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COLUMN: Coal-gasification facts vs. fiction

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STEPHEN OBERMEIER, Guest Columnist

Gov. Mitch Daniels recently announced a contract between the State of Indiana and private enterprise corporations Leucadia, and Indiana Gasification LLC.

Through that contract the state of Indiana would require Indiana utility companies such as Vectren to pass on gas manufactured at a coal-to-gas (syngas) plant at Rockport to rate-payers throughout Indiana, mainly homeowners who use gas, for the next 30 years.
I believe the economic and environmental analyses used to justify that contract are flawed; that is also the conclusion of an article in the Indianapolis Star, a conservative newspaper, on Jan 2, by their writer, Evanoff.

With moderate effort one can verify for oneself that major assumptions in the contract about projected costs of the coal feedstock, versus availability and pricing of natural gas, are almost certainly in error. Expertise in economics or legalese-speak is not necessary.

One need only read recent articles in the Wall Street Journal, a very pro-business newspaper, and in trade journals and on the Internet. Or one can contact major players and experts in the natural gas industry at Boardwalk Corp., formerly Texas Gas, in Owensboro, Ky., for information about the future of natural gas.

Economic Analysis

The governor and developers claim that syngas would be less expensive to ratepayers than natural gas, despite their admission that the cost of syngas to the consumer would be higher now than natural gas. And they claim that the supply and pricing of natural gas is very uncertain the next 30 years. Also, they claim great savings to ratepayers, and that the syngas manufacturers would be taking all the financial risk. Let us examine the assertions.

1. A new method for extracting natural gas from shale (hydrofracturing) has already ensured that the USA has a 20-to 50-year supply from geologic formations in the USA, according to many articles the past year in the Wall Street Journal plus numerous other sources of information. Many other countries worldwide now use this method, causing a glut of natural gas. I am a scientist retired from the U.S. Geological Survey, with friends who are experts in the oil and gas business. According to them, known natural gas reserves in the USA are already so great that further exploratory work has stopped. Moreover, new techniques are collecting large quantities of gas that was previously flared off from oil fields around the world. And major offloading facilities are being built around the world to export this gas.

Moreover, on Dec. 15 the U.S. Energy Information Administration released it’s forecast for natural gas prices through year 2035, stating “expanding domestic shale-gas resources are expected to lead to increased domestic gas production at lower prices..,” which is the opposite of the story from the governor’s office. According to that agency, proven reserves in the USA have doubled this past year

2. The demand for coal and the price of coal have surged the past year due to demands from China and India. Those countries do not have enough coal to fuel their many new power plants. Virtually all industry predictions for coal pricing are that costs will continue to increase greatly and rapidly.

For example, the price is up 15 percent since this summer. And stock market prices of major coal-producing companies such as Peabody and Massey have doubled this past year in anticipation of huge new export markets.

3. The contract between Gov. Daniels and the developers has an escrow fund of $50 million, to make up any difference between the price of syngas and that of natural price over the next 30 years; this escrow is said to ensure that syngas users do not pay more than the price for natural gas.

That sounds like a lot of money until one realizes the dollar value of the projected sales that would be forced onto ratepayers would be $6.9 billion.

And according to the press release from the governor’s office, the price of syngas at the plant would be about $6 per MBTU. The office has since increased the price to $7. The spot-market price of natural gas this past year has averaged about $4.50 per MBTU, with the price of natural gas depending on time of year, typically being highest in January and February when demand is highest. The price now is between about $4 and 4.25, and transportation from the spot market in Louisiana to Indiana would add less than 30 cents.

The reason natural-gas prices are so low is due to the greatly increased domestic natural gas production this past year. Given the large price difference between natural gas and syngas, and the fact that the escrow money is only a little more than 2 percent of projected sales, the escrow money would be used in a short time.

4. The news release from the governor’s office says that private industry would assume the financial risks.

In fact, the money to build the plant would be subsidized by a taxpayer-funded, low-cost federal loan. Thus it is taxpayers who would be assuming the construction risk. And it is the ratepayers such as you and me who would be assuming the high cost of syngas.

Given the economic and production facts above, how could the governor and developers even consider a contract to force Indiana ratepayers to purchase the syngas over a 30-year period? Probable reasons are given below in the discussion. First though, I cover some environmental issues because of disinformation about air quality given citizens in this county.

