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The World's Biggest Investors Moving into CTL

Smarter Investing

Written by Mike Schaefer
Posted August 28, 2006 at 8:00AM

Despite the misinformed allegations of naysayers, coal-to-liquids is not a pie-in-the-sky dream. It's a proven technology that was pioneered over 75 years ago and became highly successful in Germany.

In fact, at its peak production in 1944, Germany had 25 coal-to-liquid plants that produced more than 124,000 barrels of synthetic fuels daily. This production was enough to meet 90% of the nation's needs!

And I believe that with the right investment in the right places, America could do this too.

The problem thus far has been that oil has been so cheap. For years oil prices averaged only $20 a barrel. At these prices, CTL isn't worth it.

Figures calculated by the Department of Energy indicate CTL technology is economically feasible with oil prices over $40 a barrel. Anything lower and companies lose money.

But now that crude prices are averaging well over $70 a barrel -- and only set to go higher -- you can start to get an idea as to why smart investors are getting so excited about CTL and the companies behind it right now.

Fact is, CTL technology is just now starting to gain serious investment interest. Several major energy companies and investment banks are all now looking into coal-to-liquid technologies.

In fact, late last Thursday, Arch Coal (NYSE: ACI) -- the second-largest coal producer in the U.S. -- made its biggest CTL play to date.


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Arch announced that it acquired a 25% equity interest in DKRW Advanced Fuels, the principal developer of the Medicine Bow Fuel and Power CTL project, which is expected to initially produce about 11,000 bbl/day of transport diesel and other fuels.

This is huge news for the industry. Arch's investment further validates the bullish outlook for the technology.

Even Warren Buffet has staked his claim.

MidAmerican Energy Holdings Co. -- an energy firm owned by the investment mogul -- recently bought 8,500 acres of coal-rich land in Johnson County, Wyoming to leverage coal's second boom.

The growing interest in CTL technology doesn't stop in America.

In fact, the CTL industry is growing so fast in China that the government is actually considering taking steps to slow it down. The business is currently booming due to high global oil prices and China's shortage of transport fuels and chemicals.

So, what's with all the interest?

Well, coal is the most abundant of the fossil fuels. Recent estimates of the world's total recoverable coal reserves exceeds 1 Trillion sort tons.

According to the Energy Information Administration, "the ratio of coal reserves to production exceeds 200 years, meaning that at current rates of production -- and no change in reserves -- coal reserves could in theory last for another two centuries."

Now, this reserve life assumes that demand will remain at current levels. But the fact of that matter is that coal demand -- like every other fossil fuel -- is likely to increase as the years pass.

So it's very unlikely that the world's coal reserve will last us the full 200 years. Nonetheless, 1 trillion tons of coal is one heck of a resource that will last us quite a while.

For the United States, coal-to-liquid technology means energy independence.

The most recent estimates show that the United States contains roughly 267 billion tons of in-place coal reserves. That's nearly 30% of the entire world's recoverable coal! That means there's no need to import the resources needed. We already have a massive resource right in our backyard.

Oil prices are subject to geopolitical turmoil. But not coal. Since all the coal we'll need for quite a while is right here in America, we won't have to worry about politics.

Coal-to-liquids has only become a viable energy option in recent years. For investors this means we need to jump on the opportunity now.

Now, I could go on and on all day talking about these opportunities. But I simply don't have time in today's letter. However, if you're serious about learning more about CTL and truly want to know how leverage the CTL boom, I'd be glad to tell you much more. If you're interested, Click Here.


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