Syntroleum needs a Savior

It was a great day for many companies and environmentalists back in 2003. Back then the Department of Energy (DOE) announced that a newly constructed natural gas-to-liquids demonstration facility near Tulsa, Oklahoma would open. The Ultra-Clean Fuels Program, managed by DOEs National Energy Technology Laboratory, was built under a cooperative agreement among DOE, Syntroleum Corp., Marathon Oil Co. and Integrated Concepts Research Corp. (ICRC). Plant construction costs were valued at over $40 million, of which DOE provided $16 million on a cost-share basis.

According to the press release of October 3, 2003, The facility would utilize the proprietary Syntroleum® Process to convert natural gas to transportation fuel. The DOE said the plant consisted of three primary components: an autothermal reformer that changes the natural gas into synthesis gas; a Fischer-Tropsch unit that converts the synthesis gas into synthetic crude product; and a refinning unit that upgrades the synthetic crude product into finished synthetic fuels.

On September 10, 2006 Syntroleum (Nasdaq:SYNM), sent a press release saying that they announced that it has completed the production of 100,000 gallons of ultra-clean aviation fuel for the military at the companys 70 barrel per day Catoosa Demonstration Facility (CDF). CDF is where more than 400,000 gallons of ultra-clean fuels were produced from natural gas utilizing Fischer-Tropsch (FT) processes.

These fuels consist of diesel, jet, and naphtha. In addition, Syntroleum successfully completed the longest run of it’s catalyst testing activity at the companys two barrel per day pilot plant. As a result, and in addition to the suspension of CDF operations as previously announced, operations at the pilot plant will also be suspended beginning October, 2006.

One has to ask the question: $32 million in subsidies, oil at $70 a barrel and Syntroleum is not producing and becomes a shell waiting for a customer. At what price does synfuel become viable if it doesnt have a buyer when oil is at $70 a barrel? Is there a need for Syntroleum?

“Having completed the essential work of operating the CDF and the pilot plant, we are now able to take the prudent step to temporarily suspend further operations at these facilities. Our continued research can now be conducted at our lower cost labs,” said Jack Holmes, president and CEO of Syntroleum, said in a press release. “We will maintain these plants in a state such that if any of our licensees, joint venture partners, or customers would like to fund further operations for specific purposes, we can quickly and efficiently restart the facilities to meet their objectives.”

Syntroleum has other squires on the wire. Sustec in Switzerland has a project in Germany. Other projects include
shoppinng a mobile GTL facility to potential customers, submitting an RFI (Request for information) to the Department of Defense (DOD) for a CTL plant in the United States, and developing oil and gas assets in Nigeria.

Syntroleum needs one of these deals to work. According to Syntroleums financial statements they have about $46 million in cash. In 2005 Syntroleums operating expenses were $34.8 million. In the first two quarters of 2006 Syntroleum has reported revenue of $428,000 for the first quarter and $312,000 in the second quarter from licensees and joint ventures.

There is a difference in the Fischer-Tropsch process that Syntroleum uses that makes it invaluable. Syntroleum uses air in the beginning to separate gas, while the rest of the Gas-to-Liquid groups use oxygen. Syntroleum doesnt need to build an oxygen plant set-up with natural gas.

There have been numerous findings of oil in the Gulf recently. In Cubas gulf water they found not only oil but a large pool of natural gas. It will take deep drilling experts to get to the oil and the natural gas. Syntroleum could set up shop right on the ship and produce Gas-to-Liquids on the vessel from deep water extraction of methane, versus reinjecting or transporting the natural gas back to the mainland.

Gas-to-liquids and coal-to-liquids are getting the most efficiency out of the energies they are producing as well as reconciling the demand for energy with environmental degradation. Both GTL and CTL are cleaner, on a well-to-wheel basis, than the other ways of producing the same energy. Working with the old oil companies these new methods can work for all of us.

About the Author:

Lou Ann Hammond is the CEO of Carlist and Driving the Nation. She is the co-host of Real Wheels Washington Post carchat every Friday morning and is the Automotive, energy correspondent for The John Batchelor Show and a Contributor to Automotive Electronics magazine headquartered in Korea. Hammond is a member of the North American Car and Truck of the Year (NACTOY), Women's World Car of the Year (WWCOTY), and the Concept Car of the Year.

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