Peabody Energy and ConocoPhillips will explore development of a commercial scale coal-to-substitute natural gas (SNG) facility using proprietary ConocoPhillips E-GAS technology, the companies said Monday.

The project would be developed as a mine-mouth facility at a location where Peabody has access to large reserves and existing infrastructure. It would be designed to annually produce 50-70 Bcf of pipeline quality SNG from more than 3.5 million tons of Midwest-sourced coal. In addition, presuming there is a supportive regulatory framework in place, the project scope will provide for carbon capture and storage.

“Our agreement with ConocoPhillips combines the strength of global industry leaders and proven technology that further demonstrates coal’s ability to build energy reliability, security and price stability,” said Peabody CEO Gregory H. Boyce. “The energy value in Peabody’s vast coal reserve base exceeds the energy in the oil or gas reserves in the continental United States, offering strategic advantages for coal-to-gas projects and other Btu conversion projects.”

Peabody and ConocoPhillips would participate in project ownership along with other potential equity partners. The preliminary design and economic assessment is expected to be complete in early 2008.

“This project, as currently envisioned, would be designed to deliver over 1.5 Tcf of SNG in its first 30 years of operation from proven domestic coal reserves,” said ConocoPhillips CEO Jim Mulva. “It also offers an excellent opportunity to use our company’s project management capabilities, manufacturing expertise and advanced technology to help increase the supply of alternative fuels.”

Gasification has been used by the refining, chemical and power industries for more than 50 years. E-GAS technology converts coal or petroleum coke into a clean synthesis gas, allowing virtually all impurities to be removed, the companies said.

Last year Indiana’s governor unveiled plans for a $1.5 billion coal gasification plant, which was predicted to be the first plant in the country to make pipeline-quality natural gas from eastern coal (see Daily GPI, Oct. 31, 2006).

Natural gas demand has grown rapidly in recent years and development of coal-to-SNG projects is gaining increasing interest. In a 2006 study, the National Coal Council called for using coal to provide at least 15% of U.S. natural gas consumption, or 4 Tcf/year using nearly 350 million tons of coal annually.

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