivity is tight control of the following three process variables: throughput temperature, throughput pressure, and time of exposure to the conversion catalyst.

Control of each of these three factors is significantly improved when the FT conversion is done at smaller scales than are typical at the large-scale, billion-dollar facilities, designed to turn out tens of thousands of barrels of synfuel per day. At smaller scales, it becomes easier to maintain the more stringent heat-transfer properties needed for controlled hydrocarbon distributions. As a specific example, the temperature must be maintained within extremely tight tolerances throughout the catalyzing environment in order to assure a desired statistical distribution of hydrocarbon chains.

The catalyzing environment of the 1st Resource Group Technology consists of tubes of a specific small diameter. Our research has shown that these tubes, when fitted with the applicable catalyst(s), will assure not only the conversion of feedstocks into the most narrowly refined statistical distribution of hydrocarbon molecular lengths but will also assure the minimum output of non-favored hydrocarbons as well as unwanted and unusable emissions. In effect, the small-diameter catalyzing tubes provide an ideal environment for tightly regulating the heat-transfer characteristics occurring during the FT process.

Comparison of Produced Fuels

The true arbitrage opportunity, therefore, exists between the market price of crude oil-derived fuels and the natural gas feedstock that produces similar fuels. These fuels are “similar” only in application. For reasons discussed above, the value of synfuels is considered greater than the so-called “super-premium” variants of conventional competing fuels. For example, the measure of a diesel fuel’s resistance to ignition is referred to as the cetane number, which can be thought of as similar to the octane number of gasoline, only opposite in its application. Cetane numbers are based on a scale from 0-100, with 100 being a theoretical ideal diesel fuel that would ignite as a result of only the very slightest compression. At the other end of the spectrum, a cetane number of zero (“0”) indicates a fuel that will not ignite under any compression, no matter how great.

Average cetane ratings of motive diesel fuels within the US range between 40 and 50, with the preponderance of fuels skewed toward the lower rating. A super-premium diesel has a cetane rating of approximately 60.

In contrast, FT synfuel diesels have cetane ratings at or greater than 70, a number that probably approaches the practical maximum for commercially available fuels. The implications for such a fuel, when added to the benefits extensively outlined above, are that the energy cost in terms of engine load required to compress fuel for ignition is greatly reduced. Assuming a linear progression across the cetane continuum, a fuel with a cetane rating of 70 will be 64% more readily ignited under compression than a fuel with a cetane rating of 45, resulting in more energy available to provide useful work.  In fact, a recent independent study of the cetane level of the 1st Resource Group synfuel has shown that the fuel has a cetane rating of 81, a rating well beyond the expectations of the researchers.

Arbitrage Opportunity

The most recent spot market prices for a market basket of #2 low-sulfur diesel fuel, Jet A, and heating oil come to approximately $106.00/STB, or just over $2.50/gallon. Accepting this number as a future maximum, it can be stated that natural gas feedstock costs of $7.07/mcf will become the “going concern” breakeven price for fuels derived from the Portable Technology.  The last time Henry Hub natural gas prices touched this figure was in October 2008. Since that time natural gas prices have trended downward, reaching prices of less than $2.50/mcf in September 2009.

In the interests of full disclosure, the October 2008 average NYMEX spot price of crude oil was approximately $75.00/STB, as crude oil was declining precipitously toward a monthly average spot price of approximately $37.00/STB, a recent historical low reached briefly during January 2009. From that time until the current day, crude oil has been in a protracted but contained growth arc. All knowledgeable forecasters are looking at increasing crude oil prices for the foreseeable future. Indeed, a recent Energy Information Agency (“EIA”) report predicts that between now and 2035 crude oil will hover between $110-$150/STB.

Interestingly, when natural gas hit its low average price of less than $2.50/mcf in September 2009, the NYMEX spot price of crude oil averaged approximately $72.00/STB, demonstrating even further the decoupling of prices of the two commodities.