Turning coal into clean-burning gases in the ground can avoid the environmental impact of mining coal and halve the cost of managing its carbon-dioxide emissions. But while a few pilot tests of such underground coal gasification (UCG) are moving towards small-scale commercial operations in Australia, China, and South Africa, much research is needed to improve the control of UCG operations and to prove their environmental safety, according to a report issued last month by the Clean Air Task Force, a nonprofit environmental consulting firm based in Boston. “It’s tricky business–you don’t just go out and drill a well and declare victory,” says report author Julio Friedmann, who is carbon management project leader for Lawrence Livermore National Laboratory in California.

The chemistry of UCG is akin to that of gasification power plants, such as the coal-upgrading project announced last month for China’s Pearl River Delta, in which heat and pressure turn coal into a combustible mixture of carbon monoxide and hydrogen known as syngas. UCG exploits drilling technology to engineer the coal seam itself into an underground gasification reactor. Wells drilled into the coal seam supply air or oxygen, and sometimes steam, to burn some of the coal, generate heat and pressure to gasify more coal, and then deliver the resulting syngas to the surface.

UCG got started in the former Soviet Union and reached commercial scale by the 1950s. One such plant in Angren, Uzbekistan, continues to generate up to 18 billion cubic feet of syngas per year. But Soviet production peaked in the 1960s as production of cheaper natural gas ramped up. The U.S. conducted 33 UCG pilot projects in the 15 years following the first Arab oil embargo.

The U.S. work demonstrated an improved method that enhanced the quality of the syngas developed by Lawrence Livermore in the 1980s. Whereas earlier UCG efforts used one horizontal well to connect distant air injection and syngas removal wells, the improved method uses parallel injection and syngas removal wells 20 to 30 meters apart that descend vertically to the seam and then horizontally through the seam for several hundred meters to several kilometers.

Gasification begins with combustion of the coal between endpoints. As a cavity forms and the coal is emptied out, the gasification front is pulled progressively back toward the vertical wells. Friedmann says that the technique made UCG a more reliable process, but the U.S. UCG programs were nevertheless wound down by the early 1990s, as U.S. natural-gas production exploded and energy prices crashed.

China kept working on UCG, however, as a means of accessing deeper coal seams, and now has the world’s largest research effort. The most advanced project is a pilot project that’s been running since 2007 in Wulanchabu, Inner Mongolia.

Friedmann says interest was resparked worldwide when natural-gas prices peaked a few years ago. Pilot projects in South Africa, for example, prompted state power company Eskom to plan a 2,100-megawatt power plant fuelled with UCG syngas, starting with an initial 375-megawatt unit by 2011. Several pilots are being planned in the United States, including one in Wyoming backed by BP.

Following a 100-day run this spring at Bloodwood Creek test site in Queensland, Australian UCG developer Carbon Energy estimated that it could generate syngas for A$1.25 (US$1.10) per gigajoule of energy, at a time when Australian natural gas was fetching A$3.50 to A$7 per gigajoule. Those economics enabled Carbon Energy to raise A$32 million in June, which the firm is using to install a small five-megawatt generator this winter and engineer a 20-megawatt power plant for late 2010. Ultimately it plans to build a 300-megawatt power plant at the site.

What UCG still needs, however, is research to demonstrate that it is environmentally friendly. On its face, UCG looks like a big improvement over mountaintop removal and other forms of coal mining, but it comes with its own set of environmental risks. Friedmann says that solutions for two of the concerns–the sparking of underground coal wildfires and the contamination of groundwater with carcinogenic combustion byproducts–have already been demonstrated.

Proper siting and operation are the key to avoiding the ground contamination that occurred at a few early U.S. tests of UCG. And he says that UCG operations will be too deep for uncontrolled coal-seam fires. That leaves coal combustion’s unavoidable byproduct: carbon dioxide. Producing and burning UCG syngas generates twice as much carbon dioxide as natural gas, making carbon capture and storage a necessity. Many UCG developers continue to promote the idea that carbon dioxide captured from UCG-fired power plants can simply be pumped into the underground cavity left behind by the gasified coal. But Friedmann says that idea will require a decade of research. “On technical grounds, it appears that there may be a credible pathway to doing that,” he says. “But we are far away from being able to do that commercially today.”

But even if carbon capture and storage at a UCG-fired plant looks much like it would at power plants burning mined coal, the net cost could be much lower, thanks to the low cost of UCG syngas. Friedmann estimates that UCG-based power plants capturing half of their carbon dioxide and storing it in deep saline aquifers could be competitive with natural-gas-fired power plants in the U.S. if natural gas prices stay above $3 to $4 per gigajoule (which is just above the current gas price).