U.S. energy legislation currently working its way toward finalization in Congress provides $200 million in aid for programs that develop ways to convert coal into synthetic fuels such as clean diesel, along with billions in loans and incentives to encourage environmentally friendly methods of burning coal to generate electricity.

A huge federal transportation bill still in the U.S. House also promises assistance for those seeking to convert coal into clean-burning transportation fuels.

These funds could spur existing programs and spark new initiatives in Alaska, which leads the nation in known reserves of low-rank, low-sulfur coal with an estimated 160 billion short tons of the soft, black rock.

Coal-to-fuels study in works

The U.S. Department of Energy is poised to examine the feasibility of making coal from the Beluga fields on the west side of Cook Inlet into synthetic fuels.

DOE is in the process of finalizing a study to see if it's possible to make coal from the Beluga fields into feedstock for the Agrium fertilizer plant in Nikiski, hydrogen for the Tesoro refinery to make low-sulfur diesel and power for the Pebble Mine project.

A coal-to-liquids project also could generate synthetic diesel for BP's gas-to-liquids plant in Nikiski and produce carbon dioxide to boost oil recovery in the aging Cook Inlet fields.

Though no specific dollar figures have been discussed, DOE has earmarked funds for coal research that could be used to finance the work.

DOE's interest in finding an economical way to tap the 1.4 billion tons of proven coal reserves in the Beluga fields stems from the energy industry's concern about the imminent energy crisis facing the Anchorage Bowl where natural gas supplies are rapidly being out-paced by growing demand.

While Alaska policymakers appear to be intently focused on developing North Slope gas reserves via a pipeline to the Lower 48 with a spur line to the Southcentral area, researchers at DOE's National Energy Technology Laboratory worry that Anchorage's energy crisis may reach a critical stage three to six years before the North Slope gas line is complete.

Observers say Alaskans need to stop looking at sole sources to meet Southcentral Alaska's energy needs and start looking at a suite of sources. "What's needed is portfolio of resources so we're not overly dependent on one source of energy," they say.

Outside investor expresses interest

Though the vast coal supplies in the Beluga fields are considered inferior to other coal in Alaska because of their high moisture content, would-be marketers aren't deterred.

One private group is working with the Alaska Industrial Development and Export Authority to attract a major investor to build a multimillion-dollar conversion plant on the shores of Cook Inlet that would transform the Beluga reserves into diesel and naphtha.

Spokesman Richard J. Peterson said a group he is assisting is in the early stages of considering building a plant to convert the coal into synthetic fuels, including diesel and naphtha using the Fischer-Tropsch process.

"The technology is commercial, and the coal reserves are commercial," he said. "We're just trying to convince the players to come to Alaska to do the deal."

Peterson said the project could benefit from tax breaks in the energy bill because a portion of the coal would generate waste heat that could be used to make electricity, and carbon dioxide recaptured in the coal conversion process could be used in to enhance oil recovery in Cook Inlet's oil fields.

AIDEA Chairman Mike Barry said he cannot discuss his recent work with Peterson because he's bound by a confidentiality agreement, but the process of developing a coal-to-liquids plant is arduous. It will be four to five years before such a facility could begin production, he said.

AIDEA pursues coal-to-liquids project

AIDEA, meanwhile, is pursuing all avenues to develop a coal-to-liquids plant.

"The favorable thing about using coal for generating electricity and transportation fuels is the very high price of energy right now," Barry said. "We have a dire need to look at diversifying fuel resources for electricity generation."

AIDEA is examining opportunities for the Beluga fields and Wishbone Hill in the near term and Northwest Arctic coal in the long term," he said. Beluga coal, alone, could generate in refined fuels the equivalent of more than 6 billion barrels of crude oil, by Barry's calculations, making it the second-largest fossil fuel source in North America.

Beluga coal is an attractive resource because it is located at tidewater and only a few miles from Alaska's only electricity grid, Barry said. "It is ideal for feedstock for this kind of operation because it's not easily marketable. Because of its high carbon content, it's somewhat stranded in value," he said.

Beluga coal also has other attractions. "We can generate the cleanest transportation fuels on the planet; waste heat would produce very inexpensive electricity and we can capture carbon dioxide easily," Barry said. "When you put everything together, it's a big win for Alaska if we can achieve this," he said.

AIDEA is also aware of very encouraging aspects of the energy bill, and also a couple of provisions in the federal transportation bill that would advance a coal-to-liquids project, Barry said.

The transportation bill provisions would offer significant cost deductions to make coal diesel competitive as a transportation fuel, said Bill Popp, oil, gas and mining liaison for the Kenai Peninsula Borough.