Vectren slams Indiana gasification project as an anachronism
Louisville, Kentucky (Platts)--14Feb2012/541 pm EST/2241 GMT
platts.com
A $2.7 billion project in Indiana that would convert coal and petroleum coke into synthetic natural gas while generating up to 300 MW, with some of that power sold into the market, no longer makes economic sense, a local utility told lawmakers Tuesday.
But the president of e3 Gasification, which is developing the Indiana Gasification plant along with New York-based Leucadia National, countered that the project would unlock the potential of the Midwest's vast, indigenous coal reserves for the production of syngas and power far into the future.
Indiana Gasification and Denbury Resources intend to jointly own a 700-mile, $1.2 billion pipeline to transport carbon dioxide from Midwest coal gasification plants to the Gulf Coast for use in enhanced oil extraction.
"We're going to do the pipeline with Denbury together," e3's Bill Rosenberg said. "There will be an arrangement between Denbury and Indiana Gasification where there is a joint ownership of the pipeline."
Denbury has already signed CO2 off-take agreements with several coal gasification plant developers, including Power Holdings of Illinois, which is planning a $2 billion project near Waltonville in Jefferson County.
According to Rosenberg, the CO2 pipeline would help yield an additional 10 million to 20 million barrels of oil a year, representing about $1.2 billion in revenue.
Over the opposition of some environmentalists and consumer groups, Leucadia has gained legislative approval in both Indiana and Illinois for two projects -- Indiana Gasification and Chicago Clean Energy, a $3 billion coal gasification plant to be located on Chicago's South Side.
Indiana Republican Governor Mitch Daniels and his Democrat counterpart in Illinois, Pat Quinn, signed the respective bills into law.
Indiana has agreed to buy Indiana Gasification's syngas over 30 years, starting at around $6/MMBtu, about double current gas prices. Because of burgeoning shale gas development in the US, most experts predict gas prices will remain low for years.
And that, Jerrold Ulrey, Vectren vice president of regulatory affairs and fuels, told the Indiana House of Representatives Ways and Means Committee, means Indiana Gasification could become something of an anachronism. "The world has changed," he said.
"The coal-to-SNG project, while an innovative idea at one point, is one whose time has passed," he said. "It has been rendered irrelevant by the newly-accessible source of domestic natural gas supply -- the immensity of shale gas."
"The world has changed and you have a chance to improve our state's public policy for the future," he added.
Vectren's latest foray into the legislative thicket surrounding the project was fueled by pending legislation -- Senate Bill 344 -- in the Indiana General Assembly that would exempt large industrial customers from rate impacts related to Indiana Gasification, according to Vectren spokeswoman Chase Kelley.
If passed, the bill means residential customers could be left paying a very hefty rate increase, the company said. "We're voicing our concerns more aggressively," she said.
Rosenberg countered that Vectren is hardly the company to be issuing dire warnings about excessive costs to consumers. Vectren owns two coal mines in southern Indiana, Prosperity and Oaktown No. 1, and is developing a third, Oaktown No. 2.
In 2010, much of the coal was purchased through an affiliate transaction between Vectren Fuels and Vectren South, the company's electric utility, at rates much higher than Vectren paid to other coal suppliers, he said.
Furthermore, Rosenberg said Indiana Gasification's developers believe gas prices will begin rising, fracking or not.
"Gas prices are historically low because there is an oversupply of initial drilling in the fracking and demand is still weak" because of the recovering economy, he added.
"But the future, we think, is strong for pricing. One thing is clear -- the [US Environmental Protection Agency] is constraining the use of coal from all those power plants and that will lead to a very serious increase in the demand for gas," Rosenberg said.
Indiana Gasification would use about 3.5 million short tons of coal annually, most likely mined in Indiana.
Indiana Gasification continues to negotiate a $2.5 billion loan guarantee with the Department of Energy. The company expects to get a "conditional commitment" later this year from the federal agency, he said. The developers also are counting on a final air permit in a few months from the Indiana Department of Environmental Management.
Rosenberg said construction could begin in the fourth quarter of 2013, with the plant up and running in late 2016 or early 2017.
--Bob Matyi, newsdesk@platts.com |
