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Vitol and Peabody back bid to create ‘world’s cheapest fossil fuel’

Jillian Ambrose
Coal dust could help create a super low cost fossil fuel - © 2016 Bloomberg Finance LP

A new energy tech start-up has won the support of two of the world’s largest hydrocarbon players with plans to turn coal waste into the world’s cheapest fossil fuel.

Arq Fuels has struck a deal with Vitol, the world’s largest oil trader, and Fortune 500 coal mining giant Peabody to develop a fuel which could slash costs within the global shipping industry.

At the same time, Vitol and Peabody have invested $10m (£7.6m) each as part of a $50m fund raise which values the Arq business at $500m.

Julian McIntyre, the founder and chief executive of Arq, said the coalition of industry players could help develop the cheapest hydrocarbon in the world.

The technology uses the wasted coal scraps which are too small to process and transport, to create a super-fine micro dust which is far higher in energy density than traditional coal stones.

The technology uses the wasted coal scraps which are too small to process and transport Credit: George Frey/Bloomberg

The 99pc pure hydrocarbon powder could be used to create nuggets or pellets with 50pc more energy than coal, and lower carbon emissions.

However, in Arq’s first major tie-up, the powder will be used to top-up the bunker fuel used in the shipping industry to lower the overall cost as well as the sulphur dioxide emissions.

“Think of it like orange juice concentrate,” said Mr McIntyre, “This concentrate is a tenth of the cost, so you could add just enough to your original juice to lower the overall cost without changing the taste for your customers,” he said.

Mr McIntyre said the process could create barrels of oil which cost less than $10 a barrel, compared to a prevailing market rate of around $70 per barrel, which would place the company within the top ten most economic oil producers in the world.

The low cost of the fuel should ensure a place in the market, even as the world shifts towards cleaner sources of energy.

“If the market shrinks it’s the lowest cost producers that will survive,” he said.

The global shipping industry will be the first to benefit from ultra low cost Arq fuel blends

In addition, the technology will help to “clean up the vast ponds of waste” from the coal industry, which Mr McIntyre said is the equivalent of “throwing away around 10pc of the world’s oil”.

Arq will work on Peabody mining sites across globe to source coal waste, while Vitol will have exclusive rights to market the fuel.

Charles Meintjes, of Peabody, said the deal is “a rare opportunity to add value to our product, reduce our environmental footprint and expand the market for our product at the same time". 

Mike Muller of Vitol, adeed: “Arq fuels will be pure hydrocarbons – combining them with fuel or potentially with crude provides the opportunity for refiners and fuel customers alike to diversify into a new and cost-effective source of supply, whilst the production of Arq fuels also has a beneficial environmental impact.”