Korea Testing Electric Fuel from Natural Gas

By Shinhye Kang
Nov. 9 (Bloomberg) -- Korea Gas Corp. plans to test market a low-cost clean fuel derived from natural gas and coal in South Korea before signing a final contract to build a plant costing as much as 400 billion won ($342 million) in Saudi Arabia.

The distributor will blend dimethyl ether, commonly used in spray cans, with liquefied petroleum gas to be sold as cooking fuel for a year starting this month, Baek Young Soon, a project manager at Korea Gas, said in an interview. The state utility signed a preliminary agreement with the Saudi Arabian government on Nov. 1 to build a 300,000 ton-a-year plant in Jubail by 2013.

“Supplying the mixed fuel to households is the first stage,” Baek, 52, said at his office in Incheon, west of Seoul. “DME could eventually replace diesel in trucks and buses once it gains wider recognition as an alternative fuel.”

The world’s biggest buyer of liquefied natural gas plans to invest in the venture as South Korea seeks to cut greenhouse gas emissions. DME releases 95 percent less carbon dioxide than diesel and no soot particles, according to Volvo AB, which will test the fuel next year. Baek said production costs are about half of diesel and 30 percent less than LPG.

“DME is eco-friendly and cost effective,” said Kim Seung Woo, a Seoul-based analyst at Samsung Securities Co. “Still, future demand as a new auto fuel isn’t guaranteed because the automobile industry is focusing more on electric cars rather than on introducing models for new types of fossil fuels.”

Overseas Plants

Korea Gas and the Saudi Arabian government will conduct a feasibility study and decide the stakes each will hold before signing a final contract next year, the project manager said. The venture may receive natural gas from Saudi Arabia at less than $1 per million British thermal units for between 15 and 20 years, and the proposed plant’s capacity may be increased to as much as 1 million tons a year if demand increases, he said.

The company is also considering building plants in Oman and Iran and would ship the fuel to South Korea, he said.

Baek said Korea Gas currently isn’t in talks with carmakers to use the fuel, though it expects companies to show interest once supplies from the plant in Saudi Arabia become available. Even if demand for DME as a transport fuel is weak in the early stages, output from the plant will used as cooking fuel, he said. South Korea uses 400,000 metric tons of cooking gas annually.

DME is made from a mixture of hydrogen and carbon monoxide that is synthesized from natural gas, coal and biomass. The fuel is compatible with diesel engines and more powerful than compressed natural gas, which is used in cars and city buses and requires a different engine, according to Baek.

Volvo Trucks

“The success of DME depends on oil prices and how carmakers will respond to the fuel,” said Cho Seung Yeon, an analyst at LIG Investment & Securities Co. Incentives including tax breaks may be needed to persuade automakers, he said.

Volvo unveiled one DME-powered demonstration truck in 2007 and plans to test run 14 trucks using the fuel in Sweden between 2010 and 2012, according to the company’s Web site. Hyundai Motor Co., South Korea’s biggest carmaker, couldn’t immediately confirm plans to use the fuel, the Seoul-based company said by e-mail.

“It will take at least 40 years until electric cars become mainstream,” Baek of Korea Gas said. Until then, DME will be one of the best alternative fuels, he said.

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To contact the reporter on this story: Shinhye Kang in Seoul at skang24@bloomberg.net.