Liquid Coal a Slippery Business

Did you know that there is more potential fuel in U.S. coal than Saudi Arabian oil? The coal industry does, and it is throwing all of its political weight behind making Coal-to-Liquid technology (CTL) the belle of this year's energy bill, which arrived on the floor of the Senate this week.

From Washington to Beijing, governments are debating whether to include CTL in their national energy strategies. Its supporters trumpet energy security and the prospect of petrodollars flowing to the Midwest instead of the Middle East. But that independence comes at a cost, environmentalists warn -- CTL's "lifecycle" of greenhouse gas emissions is twice that of oil diesel.

These trade-offs between economics, security and the environment will play out in the political arena and present the shrewd pundit with an array of investment opportunities.

Old Technology, New Opportunity

The energy in worldwide coal reserves dwarfs that of oil -- and it lies in the right places. The U.S. is the Saudi Arabia of coal, with 26% of proven world reserves (enough to power the country for over 200 years at current consumption rates), and the energy-hungry economies of Asia lie close to huge deposits in the former Soviet Union (23% of world reserves) and China (12% of world reserves).

However, CTL plants are expensive and production costs run higher than historical oil prices. A typical CTL plant costs $3 billion to $5 billion and can produce 50,000 to 150,000 barrels a day from coal feedstock. Its product is price competitive with oil-based diesel between $40 to $50 per-barrel, according to a recent U.S. Department of Energy report. This compares to an $18.43 per-barrel (in 2006 dollars) median price for crude since World War II. ...