Turning coal into liquid fuel
By MIKE DENNISON
Lee News Service
casperstartribune.net
HELENA, Mont. -- Dan Fessler spent five years looking for a site to launch his vision of a new industry that could produce clean fuel from coal -- and, last year, he chose Wyoming.
"The mines are there; they're massive and they're well-financed," he said. "The rail infrastructure is there. For me to do (this project) in Montana would require me to develop a coal reserve and a transportation infrastructure, which is very expensive.
"I'm having enough trouble finding financial backing (just) for the coal-to-liquids plant. That's why you find people like me being at the mouth of the Powder River Basin (in Wyoming) rather than going up and talking to your governor."
Fessler and his company, Clear Energy Solutions, illustrate a simple fact: While Montana Gov. Brian Schweitzer has been relentlessly promoting development of coal-to-liquids plants and "clean coal" projects in his state, potential projects are on the drawing board in Wyoming.
DKRW Energy of Houston is working on a coal-to-liquids project near Medicine Bow, and MidAmerican Energy, the holding company controlled by billionaire investor Warren Buffet, recently bought coal properties south of Sheridan, with an eye toward developing a cleaner-burning, coal-fired power plant or possibly coal-to-liquids projects.
Wyoming's lead on clean-coal projects also underlies of a groundswell of Republican criticism of Democrat Schweitzer, crystallized a week ago when Republican Secretary of State Brad Johnson called Schweitzer's coal-to-liquids promotion a "10-year-long, $10 billion pipe dream."
Johnson said Schweitzer instead should be focusing on more traditional coal development, such as power plants.
In an interview last week, Schweitzer acknowledged that Wyoming is far ahead of Montana on coal and energy development, mining 10 times the coal annually and having more basic infrastructure in place, such as railroads and pipelines.
"I can't change the fact by the force of my enthusiasm that we fell 20 years behind (Wyoming) in infrastructure," he said.
Yet having the first commercial coal-to-liquids plant developed in Wyoming -- or anywhere else -- is not a bad thing, he said. Any coal-to-liquids project is an expensive, potentially risky proposition, and development of the first plant will just make it easier to do the second plant, Schweitzer said.
"It just paves the way for the next plant in Montana," he said.
A market decision
Schweitzer and administration officials said they're acting as a catalyst for potential coal-to-liquids projects in Montana, talking to energy industry folks and giving them comprehensive information on the state's coal reserves and infrastructure.
Ultimately, it's up to private industry and its financiers to make the decision, they said.
"The develop-owner has to bring their financial players to the table," said Evan Barrett, head of the governor's economic development office. "It's a constant effort to facilitate some economic marriages. We'll provide the bridal suite, but somewhere along the line, someone has to get married."
Wyoming has provided some concrete policy pushes on clean-coal projects.
The Wyoming Legislature passed a sales-tax exemption for any new coal-to-liquids plant last year, and the 2-year-old Wyoming Infrastructure Authority plans to solicit a proposal for a public-private partnership to build a power plant using an integrated gasification combined cycle or IGCC process, which gasifies coal and has next to no harmful emissions.
The authority has a $10 million budget to promote power-line and other energy construction projects, and the 2006 Wyoming Legislature said that can include IGCC projects.
Yet the state hasn't gone out of its way to promote coal-to-liquid or IGCC projects, said Rob Hurless, energy policy adviser to Gov. Dave Freudenthal.
"(Freudenthal) comes from the point of view that it doesn't make sense to spend a lot of time and money pushing a rope, unless the private sector is starting to get serious about this," Hurless said. "The market ultimately drives this thing."
Developers working in Wyoming also said their decisions are based more on geography and economics than politics.
They also said a coal-to-liquids plant will be a difficult, costly enterprise no matter where it occurs, and that much needs to be done before a commercial-scale project gets off the ground.
Being realistic
A coal-to-liquids plant, essentially, is a refinery that produces diesel fuel from coal. It requires a nearby coal mine, water supply, gasification technology, fuel conversion technology and a pipeline to deliver the final product to customers.
Fessler, a retired law professor and energy lawyer who grew up in Torrington, said his partnership is trying to raise $32 million to finance a design study for the first of a proposed six coal-to-liquids plant near Douglas.
Investors are leery because the study could reveal problems -- such as not enough water in the area -- and because there is no commercially operating coal-to-liquids plant in the United States, he said.
If the study is financed and the plan proceeds, $1.5 billion to $1.7 billion is needed to build that first plant, Fessler said. Under the best of circumstances, the plant wouldn't be up and producing large amounts of fuel for at least five years, he added.
People who suggest it can happen sooner aren't being realistic, Fessler said.
"I hate to see the growing dissonance between what the expectations are and what we're telling people, and the ability to meet that," he said last week.
Fessler also said no state has a track record on approving permits for this type of plant, so it's premature to say one state has any advantage in that arena: "I think Wyoming and all the Western states are pretty well unproven, because no pioneer has gone in there."
DKRW is further along, having arranged contracts to acquire the coal and the technology to convert coal to diesel fuel.
"We're going to try to be the first coal-to-liquids plant in the state," said Debbie Murphy, DKRW's vice president for coal-to-liquids developments.
Murphy said DKRW has had discussions with developers in Montana and would like to work there, but is focusing on the Wyoming site, which is north of Laramie.
