There are many different grades of oil.. different oil requires different forms of refining. Whoever is at the other end of the futures contract would need to know with good certainty the characteristics i.e. density, sulpher content, etc.
What does the buyer have to lose? They will only pay if there is product to take possession of?
Let's say this is a conventional oil and my above problem does not exist. The coal-to-oil produce enters into a futures contract to sell some amount, let's say 1 million barrels on 6/30/2010 to somebody who needs 1 million barrels on 6/30/2010. That somebody is going to use the oil to produce a chemical... this chemical venture is profitable for oil at $70/barrel, but rapidly loses profitability as oil goes above $70. The bank that is financing the chemical venture thus demands that in order to get the financing, the chemcial venture must lock in its oil cost at $70 or below in the futures market.
The chemical venture enters into the futures contract. On 6/30/2010, oil is $140 dollars a barrel. The coal-to-oil company can't deliver because hey, well, it was an untested product and we ran into production difficulties. Chemical company goes out of business, bank loses its loan.
Actually, this doesn't happen because the company doesn't enter into the futures contract with someone with questionable ability to deliver in the first place.
Agree with everything you said, except the last, which is that they might. It just wouldn't be prudent to contract a large percentage with them (hedging the hedge). So the company sells a large number of small contracts, vice a low number or large ones. Once the technology is proven though, the risk of nondeliver drops substantially.
But if an established, well capitalized business, were to do it, that makes it all the more enticing.