Hydrogen Energy California defends status of its coal gasification project

Hydrogen Energy California LLC told the California Energy Commission that environmental groups that oppose its coal/petcoke gasification project brought up a number of “irrelevant” points in their March 3 motion for the commission to terminate its longstanding review of the project.

“The only relevant inquiry in a motion filed pursuant to Title 20 California Code of Regulations Section 1720.2 is whether the Applicant has pursued the Application for Certification (AFC) with due diligence,” said the company in a March 18 response filed at the commission. “Opinions about the project in general, or specific elements of the project, are irrelevant. Opinions about the project’s compliance with applicable laws, ordinances, regulations and standards (LORS), or agency policies, are irrelevant. Opinions about the project’s economic viability are irrelevant, as are opinions about the project’s ability to obtain a power purchase agreement (PPA). Certain of these matters (e.g., LORS and policy compliance) can only be determined by the Commission upon completion of the AFC review process. Certain of these matters (e.g., economic viability and ability to obtain a PPA) are outside the scope of the AFC review process altogether.”

It added: “In light of the foregoing, much of the Motion can be disregarded as irrelevant to the inquiry at hand. This includes Interveners’ opinions that the Project is ‘ill conceived,’ ‘extremely controversial,’ and ‘unlikely to succeed.’ It includes Interveners’ opinions about whether or not the Project’s proposed water supply plan complies with applicable LORS and policies. It includes Interveners’ opinions regarding the Project’s ‘precarious financial viability’ and Applicant’s ability to fully utilize federal grant monies or obtain a PPA. Interveners are entitled to their opinions regarding these matters, and, in some cases, may present evidence during the evidentiary proceedings to support their opinions, but such opinions and speculation have no place in the context of the Motion.”

Hydrogen Energy California said that while it is true that most of the activity that has occurred over the past 18 months has not directly involved the CEC staff or CEC committee handling its application, there have been activity during that period in pursuit of the AFC. The company provided a narrative of highlights of its work over the last 18 months, including efforts to secure a CO2-offtake contract for its project, with that CO2 to be used for enhanced oil recovery (EOR) in the local Elk Hills Oil Field.

The parties it has been working with on the off-take deal include Occidental of Elk Hills (Oxy) and California Resources Corp. (CRC).

Company says CO2-offtake deal has been tough to pin down

Said the company: “Through November of 2014, Applicant had a reasonable expectation that it could consummate an off-take agreement with Oxy/CRC. Oxy/CRC provided repeated assurances that it was interested in pursuing a CO2 off-take agreement with Applicant. These assurances were provided not only to Applicant but to the U.S. DOE and came from senior level executives at Oxy/CRC. Applicant reasonably believed, and continues to believe, that these representations were made in good faith, and that Oxy/CRC was and continues to be interested in CO2 from HECA. Unfortunately, events completely unrelated to HECA, and completely outside the control of Applicant, have prevented sufficient resources from being devoted to consummating what is admittedly a complex transaction. Given the resources that have been devoted to negotiations with Oxy/CRC and evaluation of the Elk Hills Oil Field, Applicant was understandably hesitant to move to alternative off-takers. Thus, Applicant’s actions in pursuit of an off-take agreement with Oxy/CRC were persistent, sustained and reasonably expected to achieve the desired result.

“When it became apparent that CRC was not able to devote sufficient resources and attention to completing negotiation of a CO2 off-take agreement by the end of 2014 as it had projected, Applicant stepped up its efforts to identify and enter into discussions with alternative CO2 offtakers. It enlisted the assistance of the West Coast Regional Carbon Sequestration Partnership (WESTCARB) and [Lawrence Berkeley National Laboratories (LBNL)] based on their extensive experience evaluating potential carbon storage locations in the vicinity of the Project. The initial results of these efforts have been positive. LBNL has expressed interest in the Project and reports that its ‘technical work to date in the San Joaquin Valley indicates that formations in proximity to the HECA site have sufficient capacity to store the proposed volume of CO2.’ Because some of the alternatives may involve sequestration only and not include enhanced oil recovery, Applicant also re-evaluated and made adjustments to the Project’s economic model to ensure that revenues associated with CO2 sale for EOR are not necessary for the Project to be economically viable.

“The inability to finalize an agreement with Oxy/CRC has been a setback for the Project. Oxy has been an informal partner in the Project since the decision to relocate the Project to Kern County, and the Project site was chosen in part due to its proximity to the Elk Hills Oil Field. Applicant invested tremendous resources in negotiating a formal agreement with Oxy, and then CRC, and also delayed approaching other CO2 off-takers for some time based on the reasonable expectation that an agreement could be reached with CRC. For reasons completely outside the control of the Applicant, that did not occur. However, the absence of a contract with CRC is neither an indication of a lack of due diligence on the part of the Applicant, nor a fatal blow to the Project as suggested by Interveners in the Motion.”

The project approval at the commission was first applied for in 2008, with the application going through a major revamp in 2012. The project, as currently proposed, would gasify blends of petroleum coke (25%) and coal (75%) to produce hydrogen to fuel a combustion turbine operating in combined cycle mode. The gasification component would produce 180 million standard cubic feet per day (MMSCFD) of hydrogen to feed a 400 MW (gross), 288 MW (net) combined cycle plant. The gasification component would also capture approximately 130 MMSCFD of carbon dioxide (or approximately 90% at steady-state operation) which would be transported and used for enhanced oil recovery and sequestration in the Elk Hills Oil Field. The HECA project would also produce approximately 1 million tons of fertilizer for domestic use.

Company says DOE money is an issue

The Sierra Club, HECA Neighbors and the Association of Irritated Residents on March 3 had asked the California commission committee overseeing the proceeding on this project to terminate it because the applicant has failed to pursue the application with due diligence.

“Most notably, the applicant cannot obtain a contract to sell its carbon dioxide (CO2) to the adjacent Elk Hills oil field,” the filing claimed. “Without a CO2 contract, the project is financially and legally infeasible. Abundant additional evidence points to the same conclusion that the project cannot proceed, including the lack of an acceptable water supply plan, and the impossibility of qualifying for and spending [the U.S. Department of Energy’s] full funding allocation by the September 2015 statutory deadline.”

Said the developer in the March 18 filing about the DOE situation:”Interveners correctly point out that certain federal grant monies are at risk of being lost given the current status of the Project. Interveners then assert that the Project is not financially viable in the absence of such grant monies. Finally, Interveners leap to the conclusion that these circumstances demonstrate a lack of due diligence on the part of the Applicant. Even if Interveners’ assertions regarding the Project’s financial viability were true, which they are not, there is no support for the proposition that the loss of the federal monies is somehow the result of a lack of due diligence on the part of the Applicant. As illustrated above, Applicant has exercised due diligence in attempting to obtain a CO2 off-take agreement for the Project to advance the AFC process. To the extent that the Project has been delayed to the point that federal grant monies are at risk, this is due to circumstance not entirely within Applicant’s control.” It added that project finances are outside the scope of the commission’s review.

Notable is that in the face of ever-tougher environmental restrictions and the availability of cheap natural gas, this is one of only a handful of coal-based power projects still in play in the U.S.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.