Indiana Gasification LLC, a project affiliate of Leucadia National (NYSE: LUK), said May 7 that the Indiana Department of Environmental Management (IDEM) has file a proposed air permit for the company’s breakthrough coal gasification plant with the U.S. Environmental Protection Agency.
“The IDEM proposed permit demonstrates that our gasification facility will be the cleanest coal plant ever permitted in the United States and among the cleanest in the world,” said Bill Rosenberg, a partner in Indiana Gasification and former Assistant Administrator for Air for EPA. “Our facility will create more than 3,000 jobs (including about 1,000 plant construction jobs, 2,000 jobs to construct an interstate CO2 pipeline, and 500 on-going jobs from plant operation and mining), enhance the nation’s energy security, and reduce this nation’s carbon footprint. Equally important, this facility demonstrates that clean coal remains an integral part of the ‘all-of-the-above’ approach to domestic energy production endorsed earlier this year by President Obama and numerous energy experts.”
The gasification process will convert about 10,000 tons per day of coal into substitute natural gas (SNG) and liquefied CO2. About 80% of the plant’s SNG output will be sold to the Indiana Finance Authority (IFA) under an agreement that guarantees Indiana ratepayers savings of at least $100m over 30 years, Indiana Gasification said. The 38 million mmBtu of SNG sold to the IFA is about 17% of the gas used by Indiana gas consumers and will be an effective buffer against the historic price volatility of the natural gas market.
Several parties, including natural gas distribution subsidiaries of Vectren Corp. (NYSE: VVC) are appealing a November 2011 Indiana Utility Regulatory Commission approval of the SNG off-stake deal with IFA. Those parties say there is too much risk that regular natural gas will be cheaper over the long term and that Indiana ratepayers will be left holding the bag if the SNG prices are too high.
CO2 produced at the plant will be used in oil production
CO2 generated by the production process will be compressed, sold and shipped from Indiana to the Gulf Coast and injected into depleted oil wells for enhanced oil production. This enhanced oil recovery effort will produce 10 million to 20 million barrels of oil annually. At $100 per barrel of oil, the domestic oil production created by the facility in Indiana will reduce imports of foreign oil, including oil from the Middle East and from unstable countries such as Venezuela, by up to $2bn a year, Indiana Gasification said.
The permitted emissions limits for the IG facility prove that such a project is safe and protective of Indiana air quality, the company said. For example, Vectren operates three coal-burning plants in Indiana that in 2009 and 2010 used roughly the same amount of coal that will be refined by IG. Vectren’s plants released 9,400 tons of SO2 a year. IG’s limit is 100 tons of SO2 annually.
Construction on this state-of-the-art facility will not begin until after IDEM approves the environmental permits. If all goes as planned, construction will begin in 2013, the company said.
Annual usage will be about 3.85 million tons of Illinois Basin coal, with the possibility of supplementing with petroleum coke. SNG production will be about 47 million mmBtu, with about 38 million mmBtu sold to the IFA, equivalent to about 17% of the amount used by residential and commercial customers in Indiana. Annual liquefied CO2 production will be about 5.5 million tons. Sulfur in the feedstock will be processed into sulfuric acid, to be sold into the industrial market. Heat generated during the gasification process will be used to produce steam for steam turbines that can produce about 300 MW to meet essentially all on-site power needs, with a utility interconnection for minor power balancing.
The water permit application provides for water to come from the Ohio River, with the plant to be located at Rockport, Ind., on the river. There is a planned river dock at the site that would allow inflow of feedstock coal. Average water usage equates to approximately 0.2% of river flow at low flow conditions. No water will come from area aquifers.
Leucadia has three gasification projects in the works
In an April letter to shareholders that is sent out annually, Leucadia mentioned its overall gasification efforts. “The Lake Charles facility, located in Louisiana, has entered into two letters of intent and a contract with large credit worthy customers for the vast majority of the plant’s output of methanol and industrial gases. These events allow us to actively seek strategic partners to fully fund the project. Funding for this project will be covered in part by $1.561 billion of tax exempt bonds, a $260 million federal grant for carbon capture and sequestration plus a $128 million federal investment tax credit. We have significant engineering and early phase construction activities yet to accomplish, hopefully in 2012. Once we are ready there is a 36-month construction period.”
The letter went on to add: “Like all large multi-year capital intensive projects ours are vulnerable to many variables such as interest rates, inflation, financing, regulatory and permitting changes as well as yet unforeseen issues. Having said that we think there has hardly been a better time to commence such a project. Inflation is tame, interest rates are at an all-time low and labor costs are likely to remain stable. Hopefully, 2012 is the year that we break ground on our first project. Stay tuned for next year’s letter.”