Oil trader Vitol and coal producer Peabody have invested $20m in a start-up that says it has developed a low-cost method to turn coal into oil.

London-based Arq will supply Vitol with coal-based material that can be blended into fuel oil and crude oil. Along with a further $30m raised from high net worth individuals and energy investors, the investment values the company at over $500m.

Coal is the cheapest available source of energy, but turning it into oil has long been hampered by the high cost. Arq says its technology breaks coal down into micro particles before removing impurities via flotation to create pure hydrocarbons.

The company says its technology offers a potential new source of oil supply from coal-waste. There is some 10bn tonnes of coal waste in the US, according to Arq.

“Combining them [Arq fuels] with fuel or potentially with crude provides the opportunity for refiners and fuel customers alike to diversify into a new and cost-effective source of supply,” Mike Muller of Vitol said.

Arq said it is completing its first plant in Kentucky and its fuels will be available in early 2019. It was founded by Julian McIntyre, who previously set up Gateway Communications, an African telecoms company that was sold to Vodafone.

Vitol and Peabody will both invest $10m in the company.

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