A method for the electro-thermal and electrochemical underground conversion of coal into oil and by-products comprises the steps of inserting an underground probe into a bore hole until the probe is in close proximity to a coal seam. A mixture of air, steam, an electrolyte and a suitable catalyst is supplied to the probe, and the mixture is then sprayed directly on the coal seam through a passage in a nozzle. The probe is also energized with electricity applied to the nozzle to produce an arc between the coal and the probe, simultaneous with the spraying of the mixture on the coal seam. Heat of the combustion from the arc and the steam combine to produce a pyrolysis, oxidation, and reduction of the coal, thereby converting the coal into a gaseous combination of oil and by-products. The arc can be rotated to increase the tunnel diameter. An apparatus for performing the method is also provided.