Peabody Energy Set to Build Plant in Ill.

By CHRISTOPHER LEONARD

ST. LOUIS – Peabody Energy Corp., the nation’s biggest coal company, said Wednesday it plans to build a plant in Illinois that transforms coal into natural gas.

Peabody formed a partnership with ArcLight Capital Partners LLC, a Boston-based investment company that finances a broad array of energy projects. ArcLight would not say how much it is investing in the project.

Peabody said in a news release that the plant is in the early stages of development, but declined further comment.

Turning coal into natural gas has been gaining interest among investors as natural gas and oil prices climb, said Rich Bonskowski, a geologist with the U.S. Energy Information Administration.

The technology to gasify coal has been proven for at least 10 years, but the price of natural gas has to be high to make it economically profitable, Bonskowski said. While that is the case now, the price of natural gas is highly volatile, he said.

Peabody has 9 billion tons of coal reserves. The new plant would consume about 3 million tons of coal annually.

About 90 percent of all coal in the United States is currently sold to utility companies that burn it to generate electricity, Bonskowski said.

In June, Gov. Rod Blagojevich signed legislation that removes some regulatory obstacles to build such plants. Power Holdings of Illinois LLC, plans to begin construction in 2007 on a $1 billion, privately financed gasification site southwest of Mount Vernon, Ill.

Peabody stock rose $2.60, or 3.3 percent, to close at $81.42 Wednesday on the New York Stock Exchange.