Oil Trader Vitol Teams With Peabody to Grind Coal for Refineries

(Bloomberg) -- Vitol Group, the biggest independent oil trader, and mining giant Peabody Energy Corp. are joining forces to give coal a new lease on life.

The companies have teamed with a U.K. startup that’s developed a process to pulverize coal, remove impurities and pollutants, and blend it with crude or fuels for use by refineries and other customers. While unproven on an industrial scale, the technique has the potential to revive an industry that has stumbled as the world shuns coal for cleaner natural gas and renewables.

“The coal industry needs this because we are able to upgrade their material into higher-value, lower-emission products,” Julian McIntyre, founder and chief executive officer of startup Arq Ltd., said in an interview. “The oil industry needs this as the energy industry becomes more diversified and competitive with renewables.”

Arq is building a plant in Corbin, Kentucky, to process coal from a nearby Peabody mine, and Vitol has agreed to blend and market the resulting output. Production costs less than $10 an equivalent barrel, according to London-based Arq.

“We need lower-cost hydrocarbons and that’s exactly what we deliver,” McIntyre said.

Lab Tested

Methods of transforming coal into oil liquids or other hydrocarbons have been tried for about a century with varying degrees of success. Arq’s process has so far worked well in a laboratory setting, according to the company.

Under deals announced Wednesday, Vitol and Peabody will each invest $10 million in Arq, with the potential to inject more cash over the next three years.

The partnership could allow Peabody to add value to its coal, reduce its environmental footprint and expand the market for its products, Charles Meintjes, executive vice president and chief commercial officer for the St. Louis-based company, said in a statement.

The venture may also allow refiners and fuel customers to diversify sources of supply, Mike Muller, the former head of crude trading at Royal Dutch Shell Plc who recently joined Vitol, said in a separate statement.

Vitol Shift

Vitol itself has made several small moves toward diversification as patterns of energy consumption start to change. It has recently invested in a company that makes fuel from recycled plastics, as well as a battery storage joint venture. Just this week it opened a 200 million-euro ($234 million) fund to invest in wind-power projects.

Arq aims to complete its Kentucky plant by early 2019 and produce the equivalent of about 2,000 barrels a day once it’s running at full capacity. The company then plans to build larger plants near coal mines in the U.S. and Australia, and targets 100,000 barrels a day within two years, McIntyre said.

Founded in 2014, Arq is 40 percent owned by its management, with hedge funds and high-net-worth investors owning the rest, according to McIntyre. As it seeks to build as many as 50 coal-to-powder plants near mines in the next seven years, Arq may consider a public offering of shares, most likely in 2021, he said.

To contact the reporter on this story: Andy Hoffman in Geneva at ahoffman31@bloomberg.net

To contact the editors responsible for this story: James Herron at jherron9@bloomberg.net, Amanda Jordan, Rakteem Katakey

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