Cheyenne is one of three locations, and the only site in Wyoming, under consideration for a plant capable of converting natural gas into diesel fuel, a representative of the company exploring the project said this week.
Plans for a $1.8 billion gas-to-liquids operation in the Cowboy State's capital city received considerable media attention earlier this month after executives at Escalera Resources announced they were in discussions with a second company, Wyoming GTL, to build the facility.
Gene Humphrey, a Wyoming GTL representative, said in an interview last week that his company will not decide on the plant's location until September.
The company is considering two other options outside the state, he said. He declined to name the other locations. Wyoming GTL would own 90 percent of the planned plant.
Escalera, a Denver-based company, would own 10 percent of the facility and supply the operation with natural gas.
The siting decision will ultimately hinge on which location offers the cheapest long-term supply of natural gas, Humphrey said.
"We think there is a market for these regional plants located in areas in the U.S., Canada and Mexico that produce transportation fuels," he said.
Wyoming policymakers have long pondered how to lure a company capable of building a gas-to-liquids facility to the state. The development of natural gas plays in the eastern United States and Texas has seen new natural gas development in Wyoming stagnate in recent years, as a glut of supply entered the market and prices declined.
A gas-to-liquids facility is appealing because it would create a new market for the state's gas and could convert a raw material like methane into a more valuable product like diesel fuel.
Gov. Matt Mead met with Humphrey and Wyoming GTL managing partner Bob Watson to discuss the company's proposal, a Mead spokesman said.
"The governor is pleased that the company is exploring this project," Renny MacKay wrote in an email. "Gas-to-liquids and coal-to-liquids both have significant potential for Wyoming’s economy."
But converting gas to liquids is costly. No gas-to-liquid plants exist today in the United States, although three are in the planning stage.
The U.S. Energy Information Agency 2014 annual projection predicts that no new gas-to-liquids facilities will be built in the next three decades, given the high capital costs required.
Royal Dutch Shell abandoned a $20 billion gas-to-liquids plant in Louisiana last year, citing the project's high construction bill and weak economics.
A 2012 report for the Wyoming Legislature by the Western Research Institute, a Laramie-based nonprofit, concluded that smaller-scale gas-to-liquid plants may be economically feasible.
The report examined the feasibility of a $20 million to $30 million plant and a $40 million to $50 million plant, each of which would convert natural gas to gasoline.
The recent boom in American natural gas production figures to change the economics of such facilities, with natural gas prices projected to remain low in the coming decades, Humphrey said.
"For natural gas companies, it makes sense to find ways to convert natural gas, which is in low demand, to products that are in high demand, like diesel and petrochemical feedstocks," Humphrey said.
Wyoming is a potentially attractive alternative because of the state's vast reserves of untapped natural gas. The lack of an income tax also contributes to a business-friendly environment.
The plant, if built, would consume 135 million cubic feet of natural gas a day to produce 15,000 barrels of diesel fuel daily, Humphrey said.
Wyoming GTL was formed two years ago to explore the potential of building a gas-to-liquids facility, he said. It is backed by several private equity firms. He declined to name the companies, saying they are currently bound by nondisclosure agreements, given that the project remains in its preliminary phases.
Escalera Resources CEO Charles Chambers told the Denver Business Journal his company had signed a letter of agreement with Wyoming GTL to discuss building a $1.8 billion gas-to-liquids plant.
The tentative agreement would give Escalera the right to supply up to 75 percent of the facility's gas. The letter of agreement gives the companies 180 days, ending in November, to complete a deal.
Escalera Resources changed its name from Double Eagle Petroleum earlier this year. The company is relatively small. Escalera reported gas production of 9 billion cubic feet in 2013. Its market capitalization, or the value of all its shares, is $36.2 million. Shares of the company were trading for $2.57 on Wednesday.
But the company holds considerable reserves of undeveloped gas. Of the 115,600 acres the company controls, 83 percent is undeveloped, the company reported on its website.
Brad Holmes, an Escalera communications consultant, declined to comment on how the company plans to finance an enhanced drilling program to provide gas to the proposed facility. The company is developing a financing plan for the project, he said.