DOE approves funding for ICRC/Syntroleum team's ultra-clean fuels project

Team to build advanced clean fuels plant in Tulsa, produce GTL fuels to power buses for Washington Metropolitan Area Transit Authority and Denali National Park

The U.S. Department of Energy (DOE) has concluded an agreement with Integrated Concepts & Research Corporation (ICRC) to provide funding to a team of companies, including Syntroleum Corporation (Nasdaq: SYNM) and Marathon Oil Company to provide funding for the gas-to-liquids (GTL) Ultra-Clean Fuels Production and Demonstration Project for which preliminary approval was announced in October 2000. Under the terms of the $36 million award agreement, the DOE will provide $16 million in funding and the team members will provide the remaining $20 million. As a result, construction is expected to start this fall on the production facility that will produce ultra-clean synthetic fuels for testing in fleet vehicles in Washington, DC and Denali National Park in Alaska. Additional tests may be added.

DOE is co-sponsoring the project through the National Energy Technology Laboratory (NETL) and its Ultra-Clean Transportation Fuels Program, the federal government's program to pioneer a new generation of ultra-clean transportation fuels and tailpipe emission controls-for cars, trucks and other heavy vehicles.

Broadly, the goals of the ultra-clean fuels project are to:

• Produce test quantities of Syntroleum synthetic fuels
  
• Demonstrate synthetic fuels in test engines and fleet vehicles
  
• Evaluate synthetic fuels in advanced power train and emission control technologies

Syntroleum GTL technology converts natural gas into liquid synthetic fuels that are compatible with existing fuel infrastructures, are virtually free of sulfur and aromatics, have a high cetane level and exceed currently proposed U.S. and European Union environmental regulations expected to take effect in 2006 and 2005, respectively.

"We can't think of a better way to demonstrate the economic and environmental benefits of synthetic fuels converted from natural gas than to power working vehicles in our nation's capital and Denali National Park," said Mark A. Agee, President and Chief Operating Officer of Syntroleum Corporation. "And we can't imagine a stronger team of partners than the one we've got."

"As one of Syntroleum's early licensees, Marathon has long recognized the longer-term global value of this technology to monetize natural gas resources too remote from the market place to be developed economically. Furthermore, increasing fuel quality standards have created a huge potential for GTL producers in meeting the growing demand for ultra-clean fuels," stated Tim Tipton, Vice President-Technology for Marathon. "We are pleased to be a part of this specific program because it will go a long way toward building the market for new fuels. This effort will confirm through extensive and extended fleet testing the utility, value and effectiveness of these fuels in underpinning Marathon's own plans in GTL."

"We view the DOE grant as the beginning of a long relationship with Syntroleum and the Department of Energy to help bring clean fuels to the U.S. transportation market," stated Kevin Mulrenin, Vice President of ICRC/s Advanced Vehicle Technologies Division. "For ICRC, it is a perfect match with our engine design and testing capabilities and our Alaska heritage where the potential to produce large quantities of clean diesel exists due to the large reserve of natural gas."

To provide the synthetic fuels needed for the project, Syntroleum and Marathon Oil Company will produce ultra-clean synthetic fuels using Syntroleum GTL technology. The GTL demonstration plant, which was originally constructed by Syntroleum and ARCO (now BP) and located at the Cherry Point refinery in Washington State, will be relocated to Tulsa, Oklahoma and used as the basis for the production plant for the project. Construction for the project is expected to begin in Fall 2001. New modules will be added to the existing plant to enable production of finished fuels. The facility will be engineered to minimize footprint, thus facilitating modularization and mobility for future plants. The plant is expected to begin production by early 2003. Its capacity is expected to be approximately 2,300 gallons per day of Syntroleum ultra-clean diesel fuel and about 700 gallons per day of sulfur-free synthetic naphtha. Subject to receiving continued funding, the naphtha will be used in several fuel cell testing programs.

