Nearly 90 years ago, German researchers Franz Fischer and Hans Tropsch developed a process that will solve our energy crisis. Today the term “Fischer-Tropsch” is seen frequently in articles about synthetic fuels.

It now applies to a wide variety of similar processes for converting coal, biomass and other carbon intensive feed-stocks into usable products such as diesel and jet fuel.

These two scientists at the Kaiser Wilhelm Institute invented the process because of a petroleum shortage, increased demand and skyrocketing prices - similar to what the United States faces today. During World War II, Germany used the technology to keep Hitler’s war-machine running.

By 1944, Germany’s annual synthetic fuel production reached more than 124,000 barrels per day from 25 plants. After the war, captured German scientists continued to improve the process in the United States.

But the technology faded after the 1980s. That’s when Congress passed the Energy Security Act, which birthed the Synthetic Fuels Corp (SFC). SFC spent over $88 billion in government loans and incentives, with the goal of creating two million barrels a day of synthetic oil within seven years.

SFC was launched in 1980 and it folded in 1986 after spending billions without providing any fuel. In the grinding recession of the early 1980s, oil prices sunk from more than $39 a barrel to less than $8 a barrel. Synthetic oil became a financial bust.

Now the economics have changed…

With Oil Trading at $130 per barrel, Synthetic Fuel is a “No-Brainer”

The process works like this: Coal is broken into its components by subjecting it to high temperature and pressure, using steam and measured amounts of oxygen. This leads to the production of synthetic gas.

Because the United States has benefited from years of low price petroleum, the leader in synthetic gas grew up in South Africa. The global leader is Sasol (NYSE: SSL). Sasol uses coal and natural gas as a feedstock to produce a variety of synthetic petroleum products. Sasol produces most of South Africa’s diesel fuel using a modified Fischer-Tropsch process.

This process helped South Africa to meet energy needs during its economic isolation under Apartheid. Sasol’s process has received recent investor attention because they produce a low-sulfur diesel fuel, which minimizes the environmental impacts. As a result its stock has soared.

In the United States, a small firm named Rentech, Inc. (AMEX: RTK) provides technology to produce ultra-clean synthetic fuels and chemicals. It licenses its proprietary derivative process from the Fischer-Tropsch method.

It converts synthesis gas derived from coal, petroleum coke, biomass, natural gas, or municipal solid waste into liquid hydrocarbon products. This includes ultra clean diesel fuel, jet fuel, naphtha, specialty chemicals and other fuel products. Rentech also manufactures anhydrous ammonia, UAN, nitric acid, carbon dioxide and granular and liquid urea.

The US Air Force has been a leader in the utilization of these fuels. Most of the fleet is being certified to fly on a blend of synthetic and jet fuels. Recently, a B-1 Bomber became the first plane to break the sound barrier flying with a mixture that included synthetic jet fuel.

In addition, Rentech has a joint development agreement with Peabody Energy Corporation for the co-development of CTL projects that convert coal into ultra-clean transportation fuels using Rentech’s Process.

As with many companies focused on research and development of new technology, Rentech has yet to post a profit and its shares have traded in a small range for over a decade. RTK is still a highly speculative investment in one of the many potential solutions to our rising fuel costs.

So while the media hype is focused on solar, wind and even tidal power to solve our energy needs, the likely successor to petroleum will be refined from a black, sooty fuel that has been used since ancient times - coal.

I am happy to report that the United States has lots of coal, and companies operating in our free enterprise profit-incentive world are perfecting the technology to cleanly burn it in our planes, trains and automobiles.

Happy investing,

Floyd

Source: How These Two German Scientists Are Solving Our Energy Crisis