Synthetic fuels -- Economic aspects


The science of synthetic fuel production began in the seventeenth century. However, large-scale production of synthetic fuels started in the early 1900's and, for several decades, gas manufactured from coal significantly contributed to the U.S. economy. The production of synthetic fuels declined due to increases in the price of coal and discoveries of predominantly methane natural gas. Today, an extensive network of pipelines is used to transmit and distribute natural gas for industrial and residential applications. The decline of natural gas reserves in the United States, in conjunction with the availability of very large coal reserves, has provided the incentive for development of coal gasification plants. Synthetic fuels are expected to contribute significantly to the supply of energy before the end of this century, and coal will be the primary source for production of these fuels. By many accounts, difficulties in raising the high amount of initial capital and future uncertainties with regard to fuel and operating costs have made development of synthetic fuels economically infeasible. However, as the prices of oil and natural gas increase, synthetic fuels production becomes a more attractive alternative. The purpose of this study is to evaluate the economics of synthetic natural gas with the current state of technology and to determine its future role as prices of oil and gas increase. In this report, a general methodology of production of synthetic natural gas is explained. For the economic analysis, the Lurgi Model was selected because it has been the most common model used for commercial production of high BTU gases. An extensive analytical model is described in which inflated capital, fuel, and operating and maintenance costs were accounted for and the equivalent annual cost of cash flows over the project life was calculated. The risk analysis was accomplished by applying Monte Carlo techniques through a simulation model which handles risks associated with various input parameters. SLAM, a FORTRAN-based language, was selected as the simulation language. Based on the results, all the cost elements were evaluated and the sensitivity of the total cost to each element was examined. This study was extended to the calculation of costs associated with he generation of electricity by burning synthetic natural gas. The results were then compared to the respective costs related to oil-burning power plants. The results show that high cost of synthetic high BTU gas makes it difficult to compete with natural gas at current prices. Coal feed stocks represent a major portion of the total cost of synthetic gases. The cost of capital, which is a critical factor at the developing stage, constitutes a relatively small portion of the total cost over the plant life. A similar observation was made for operating and maintenance costs. However, the future regulations regarding pollution control could have a strong impact on this portion of the cost. For power generations, oil was found to be far more economical than using synthetic natural gas. The computer simulation also revealed that the total cost of each alternative is very sensitive to this fuel cost. The conclusion of this study points to the fuel costs as the dominant factor in the choice of fuel alternatives in the future.


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Graduation Date

Fall 1981


Xander, James A.


Master of Science (M.S.)


College of Business Administration

Degree Program

Applied Economics




104 p.




Public Domain

Length of Campus-only Access


Access Status

Masters Thesis (Open Access)



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Business Commons