ICRC will oversee multiple demonstrations and tests of fuels produced by the project, including demonstrations in two different bus fleets, and in advanced power train and emission control technologies. These demonstrations and tests will be performed by the proposed project partners including DaimlerChrysler, the U.S. National Park Service, Washington Metropolitan Area Transit Authority, Massachusetts Institute of Technology's Sloan Automotive Laboratory, University of Alaska's Cold Weather Test Facilities and West Virginia University's transportable emissions testing laboratory. The consulting firm of Arthur D. Little will perform a well-to-wheels economic analysis of the fuel's potential for entering the transportation market based on selected project data and other available sources.

As proposed in the project objectives, by Fall 2002, the project will begin evaluations of GTL synthetic fuels in advanced power train and emission control technologies, including after-treatment systems, use of exhaust gas re-circulation and varied injection timing. By spring of 2003, these synthetic fuels will fuel a number of Washington Metro buses and Denali Park buses. The vehicles will be monitored for selected emissions, including particulate matter and oxides of nitrogen. The results are expected to help advance research and development for further emissions reduction, additive packages, fuel blends and increased drive-train efficiency. The Washington D.C. and Denali locations were selected based on several criteria, primarily to provide performance data under widely divergent environments, including climate, topography, engine load factor and mean distance between stops.

Evaluated in lab and limited road testing since 1997, Syntroleum synthetic fuels received U.S. Environmental Protection Agency approval for use as transportation fuels in 2000. Certification as "Alternative Fuels" under the Energy Policy Act (EPACT) was granted for GTL fuels made domestically, for example, using currently stranded Alaska gas reserves into GTL fuels. Also, Syntroleum's EPACT application is currently pending with the DOE to certify GTL fuels from non-domestic sources, which could provide broader sources of supply for clean synthetic fuels.

Southwest Research Institute (in the U.S.) and Ricardo Labs (in the United Kingdom) have conducted tests on Syntroleum fuels. DaimlerChrysler showcased Syntroleum fuels in its Power Wagon concept vehicle and its ESX3 hybrid-electric vehicle under the "Partnership for New Generation of Vehicles" program. Syntroleum synthetic fuels have also been successfully demonstrated in fuel cell applications at DOE's Argonne National Laboratory, and by fuel cell manufacturers Epyx (now Nuvera) and IdaTech. One of the key advantages of GTL synthetic fuels is that they can be used in conventional internal combustion engines as well as in fuel cell systems, widely considered to be the next major clean energy technology.

Although Syntroleum synthetic fuels have previously been tested in laboratory and other settings, this will be the first project to take the fuels from a basic resource to comprehensive engine, vehicle and emissions tests in both laboratory and real-world applications and project the overall economics and marketability of the fuel to address the Nation's transportation fuels concerns.

NETL also expects that tests will be conducted on selected military vehicles. Syntroleum anticipates that the fuel will have a number of advantages for military applications, including the ability to meet military fuel guidelines, clean-burning applications where military vehicles must comply with stringent air-quality guidelines, and the ability to produce it closer to the location of conflicts than was possible in the past. One of the primary advantages for energy security concerns is the ability to produce the fuel from a variety of domestic and foreign resources.

This project was solicited and awarded through the DOE's Ultra-Clean Transportation Fuels Program and is subject to continued congressional appropriation of project funds. The mission of this program is to partner with industry to develop, demonstrate and deploy technologies and systems that will dramatically improve the nations' energy security, environmental quality and economic competitiveness.

ICRC, headquartered in Alexandria, VA, is an engineering and technical services company. Most of the firm's work is with the Department of Defense and DOE research and development agencies. ICRC is owned by an Alaskan native corporation.

Syntroleum Corporation is the developer of proprietary technology for converting natural gas into synthetic liquid hydrocarbons. Syntroleum licenses its process to oil companies for the manufacture of fuels. Current licensees include ARCO (now BP), Enron, Ivanhoe Energy, Kerr-McGee, Marathon, Repsol-YPF, Texaco and the Commonwealth of Australia. Additionally, using its technology and in partnership with others, the company plans to build GTL plants in a number of global locations.

Source: Syntroleum Corporation