It appears that the company involved has perfected the process of generating the underwater carbon arc onboard the vehicle as it drives with some sort of durable method of creating the arc system onboard, generating the gas that appears to be COH2 and then drying it and processing it before entering the engine.  
 
Also a news story: http://www.ksbitv.com/home/2856476.html  
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deathburger: Unpossible! I've been told by reliable intarweb sources that it can't be done!  
 
10
substrate: I don't see why it can't be done. How many amps of current are flowing through those carbon electrodes to produce that arc?
deathburger: In one place it said 10, in another 15. Both say it's at 35 volts though.