The Missouri producer said Tuesday it will provide up to $US10 million in funding for the engineering and development of the project in Illinois, and will retain a 20% equity interest.

As part of the deal, Peabody will supply approximately 1 million tons of coal each year for the coal conversion facility as part of a long-term agreement.

Rentech is converting an already existing plant for fertiliser production for the project, which will develop “ultra-clean transportation fuels using Rentech’s patented processes that are based on widely recognised Fischer-Tropsch technology”, the companies said.

“Oil prices have increased more than 70 percent in the past five years, and the United States continues to depend on expensive oil imports from unstable regions to meet our needs,” Peabody president Gregory Boyce noted.

“Transforming America's abundant coal reserves into clean transportation fuels is an important step for strengthening US energy security.

“Our Rentech partnership demonstrates the synergies we can achieve by fuelling clean energy solutions using our large reserve base.”

The complex, in the development phase with an expected completion date of 2010, is anticipated to produce about 400,000 barrels per year.