Semester

Fall

Date of Graduation

2007

Document Type

Thesis

Degree Type

MS

College

Davis College of Agriculture, Natural Resources and Design

Department

Agricultural and Resource Economics

Committee Chair

Jerald J. Fletcher.

Abstract

This study addresses the risks associated with coal liquefaction using a market risk simulation approach. The study can be divided into four phases: (i) identify the sources of risk, (ii) examine the relationships among different sources that cause the risk, (iii) estimate the risk level based on the sources of risk using statistical and financial method and (iv) provide conclusions and recommendations for risk analysis.;Market risk is considered the most important risk for commercial scale coal liquefaction projects and is one of the biggest obstacles to commercialization. This study analyses market risk and discusses methods to lower this type of risk. For a coal liquefaction project, the relationship between coal and oil prices has a critical influence on the project's feasibility. This study also extends the relationship among different types of risks of coal liquefaction and provides guidelines for risk management.;In the risk assessment section, statistical and financial methods are applied to analyze the risk of a proposed coal liquefaction project in West Virginia. Granger Causality Tests are conducted to examine the relationship between coal and oil prices. Using the estimated standard errors, Monte Carlo simulations of NPV are performed to access the financial viability of the West Virginia coal liquefaction project. The results show that the project has a high probability of financial feasibility including a high expected net present value with an acceptable standard deviation. Conclusions and extended discussions are based on the simulation results.

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