THE oil market volatility has given rise to a growing sense of energy insecurity among the oil-importing nations heavily dependent on foreign supplies. Geo-political situation, rising international oil demand and severe weather conditions due to global warming have further aggravated insecurity.

Since the terrorist attacks of 9/11, geo-political tensions have been growing. In Nigeria, militant attacks on oil facilities are almost a daily affair. Russia and Venezuela are reported to be planning to nationalise their oil wealth which has become a source of concern for the oil-importing industrialised nations. In Iraq and Saudi Arabia, oil facilities have been under attack in the recent past. A confrontation between the US and Iran now looks imminent according to some political analysts. These developments compel the oil-importing nations to boost up their oil security.

Ironically, the supply of oil is concentrated in a few countries, while nations having the highest oil consumption heavily depend on oil imports For instance, the United States produced only 6.8 million barrels of oil daily in 2005 but its demand stood at 20.7 million barrels daily, resulting in import of about 14 million barrels of oil daily from Venezuela, Mexico, Canada, Saudi Arabia etc.

Similarly, China’s demand for oil in 2005 stood at about seven million barrels daily, against its production of 3.6 million barrels per day. India produced less than one million barrels of oil daily but its demand stood at 2.5 million barrels daily in 2005. Among the main oil exporters, Middle East produced 25 million barrels of oil per day in 2005. Russia’s daily output was 9.5 million barrels as against three million barrels each of Venezuela and Canada. Mexico produced 3.8 million barrels daily.

To ensure energy security, oil-importing countries have been trying to cut their demand for oil by improving energy efficiency and increased use of alternative fuels such as ethanol. The US president, in his State of Union address last month, called for a 20 per cent reduction in the use of gasoline over the next 10 years. Increase in the use of alternative fuel such as ethanol would help cut gasoline use by 15 per cent, whereas more strict gas mileage standards for vehicles would lead to the remaining five per cent reduction.

To achieve the target of reduction in gasoline use by 15 percent, fuel suppliers would have to include 35 billion gallons of alternative fuels such as ethanol in the US vehicles fuel supply by 2017, against five billion gallons (of ethanol) included last year. Production of corn-based ethanol, according to an estimate, could reach a maximum level of 15 billion gallons.

The rest (20 billion gallons) would come either from cellulosic ethanol, which uses fibre from switch grass and other natural products, or from liquefied coal. It may, however, be pointed out that the technology to produce cellulosic ethanol economically has not so far been developed.

Even the use of a relatively smaller quantity of corn-based ethanol at present (five billion gallons) is creating problems. According to reports, ethanol demand has raised chicken prices by six cents a pound, whereas the price of corn (which constitutes 75 per cent of the cost of ethanol production) has doubled to nearly $4 a bushel over the past six months. A further increase in the share of ethanol in the US vehicle oil supply, it is feared, would put serious pressure on the available supply of water, energy and land, besides pushing up the corn prices to a much higher level.

This leaves the coal-based oil as an alternative fuel. There is no doubt that coal is not environment-friendly. However, its plentiful supply in the oil-deficient countries makes it a viable alternative to oil.

While in 2005 the globally proven reserves of oil stood at 6,958 quadrillion BTUs Proven reserves of coal stood at a much higher level of 20,797 quadrillion BTUs. Of the 6,958 quadrillion BTUs of oil, 4,304 quadrillion BTUs were in Middle East, 817 in Europe and Eurasia, 808 in Americas excluding the US and 646 in Africa. As against the above, of the 20,797 quadrillion BTUs of coal, 6,568 quadrillion BTUs were in Europe and Eurasia, 6,792 in Asia Pacific, 5,643 in the US and only 1,161 quadrillion BTUs in Africa and Middle East.

The coal reserves are abundant in countries and regions heavily dependent on oil imports such as the US, Europe and Asia. The US and the countries in Asia and Europe are, therefore, in a position to reduce their dependence on imported oil by utilising their coal reserves to produce coal-based fuel.

Conversion of coal to liquid fuels involves a series of steps. First of all, coal is heated under pressure with steam to create a synthetic gas. Next, unwanted elements including sulfur and carbon dioxide are removed from the gas. Thereafter, the gas reacts with a catalyst to form synthetic petroleum and finally the synthetic petroleum is refined to make diesel fuel.

Coal companies in the US reckon that due to problems facing the manufacture of ethanol-based fuel on a large scale (explained in the preceding paragraphs), coal-based fuel has emerged as a viable alternative. Rick Boucher, who is chairman of the sub-committee that is to put together the package of fuel incentives, is of the view that coal-based fuel should be a part of the mix of alternatives being considered, at present. He has pointed out that a process of deriving diesel oil from coal was used by both Germany and Japan during the World War II to make up for shortage of imported oil and even coal-based fuel may be the most proven alternative to gasoline.

According to reports , DKRW Energy LLC of Houston already has the permits and partners for a plant to make diesel oil from coal. The plant is scheduled to start production by 2010. DKRW Chairman Robert Kelley says that the diesel oil produced in the plant would not harm the environment because the production turns the coal into gas from which carbon dioxide will be removed and sold to oil companies.

The oil companies will inject the carbon dioxide into the ground to produce more oil. However, a climate expert for the Natural Resources Defence Council David Hawkins has expressed apprehension that the diesel fuel contains carbon dioxide, which will be released into the air when burned in car and truck engines . But, then, is the gasoline used for the same purpose more environment-friendly?

Many oil-importing countries such as Pakistan would be able to benefit from coal-based fuel when its production starts on a commercial scale.