Fuel your car with coal? Less likely now

By Bruce Nichols

HOUSTON (Reuters) - When crude oil was more than $145 a barrel and investors were flush with cash, building plants to turn coal into liquid fuel for cars and trucks looked like a winning bet.

But, as oil has fallen below $70 a barrel amid a looming global recession and slowing fuel demand, plans to convert plentiful U.S. coal supplies into liquid fuels look less certain.

"Things have tightened up," said Bob Kelly, chairman of DKRW Energy LLC, which is eyeing a so-called coal-to-liquids, or CTL, plant in Wyoming.

Despite opposition from environmental groups, who say the plants could exacerbate global warming, coal companies, including giant Peabody Energy (BTU.N: Quote, Profile, Research), have been pushing CTL as a way out of the American addiction to oil.

Now, industry officials are going back to the drawing board, Kelly said. "Everybody's got to evaluate their positions," he said. "We have to wait to see how the capital markets evolve."

DKRW's Medicine Bow project is one of about a dozen that have been announced around the United States. DKRW's groundbreaking originally was targeted for late 2007 but is now set for early 2010.

The United States has vast coal reserves -- by some estimates up to a 250-year supply at current usage rates.

Advocates say greenhouse gas emissions can be controlled, but cost remains a stumbling block. A commercial-scale CTL plant would cost upwards of $4 billion (2.3 billion pounds). With oil prices now half the record $147 a barrel set in July, CTL will have a harder time competing with traditional oil-derived fuels, analysts said.