Wyoming coal-to-gasoline plant one of only two under way in U.S.

2012-03-25T09:00:00Z 2013-12-18T19:27:08Z Wyoming coal-to-gasoline plant one of only two under way in U.S.By JEREMY FUGLEBERG Star-Tribune energy reporter Casper Star-Tribune Online

NEAR ELK MOUNTAIN — Other than a few signs on the side of a Carbon County gravel road and a small poured concrete pad, there’s not much to see at what could be the future home of the nation’s first coal-to-gasoline plant.

But to hear Bob Kelly tell it, the site provides Wyoming the chance to lead the nation in making gasoline from the state’s bountiful supply of coal — gasoline that would cut the need for foreign oil.

“We think Wyoming is a pacesetter here,” said Kelly, executive chairman of DKRW Advanced Fuels, which wants to build the $1.7 billion to $2 billion plant to convert coal into gasoline and carbon dioxide for sale, among other products. “This would be the first project like this in the U.S. and really, the West.”

Yet while state officials and the coal industry often say they want to find new uses for Wyoming coal as domestic demand slows, some in the state are leery of the project. Many similar projects are now in limbo or have fallen by the wayside.

The DKRW plant, proposed by a wholly owned subsidiary of the Houston-based company, is one of two potential commercial-scale plants in the U.S. on the verge of construction.

Yet both projects, DKRW’s and one proposed for southern West Virginia, have struggled to get the necessary funding and have been hampered by opposition on environmental grounds.

Put simply, it’s not an easy road for coal-to-gasoline, also known as coal-to-liquids or CTL, and even cheerleaders for the process admit as much.

“You have a fairly daunting market now for CTL development here,” said Luke Popovich, a spokesman for the National Mining Association, which has promoted development of such plants.

Struggles for money

DKRW Advanced Fuels’ road to construction of its Wyoming project has been long and filled with curves and obstacles.

DKRW officials first proposed their mine-mouth plant in 2004. Company officials said it would cost $2.75 billion and generate about 33,000 barrels of fuel a day from a coal mine next to the plant. They touted the plant’s 500 jobs, and the millions in tax revenue it would generate. It would start operation in 2008, they said.

Eight years after the plan was first announced, only some water wells, a concrete pad surrounded by a concrete fence, and a new gravel road from Medicine Bow mark the project’s status.

In 2008, company leaders said the Great Recession had sapped private funding sources. The company sought a $1.7 billion loan guarantee from the U.S. Department of Energy, which shelved the plan in October in the wake of allegations the Obama administration had improperly given similar help to now-defunct solar-panel-maker Solyndra.

Kelly said the company decided to renew its pursuit of private financing for the project in early 2011 because of “the length of time DOE has taken and the constraints they’ve got as far as the loan guarantee process.”

Request for help

While DKRW decided to seek private financing, it also decided to ask Wyoming for help.

In December the company submitted an application for what would essentially be a $300 million loan from the state of Wyoming through the issuance of industrial development bonds.

The company also asked Carbon County commissioners to approve the issuance of $245 million in tax-exempt bonds, with repayment guaranteed by the project. The commissioners voted to approve the plan in January.

But DKRW awaits state approval. State policy requires the Wyoming Business Council vet the project before passing on the company’s request for the industrial development bond issue to state officials and ultimately the Wyoming Legislature.

The council has said it wants the Idaho National Laboratory to review the project, but the company has yet to submit project information to the lab.

Buy-in from county and state officials is crucial for DKRW to obtain the balance of the money needed to build the project from private sources, Kelly said.

“It says, look, Wyoming has reviewed this and subject to the decision of the governor, they’re prepared to invest,” he said. “That’s a strong stamp of approval or a strong mark for the international banking community to say, you know, ‘They’re in, so we’re in.’”

Kelly said the project won’t depend on any one source of financing. He now expects the plant will start construction this year and begin operations in 2015.

Key deals secured

Not every development has hindered the plant’s construction.

The company won a critical victory in March 2011 when the Wyoming Supreme Court upheld a state-issued air quality permit for the project and its adjacent mine, despite a Sierra Club challenge. But the plant and similar projects continue to face opposition from the club and other environmental advocacy groups.

“It’s essentially come to an end,” said Bruce Nilles, director of the Sierra Club’s Beyond Coal Campaign. “There are some projects where there are smooth talkin’ sales folks who recognize the economics on their own don’t stand up and they’re looking to get huge public handouts.”

