Shell, Anglo American rethink coal-to-liquids project

SYDNEY, Dec 2 (Reuters) - Royal Dutch Shell Plc RDSA.L and Anglo American Plc (AAL.L) are rethinking development of an Australian project to turn coal into liquid fuel, saying it might cost too much.

"Monash Energy, and its owners Shell and Anglo American, believe that, in the long term, coal to liquids may provide an opportunity for Victoria to provide domestically produced clean liquid fuels for Australian and international markets," Roger Bounds, project director at the jointly-owned Monash Energy Holdings Ltd. venture, said in an e-mailed statement.

But Bounds said critical requirements for the project were not yet in place for the oil and mining consortium to proceed to the next phase.

"The reasons for this include higher capital cost estimates and escalated construction costs," Bounds said.

Backers of many alternative energy projects around the world have delayed or scrapped plans since crude oil prices <CLc1) plunged from record highs in July. Oil is now trading at about a third of the price it was then.

Almost A$20 million ($13 million) has been spent since September 2006 proving up the coal-to-liquids concept, according to Monash's website.

Media reports estimate the project was originally estimated to cost A$5 billion to get up and running.

The core of the project is a large scale commercial plant in Victoria's Latrobe Valley drawing coal from its own mine and then drying and gasifying the coal for conversion into transport fuels.

The use of brown coal for power generation in the Latrobe Valley accounts for 55 percent of CO2 emissions in Victoria, a state with a population of around 5 million.