ConocoPhillips, Peabody Energy to build coal-to-substitute natural gas plant

Monday, July 23, 2007 | 2:00 p.m. CDT; updated 3:43 p.m. CDT, Monday, July 21, 2008

ST. LOUIS — ConocoPhillips is teaming with the coal company Peabody Energy on plans to build a Midwest coal-to-substitute natural gas facility, the companies said today.

A specific location hasn’t been determined, but the plant, using ConocoPhillips’ E-GAS technology, would be developed at the mouth of a mine at a site where St. Louis-based Peabody has access to large reserves and existing infrastructure, the companies said.

Peabody and Houston-based ConocoPhillips said the project’s preliminary design and economic assessment are expected to be complete in early 2008. Construction would begin in 2009 at the earliest but the time frame would depend upon on a number of factors, including regulatory approval, said Bill Graham, a spokesman for ConocoPhillips.

Graham did not offer a cost estimate but said, “If everything falls into place it will be a multi-billion dollar project.” Preliminary estimates are that the additional mining and the facility combined would employ about 400 workers, he said.

When completed, the plant is expected to produce 50 billion to 70 billion cubic feet of synthetic natural gas from more than 3.5 million tons of coal.

“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 conversion projects,” said Gregory H. Boyce, Peabody’s president and chief executive officer.

ConocoPhillips said demand for natural gas and synthetic natural gas has grown rapidly in recent years. The company said its E-GAS technology converts coal or petroleum coke into a clean synthesis gas, a process that it said allows virtually all impurities to be removed.

“This project, as currently envisioned, would be designed to deliver over 1.5 trillion cubic feet of SNG in its first 30 years of operation from proven, domestic coal reserves,” ConocoPhillips Chairman and CEO Jim Mulva said.

The National Coal Council, in a 2006 study, called for using coal to provide at least 15 percent of U.S. natural gas consumption, the companies noted.

Peabody shares declined 1.5 percent, or 68 cents, to $45.53 in early trading today. ConocoPhillips shares were down 1.2 percent, or 99 cents, to $85.31.

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