Yet Medicine Bow Fuel and Power, the company’s project subsidiary, has obtained the right to use technology key to the plant’s conversion process. It also has a buyer for both gasoline and carbon dioxide to pump into old fields to boost production.

The DKRW plant will use a General Electric coal gasification technology, which produces a synthetic gas, also known as syngas, and strips it of nearly all sulfur and carbon dioxide. Using a licensed Exxon Mobil technology, the syngas is converted into methanol, which is converted into gasoline.

DKRW has also retained CitiBank as adviser in its search for private financing. DKRW has sunk $100 million into the project’s development so far, according to Kelly.

“All that’s a big task, and it takes a long time,” Kelly said. “Those are gigantic things to do and they’re expensive things to do.”

But time hasn’t been kind to the size of the plant and the number of workers it will likely employ. DKRW now says the $1.7 billion to $2 billion plant will employ about 400 people and produce 10,600 barrels of gasoline a day, generating up to $500 million in profit a year from gasoline sales as well as millions in taxes over the life of the project.

In the meantime, the concrete pad sunk into the dirt on a rise a few miles from Elk Mountain is enough to lock down a Wyoming industrial siting division permit, obtained in 2008, which required construction start within two years.

The other plant

The plant proposed near Elk Mountain joins one other coal-to-liquids plant in the U.S. — the $3 billion Adams Fork project in southwest West Virginia.

New York City-based TransGas Development Systems broke ground on the plant early in 2011.

But West Virginia Economic Development Authority director David Warner says the company’s groundbreaking is about all that has taken place at the site.

“I’m not aware of significant progress that they’ve made,” he said. “I know they’re still making efforts and attempts to get everything lined up to move forward, but it’s my understanding that hasn’t happened yet.”

Elena Saxonhause, a Sierra Club attorney who has fought the project, was a bit more pessimistic about the plant’s hazy status. The basic question: Is the plant under construction?

“I think the answer is, they’re probably not right now,” Saxonhause said. “They’ve publicized every little piece of progress they possibly can, so if they had made any progress on that front, it would be public knowledge.”

The TransGas plant, when and if completed, will convert 7,500 tons of coal into 18,000 barrels of gasoline a day and should be in full production by 2016, the company said in a TransGas news release in May. It has already obtained the licenses it needs for the technology used at the plant.

Randall Harris, director of technology for TransGas, said the company is still in “serious consultation” with potential buyers of the plant’s gasoline, but TransGas won’t sell its carbon dioxide because there’s no market for it in West Virginia.

TransGas isn’t asking for any money from taxpayers, Harris said.

“When the company began developing its plans for the project, officials decided that if this project required public or state subsidies, it probably shouldn’t be built because it can’t sustain itself,” he said.

TransGas is getting some assistance from the state, however. The board of the West Virginia Economic Development Authority approved what is called an inducement resolution for the possible issuance of $3 billion in industrial development bonds to pay for the project.

The resolution “allows the project to go ahead and spend money and move forward,” Warner said. “At some point in the future, if the project would move forward, the board would be asked to issue bonds.”

Issuing the bonds, which are taxable, wouldn’t bind the state to any sort of repayment, Warner said, but would create a financing mechanism for the project.

“In today’s international financing environment, $3 billion is a lot of money,” he said.

Harris said spring’s arrival will restart work at the site.

“We’re doing all the ground work and foundations and all that,” he said. “The only issue is how fast I can get everything done.”

But Saxonhause said TransGas is doing just enough work to hold onto a key air permit.

“They’re trying to make it look like they’re starting construction and to keep up the appearance that this project is going forward,” she said.

Regardless of their chances of going into production, both the Adams Fork and DKRW projects are already survivors.

A National Energy Technology Laboratory coal-to-liquids road map in 2008 identified 16 coal-to-liquids projects, with four in the engineering stage, but nearly all those projects have been canceled or postponed.

Despite the high body count for projects, the developers of both the Wyoming and West Virginia plants and Popovich, the National Mining Association spokesman, are upbeat and consistently point out the value of the plants’ jobs and provision of U.S.-made gasoline.

“There’s an enormous potential here to reduce our imports, to develop our own fuel,” Popovich said.

Reach Jeremy Fugleberg at 307-266-0623 or jeremy.fugleberg@trib.com. Read his blog at http://trib.com/news/opinion/blogs/boom/ and follow him on Twitter: @jerenergy.

Copyright 2015 Casper Star-Tribune Online. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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