An Obama Presidency Could Actually Benefit Coal

Part of the political process, cynics might say, is ceding overt support of certain measures to burnish an image. I submit that the most insightful things can be gleaned from what candidates supported before they became focused on their election bid. And so, with the political futures market pricing the possibility of us using the phrase “President Obama” at about 65% come 2009, I thought it would be interesting to look at one of the last measures Obama renounced his support for: coal-to-liquids (CTL).

In June 2007, Obama effectively ended his public support for measures promoting CTL, a means of converting coal into synthetic petroleum distillates. At the start of the year, he had co-sponsored a bill along with Kentucky Senator Jim Bunning (R.) that would have incentivized further research and production of CTL plants – a move that drew fire from environmental groups. Given that his home state of Illinois has immense coal reserves in its southern basin – not to mention that CTL has numerous backers, including the US Air Force – I’m not sold on the notion that Obama has completely given up on CTL.

Support of anything coal certain carries with it an enormous political liability, thanks to the environmental stigma surrounding the fuel. But at the same time, coal is domestically abundant, cheap to produce, and a huge driver of the economic health of swaths of the country. And, if the prices of oil and natural gas grind higher, it would be much more appealing to keep those dollars at home, rather than shipped to geopolitically unstable regions of the world.

This isn’t to say that CTL is a panacea for our energy problems, and it certainly isn’t the cleanest fuel. But it does have potential to be an important substitute – South Africa is an excellent example of successful use of CTL, meeting about 30% of their energy needs with it – and arguments about economical feasibility passed long ago, as CTL’s breakeven point is around $40/barrel oil.

While CTL might be on the political backburner for Obama at the moment, an election victory would free him of the pandering needed to secure votes and allow him the chance to make practical decisions about the future of the country. Coal-to-liquids could have a role, so how to profit? Three plays on CTL are:

-Syntroleum (SYNM), a small company that nonetheless has a contract with the US Air Force to explore use of the technology
-Sasol (SSL), the South Africa petrochemical giant that pioneered much of the commercialization of CTL
-Headwaters (HW), a building materials company with an interesting alternative energy unit