Coal (by liquefaction technology) is one of the backstop resources that could limit escalation of oil prices and mitigate the effects of transportation energy shortage that will occur under peak oil. This is contingent on liquefaction production capacity becoming large enough to satiate the very large and growing demand for petroleum. Estimates of the cost of producing liquid fuels from coal suggest that domestic U.S. production of fuel from coal becomes cost-competitive with oil priced at around $35 per barrel, with the $35 being the break-even cost. With oil prices as low as around $40 per barrel in the U.S. as of December 2008, liquid coal lost some of its economic allure in the U.S., but will probably be re-vitalized, similar to oil sand projects, with an oil price around $70 per barrel.
In China, due to an increasing need for liquid energy in the transportation sector, coal liquefaction projects were given high priority even during periods of oil prices below $40 per barrel. This is probably because China prefers not to be dependent on foreign oil, instead utilizing its enormous domestic coal reserves. As oil prices were increasing during the first half of 2009, the coal liquefaction projects in China were again boosted, and these projects are profitable with an oil barrel price of $40.
China is by far the largest producer of coal in the world. It has now become the world's largest energy consumer but relies on coal to supply about 70% of its energy needs. An estimated 5 million people work in China's coal-mining industry.
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