Montana's debate
The only enterprise in Montana that's made any public announcements about actual coal-to-liquids projects is Bull Mountain Coal Properties, which controls a coal mine near Roundup.
John DeMichiei, president of the company's mining subsidiary, said his firm has been talking to investors and contractors about building a plant near the Roundup mine and using its coal. However, Bull Mountain has revealed few other details about its proposal.
Rep. Alan Olson, R-Roundup, said he thinks the Bull Mountain project has real potential and could get off the ground soon.
He also thinks the Schweitzer administration could be doing more to help coal development in Montana.
For example, the administration in 2005 opposed his bill to create a state transmission authority that could help finance power lines or other infrastructure to encourage power plants and other coal-related development, he said.
The transmission authority would be the equivalent of Wyoming's Infrastructure Authority, which was created in 2004. Olson's bill died in committee, with Democrats opposing it.
Olson said he plans to reintroduce a similar bill, with support from an interim legislative energy committee. "I really wish the administration would work with us," he said.
Barrett said the administration is evaluating the proposal, but hasn't decided whether to support it.
"We know there has to be infrastructure built to deliver products," he said. "But how we get that done still remains to be seen."
Schweitzer also met in New York a month ago with potential financiers of the Bull Mountain proposal and said he came away "optimistic" about the plans. But, like Barrett, he stressed that the final decisions are up to private investors, and not him or the state.
He also said it's ironic that Republicans are criticizing his efforts to promote coal development in Montana, when, during 16 years of Republican rule in the 1990s and early 2000s, coal production in Montana didn't increase at all.
Schweitzer said he'll continue promote coal-to-liquids as a good fit for Montana, by showcasing the state, its huge coal deposits and available infrastructure.
"What I'm trying to do is get Montana's situation showable," he said. "Can one governor, during one and a half years, turn around 30 years of history? Well, you know what? I'm trying."
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Some push conventional coal-fired plants
By MIKE DENNISON
Lee News Service
casperstartribune.net
HELENA, Mont. -- While Gov. Brian Schweitzer is promoting development of a coal-to-liquids plant or other "clean coal" projects for Montana, others say a better bet now is a more conventional power plant and accompanying mine in southeastern Montana.
"Schweitzer is forgetting that you have to crawl, you have to walk, before you can run," says Mike Gustafson, a Billings coal and energy developer.
Gustafson, who's been trying for years to build a railroad to serve prospective new coal mines in southeastern Montana, is among those who have their eyes on developing coal in the Otter Creek Valley.
The state owns 600 million tons of coal in the valley, just east of the Northern Cheyenne Indian Reservation.
Gustafson and Pat Davison, another Billings businessman pushing to develop the Otter Creek coal tracts, say it's easier and makes more sense for the state to promote Otter Creek as the next big coal project in Montana.
Technology for converting coal to diesel fuel ("coal to liquids") and low-emission power plants called IGCC, which use coal, are a long way from being used on a broad commercial scale, they say.
But cleaner-burning, coal-fired power plants are available now, they say, and would provide an industrial base that can boost the economy and attract research dollars for the coal-to-liquids and IGCC projects.
"The common denominator in all of the projects is the coal; you have to have a coal mine," said Davison, an unsuccessful Republican candidate for governor in 2004. "It seems to me the one emphatic statement that could be made is if Montana puts its coal to work (at Otter Creek), and has a coal mine."
Republican critics of Schweitzer, a Democrat, have taken up this call as well, saying the Schweitzer administration's time would be better spent devising a plan to lease and develop the Otter Creek coal.
In an interview last week, Schweitzer said he's not ignoring the possibility of developing Otter Creek coal. But he questions whether pursuing a large, coal-fired power plant that would sell a good chunk of its power to the West Coast is a better economic bet than the coal-to-liquids or IGCC options.
A coal-fired power plant would still take five to seven years to develop, he said, and the logical buyer for at least some of the power -- California -- has said it won't import electricity unless it's generated by the cleanest methods possible. That requirement could nix power from such a plant at Otter Creek or anywhere else, the governor said.
Schweitzer said an IGCC plant or a coal-to-liquids plant will take as long, or possibly longer, to develop, but would have better economic prospects over the long term. The coal-to-liquids plant will produce clean diesel fuel, for which there will be a huge continuing demand, and the IGCC plant will put out the cleanest power produced by coal, he said.
Regardless, the state is moving forward with plans to consider leasing Otter Creek coal.
A "property resource evaluation" of the coal is due out next month, after which the state will look for direction from the state Land Board.
"In the next few months, we'll sit down and decide how to lease it," Schweitzer said. "I just want to make sure we get fair market value for it."
Davison and Gustafson say they applaud Schweitzer for talking up coal development and looking to the future, such as the coal-to-liquids plan.
But they're worried that by going too slow on Otter Creek, Montana may be missing its best chance to get back into the coal-development game.
The federal government is preparing to lease up to 3 billion tons of coal in Wyoming, and if Montana sits idle, its prospects for coal development will wither, Gustafson said.
"The first step for the governor and his administration is to make available the coal that will sponsor the development investment, and promote pilot plants, with regard to coal-to-liquids and IGCC," he said.
"People hear the words, but they don't see the action," Davison added. "They don't see words being translated into policy, they don't see policy being translated into initiative that will create the investment that is needed." |
