LIQUID AND SOLID FUEL UNITED STATES OILMEN ARE BUYING INTO COAL

Press, Volume CVI, Issue 31113, 16 July 1966, Page 14

LIQUID AND SOLID FUEL UNITED STATES OILMEN ARE BUYING INTO COAL

(By the California correspondent of * (Reprinted from the ‘'Financial Timex by arrangement)

Texas oilmen these days are talking about the latest $6OO m ’‘ n (£2OO million) plunge of Mr L. F. McCollum, the I « ckl^. e catter” in Texas history—and one of the wealthiest-and how this will turn out. They also are fascinated and somewhat concerned by its possime implications for their own future. For the $6OO million which Mr McC has invested this time, as chairman of the Board of Continents uh Company, has not gone into prospecting for unproven reserves of oil ui to buy a coal company, Consolidated Coal, one of the largest in the country, and very much a going concern.

Apart from this merger of two vigorously competing fuels, chief interest in Texas is in the experiments of Consolidated Coal in deriving petrol from a coal base. The company is said to have developed a process by which the motor fuel can be produced from this source for about one-half the cost by conventional methods. In fact. Consolidated is building a 3.5 million dollar pilot plant for the process in West Virginia. In Texas, where oil and natural gas are king, this latest move by Mr McCollum has aroused all kinds of speculation. But its most dramatic impact has been to re-emphasise that coal, to which oil had seemed to deliver a death blow 20 years ago, is very much alive and is even counter-attacking with growing success. Lost Markets Although petrol from coal is still at the pilot plant stage, the comeback in coal elsewhere is beyond dispute. Moreover, this has been accomplished in spite of the virtually complete loss of two out of three of coal’s traditional markets—the railways and householders. With the replacement of steam by diesel locomotives on United States railways since the end of the Second World War, consumption by this market has fallen to only 2 million tons or so a year, from a peak of 125 million tons in 1945. The home heating market also has been surrendered to oil and natural gas. Coal consumption for this purpose now amounts to only about 19 million tons per annum, down from 122 million tons in 1944, the peak year. With the loss of two such major markets, coal’s outlook might seem dim. Actually, it is brilliant. Total consumption of the solid fuel in 1965 was over 500 million tons, almost a 38 per cent increase from the low point of 363 million tons in 1954. The chief factor in the gain has been the vast increase in consumption by the third major market, industrial and utility customers. Electric utilities now consume over 200 million tons per annum, or more than double the volume of the early 1950’5. Also, as producer of the world’s cheapest coal for export, the United States now delivers over 50 million tons per annum to world markets. Costs Reduced Coal’s spectacular comeback also has been achieved with the help of sharp reductions in the costs both of production and distribution. In the mines huge excavators and

continuous miners, backed up by high-speed conveyors and other automation, have doubled output per man-day in the last 10-15 years, while the labour force has fallen to one quarter of its former size and now amounts to only about 100,000 miners. The price of coal at the pithead has actually fallen to about $4.50 a ton from $5 a decade ago. In the field of distribution, some saving has been effected by switching from rail to barge transportation. In addition, the railways were scared into cutting freight rates by the demonstration that coal could—like oil and gas—be transported by pipeline, crushed into a powder and mixed with water. But the most sensational development has been the evolution of extra-high-voltage transmission, known as E.H.V. for short. This is a technique which has made it possible for power lines to carry additional voltage, up to six times the conventional load. The coal industry believes that E.H.V. may enable it to cope with rising competition from atomic energy. a salutary reminder of which has been the recent choice by the Tennessee Valley Authority of a nuclear power source to increase capacity. Coal cannot by any means ignore the atom, in the light of forecasts that by 1980 atomic power may fuel 20 per cent of the country’s steamgenerating capacity, compared with its present 1 per cent. However, according to industry estimates, by that time United States electric power output will almost have trebled. In any case, United States coal companies have quite recently signed contracts to deliver large quantities of coal to the Tennessee Valley Authority over the next 12-15 years. Plants At Coalfields

The expansion in the load made possible by E.H.V. has made it economical for electric utility companies to build generating plants right at the coalfields. The effect has b'-n to win new customers for coal. For example, as recently as 1961, Arizona Public Service, close to the oil and gas fields of the South-west, burned no coal at all. Now, over 75 per cent of all the utility’s electric power is generated by the solid fuel and the proportion will rise still higher when a new E.H.V. facility comes into operation at Farmington, New Mexico.

Southern California Edison Company which has had problems obtaining enough natural gas to maintain electricity output at the peak winter season (and is discouraged from burning oil by antismog regulations) is also turning to coal. The company is establishing a new coalburning facility in Nevada. The United States West has always been the jealouslyguarded preserve of oil and gas, and the invasion of the territory by coal could prove a shattering experience. The very fact that coal deposits In the region, neglected for generations, are now beginning to be developed, is making the petroleum industry sit up. Like Continental, other oil companies are considering

whether they should not acquire a position in coal, if only for insurance. Thus, Kerr-McGee Oil has obtained leases and permits to explore over 44,000 acres in the West. Gulf Oil already has a stake in coal, though its control of Spencer Chemical, which has a coal-mining subsidiary. Pittsburg and Midway. Shell Oil, Standard Oil of New Jersey, Standard Oil of Ohio and Atlantic Refining are reportedly also considering possible investment in coal. But the acquisition of Consolidated Coal by Continental Oil is by far the biggest move to date. Petrol From Coal This novel trend could be justified by the recognition on the part of oil and gas companies that coal is once more in the ascendant and that two fuels are better than one. But a still more compelling motive for merging the two interests could be the possibility that petrol can be (derived from coal as well as from oil. Consolidated Coal belie-es it can—by dissolving the solid fuel in a solvent, filtering out the ash, and enriching the mixture by hydrogen. This produces a substance similiar to crude oil, which can then be refined by conventional processing. No less an authority than the United States Office of Coal Research, on the basis of tests, claims the process can produce petrol for about 11 cents a gallon, or less than 50 per cent of the present cost.