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Coal Projects

FILE - In this March 28, 2007 file photo lignite coal is mined at the Freedom Mine in Beulah, N.D. Two companies that have spent several years and $8 million in state money studying a pair of projects to develop North Dakota’s coal industry must soon decide whether to seek another extension or walk away from the projects. North Dakota produces about 30 million tons of lignite annually. (AP Photo/James MacPherson, file)

BISMARCK, N.D.  — Two companies that have spent several years and $8 million in state money studying a pair of projects to develop North Dakota's coal industry must soon decide whether to seek another extension or walk away from the projects.

The state would recoup part of its money if the projects are abandoned, and one state official said she expects extension requests for both. But the lack of progress — one project has been on the drawing board in various forms for more than a decade — has some environmental groups questioning why the state would continue to support them when oil and even wind have grown much hotter in recent years.

"They are dead in the water," said Wayde Schafer, a North Dakota spokesman for the Sierra Club, which has opposed both coal projects. "No progress has been made on either of them and nothing to show for the money they've spent."

A spokesman for one of the companies, North American Coal Corp., said Friday the company "likely will ask for an extension through 2014."

"We still believe the project is an important part of the nation's energy solution," spokesman David Straley said.

Representatives from the company running the other project, South Heart Coal LLC, did not return phone calls seeking comment this week from The Associated Press.

"These projects will mean more coal being mined and more tax revenue to the state, but there is a great deal of uncertainty regarding coal-based projects," said Steve Van Dyke, a spokesman for the Bismarck-based Lignite Energy Council.

Long before the oil boom that made North Dakota the nation's second-largest oil producer, the state was encouraging development of its low-grade but abundant lignite coal as an energy source and economic engine. North Dakota produces about 30 million tons of lignite annually.

The projects facing the year-end deadline to seek extensions are for a factory to produce synthetic natural gas from lignite near South Heart, about 15 miles from Theodore Roosevelt National Park, and a coal-to-liquid fuel plant in western North Dakota.

The state Industrial Commission in 2001 committed up to $10 million in research money to Great Northern Project Development LP, a Houston company that controls vast coal reserves in southwestern North Dakota. The company has been developing a massive coal mine complex near South Heart. The company originally proposed construction of a power plant before deciding instead on the synthetic natural gas factory.

South Heart Coal LLC, a subsidiary of Great Northern, had permit applications rejected by state regulators as deficient in 2010 and again in 2012. Jim Deutsch, director of the Public Service Commission's reclamation division, said a review of the project is suspended until the company responds.

The Industrial Commission in 2007 also committed up to $10 million to determine the potential of the coal-to-liquid fuel plant. North American Coal and Headwaters Inc. of South Jordan, Utah, formed American Lignite Energy LLC to oversee construction and operation of the plant, projected to make 460 million gallons of gasoline a year from lignite. No site has been announced.

The commission originally gave American Lignite Energy until the end of 2008 to decide if the project was feasible. It has extended the deadline annually since then. Developers have said they need favorable coal legislation and a clear U.S. energy policy for the $4 billion project to move forward.

Backers have said the project would create about 700 jobs, with an average salary of about $70,000 a year.

Karlene Fine, the state Industrial Commission's director, said she expects developers of both projects to request an extension of state aid by the end of the year. Gov. Jack Dalrymple, Agriculture Commissioner Doug Goehring and Attorney General Wayne Stenehjem — all Republicans — make up the commission.

The research money comes from North Dakota's lignite research fund, which is financed by a 10 cents-per-ton tax on coal. The tax is paid by power plants and the revenue goes to the state and coal-producing counties, cities and school districts.

Data requested by the AP from the Industrial Commission show the South Heart developers have spent $6.4 million in state aid on the project, though none this year. Fine said if the company abandons the project before construction, backers would have to repay $2.3 million to the state.

North American Coal, backers of the proposed coal-to-liquid fuel plant, have spent more than $1.38 million in state money to study the project's potential, including about $35,000 this year. Fine said if the project does not move forward, the company would have to repay the state about $242,000.

The Sierra Club's Schafer and Don Morrison, executive director of the Dakota Resource Council, said the state should turn its tax dollars to other energy projects.

North Dakota oil drillers, who are approaching 1 million barrels a day in crude production, are burning off about one-third of the natural gas that comes to the surface because they're currently not able to capture it and move it to market. Natural gas produced from the Bakken and Three Forks formations also is rich in liquids that can be converted into other fuels.

"I don't see why we need to squeeze coal to get liquid fuel when we have the Bakken," said Morrison, whose group claims more than 700 members in North Dakota.

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