Economic analysis of unconventional liquid fuel sources

In this study, the potential of the alternative liquid fuel sources to enter into the liquid fuel market is analyzed based on the cost structures of these sources. Firstly, the current unconventional sources are classified as syncrude, synthetic fuels and biofuels and some basic information including production methods and current production amounts about these alternative sources is explained. Secondly, the production costs are examined to calculate the market entrance prices and shut-down prices for the technologies used to produce liquid fuels from the unconventional sources. Lastly, the structure of the liquid fuel market and the potential of alternative fuels in the market are discussed. Based on the analysis, it is concluded that the liquid fuel market can be characterized as a competitive market in which three factors play important role on determining the entrance into the market. These factors are (1) the corresponding oil prices for entrance and shut-down prices, (2) total capital cost of the project (the level of sunk cost), and (3) the capital cost per daily barrel of capacity. The evaluation of these factors together shows that biofuels are the most preferable option followed by gas-to-liquids. In terms of market entrance price, syncrude is the most advantageous option, but its high capital cost increases the risk. On the other hand, coal-to-liquids is the most risky one with high market entrance price, large initial capital cost and high margin between entrance and shut-down prices. (C) 2011 Elsevier Ltd. All rights reserved.