Costs Related to Environmental Matters

It is frequently asserted by syngas proponents that the process is much cleaner than getting energy from traditional coal power plants. Proponents also frequently assert that the air quality in the Spencer County area is good, so there is nothing to be concerned about by a syngas plant locating here. Here I present facts that can be verified through numerous press releases made the past few years in the Evansville Courier & Press and in county newspapers.

I do not address environmental issues regarding hydrofracturing herein, in order to maintain focus on economics. But according to industry specialists I have talked with, problems occur mainly in shallow shale formations or around improperly cemented well casings. These issues can be resolved without major impact on availability of natural gas.  

5. There is a widespread perception among many residents that the air quality is good here in the Rockport area. Indeed, that is the message given by Indiana Department of Environmental Management and senior-level personnel of Lincolnland Economic Development, a pro-syngas organization located near Rockport. Their claim was reported in the summer of 2009 in a county newspaper. Yet, at that same time the EPA had declared the Rockport area to be in “nonattainment" regarding air quality. And counties to the west, from where the winds blow most of the time, were in failure.

Unfortunately there are no air-quality monitoring stations here in Spencer County.

So unless a person believes that the air from the west magically parts around Spencer County, then the air quality in the county could not be significantly better, especially around the AEP power plant.

From a bigger-picture perspective, EPA reports that Spencer County is typically the highest or next-highest in Indiana, each year for many years back, regarding “toxic industrial pollutants.”

For verification, go to the EPA Web site at www.epa.gov/triexplorer. EPA states that their use of the word “toxic” means the chemicals are harmful to human health. Thus, any statement about environmental quality being good in the county is factually unproven and may be wildly wrong.

6. Recently there have been public meetings and press releases regarding the contract, with much attendant hullaboo. What was not mentioned was that any syngas plant would have other facilities nearby that would make use of chemicals captured by the syngas manufacturing process. In fact, the CEO of Indiana Gasification LLC, William Rosenberg, has stated to county authorities that it would be “like a petrochemical complex,” where things like very caustic acids would be produced.

He also makes the same assertion to Indiana legislators, so one must take him at his word. Now, what would be the consequences of having all those other plants? Has anyone ever looked into the matter? That should be part of any assessment of having a syngas plant in the area.

7. Finally, let us look at the economic consequences of air pollution in the area. I am not considering health consequences in this article. After all, it is money that seems to be the only concern to the proponents.

We are already paying a tremendous economic price due to air pollution, through our monthly bill for electricity. This was brought out in a revealing article by the Evansville Courier & Press this past summer, when there was much discussion about a proposal by Vectren to raise the ratepayer price for electricity.

In that article it was noted the Vectren rate is 12 cents per kilowatt-hours, which is the highest of any utility in Indiana.

Prices of other utilities in the state are as low as 6cents/kWhr. Why the big difference? According to a statement by Vectren, as reported in the newspaper, it is because the utility pays so heavily to control air pollution already here in the Ohio Valley. Thus we are already paying a premium price for the privilege of living in our own pollution.

Discussion

Given all the issues listed above, how could the governor and manufacturers favor having a syngas facility? First let us consider the governor’s motivation, and then the manufacturers’.

For the governor there are a couple of possibilities. Some jobs would be added in the vicinity of the plant and more coal would be mined in Indiana. Moreover, construction of the plant costing some $2.5 billion would bring jobs to the area and a temporary economic stimulus.

Those jobs and the construction would bring in tax money to state coffers, lots of it. All these make the governor look good, both politically, such as running for president, and to industry, which can offer high-paying seats on boards of directors.

And what about the risks being taken by manufacturers such as Indiana Gasification and Leucadia? It is the federal government that would have to come up with low cost loans and assume financial risk.

A person cannot get this sense or knowledge by examining the contract document only. That document is an exercise in obfuscation, and it is difficult to determine what is actually being said.

Only some common sense is needed to figure out that the only way this plant can succeed economically is to have ratepayers throughout Indiana pay increasingly higher utility bills, much higher than necessary.

Obermeier is a steering committee member for Spencer County Citizens for Quality of Life.