The New Coal Car

Powering cars with coal might seem like a recipe for ecological disaster. But if fuel experts are right, a liquefied form of the notoriously dirty mineral will be providing much of the world with its transport fuel within the next two decades. The coal miner's equivalent of turning straw into gold, liquid coal enables cars, trains and even jets designed to burn oil to run on coal instead. And, says its cheering squad, it does so in a way that's green, economical and widely available.

Liquefied coal is nothing new. First developed by German scientists in the 1920s, it helped power the Nazi war machine. But until recently, turning coal to liquid (a method known as CTL) was prohibitively expensive. For two decades, until 2003, oil prices averaged $25 a barrel, making $45-a-barrel liquid coal out of the question economically. But now, with oil prices staying consistently above the $60-a-barrel mark and the environment high on everyone's agenda, liquid coal is rebranding itself as the right choice to ensure national energy security, combat high oil prices and help stop global warming. "CTL has the potential to serve both the economic and environmental imperatives of 2007 and beyond," says Global Insight's head energy analyst, Steven Knell.

When we look at the multibillion-dollar spate of recent liquid-coal deals across the world, it's clear that many agree. In total, worldwide liquid-coal production is expected to rise from 150,000 barrels a day today to 600,000 in 2020, and 1.8 million barrels a day in 2030. In China, there is about $25 billion worth of investments currently in the liquid-coal pipeline. Sasol, the South African company renowned as the global authority on liquid-coal technology, is currently building two CTL plants, each with a price tag of about $6 billion, in Ningxia and Shaanxi. The state-owned Shenhua Group is preparing to bring China's first CTL plant into production in 2007 and has already spent an estimated $7.5 billion.

In America, at least nine states are actively considering liquid-coal production. State senators in Illinois and Kentucky are considering a plan to offer loan guarantees and tax incentives for CTL plants. In October, Montana Gov. Brian Schweitzer announced that the state would be building America's first ecofriendly CTL plant for $1.3 billion. Enthuses Schweitzer's adviser Eric Stern: "CTL could one day supply every drop of transportation fuel that America uses."

South Africa is a living testament to the fact that liquid coal works. Thanks to anti-apartheid sanctions that limited its access to foreign oil, the country boasts a highly advanced CTL infrastructure. Sasol, which is partly state-run, provides 30 percent of South Africa's total transport-energy needs. The fact that many of the world's most energy-hungry countries are also the richest in coal makes South Africa a prime model. Says Sasol CEO Pat Davies, "Liquid coal is not going to replace crude oil, but it can make a huge difference to countries like China, India and the United States."

With the world's largest coal reserves, the United States has enough coal to power the country for another century at least. Russia, China and India follow close behind. Advocates say coal blows away biofuels, the current darling of energy venture capitalists, in head-to-head comparisons of availability and efficiency. In the United States, for example, ethanol producers are already using up 14 percent of the country's annual corn crops but generating less than 2 percent of the country's fuel needs.

Liquid coal's environmental credentials stand up to questioning, too. Although old CTL plants (like existing ones in South Africa) are chronic polluters, nearly all the newest ones are models of eco-correctness. Underground carbon capture and sequestration (separation) technology can trap and bury the CO2 waste emissions, protecting the atmosphere from harm. With sequestration, powering a car with liquid coal is approximately 30 percent cleaner than using gasoline. Old King Coal is starting to look pretty new.