That $40 per barrel of oil is the deal breaker. Congressman Boucher is looking at some bills that would insure this price not fall below this magic number that will allow companies to make money thru a federal tax to maintain the profit for these huge investments that are needed to make this work.
Coal-to-liquid plant has long path
By MIKE DENNISON - IR State Bureau - 10/17/2006
HELENA - As headlines early this month proclaimed the birth of a major energy project near Roundup, partners behind the coal-to-liquids plant are quite frank about what lies ahead: A long, expensive and difficult road.In fact, when you strip away the fanfare, the bird-in-hand at the Bull Mountain project is basically one thing: A preliminary agreement to perform a "feasibility study" on whether a coal-to-liquids refinery might work at this location.The study will look at the economics of the $1 billion to $1.5 billion plant, said Bethany Daley, spokeswoman for DKRW Advanced Fuels of Houston, the lead partner in the deal.Once that study is completed and the project looks possible, then the real heavy lifting begins, she says - such as lining up the money to finance an engineering study and the construction."We'll be the ones looking for the financing once the feasibility study is done," Daley said. "It's not just, 'Can we do Bull Mountain," but (the) need to look at what type of financing we need."Observers and industry officials say the final outcome can hinge on many factors, not the least of which is the cost of oil, which is a competing commodity.
Gov. Brian Schweitzer's top economic development official also says the project has many pitfalls to negotiate."There are a lot of show-stoppers in every deal," said Evan Barrett, chief business officer for the state. "When deals are announced, there are 10 different ways it might not happen. This is no different."Schweitzer, who's been promoting the coal-to-liquids technology as a possible economic boon for eastern Montana and the nation, held a news conference Oct. 2 in Helena to announce the Bull Mountain project plan.It calls for a coal-to-liquids refinery that would produce 22,000 barrels a day of diesel fuel, using coal from an expanded Bull Mountain mine south of Roundup. It also includes building a 300-megawatt electric power plant that would use "clean coal" technology.It offers the prospect of 800 construction jobs, several hundred permanent jobs at the plant, thousands of spin-off jobs in the area and millions of dollars in tax revenue.Schweitzer and others at the news conference acknowledged the project is at least four or five years down the road, possibly seven.In interviews with the Lee Newspapers State Bureau in the past week, partners in the deal talked more about the project details and how the pieces may fit together - or may not.Lead partner DKRW also is pursuing a similar plant near Medicine Bow, Wyo., in the south-central part of the state. It has licensing agreements with General Electric and Rentech Inc., which have developed the technology to "gasify" coal and convert that gas to diesel fuel.DKRW was founded nearly five years ago by a trio of former executives from Enron Corp., who were involved in renewable energy programs for Enron.Arch Coal Inc. of St Louis, the second-largest coal producer in the country, is a 25 percent partner with DKRW Advanced Fuels on the potential coal-to-liquid projects, contributing $25 million in cash this summer.The Montana partner is Bull Mountain Properties, which controls the Roundup-area coal mine that's supposed to provide the coal.Haley of DKRW said the Bull Mountain and Wyoming projects are separate projects, and are not dependent on each other in any way. One advantage of the Bull Mountain project is that it has an operating coal mine, while the Medicine Bow project has only coal reserves that aren't developed, she said.Among other things, the feasibility study will examine whether coal reserves at Bull Mountain are adequate to supply the CTL plant for many years, she said.Arch Coal has leases on the coal reserve in Wyoming, but has no coal interests at the Bull Mountain project, said spokeswoman Kim Link. Its interest in the Montana deal is only through its 25 percent partnership with DKRW Advanced Fuels, she said.Link said Arch believes the main hurdle for a CTL plant is ensuring the technology will work on an industrial scale, because it hasn't been tested at that scale anywhere in the United States.Loan guarantees or subsidies from the federal government may be needed to underwrite some of the risk, she said, and a new tax-incentive proposal before Congress is expected in November.Mark Koenig, director of investor relations for Rentech in Denver, said his company believes preparing the technology for large-scale production shouldn't be that difficult.Rentech has been working since the early 1990s on the process that converts natural gas (or gasified coal) into diesel fuel, and is building a plant in Commerce City, Colo., that will produce 10 barrels a day of diesel fuel, he said.The "reactor" used in that plant is six feet in diameter, and doubling its diameter would up the fuel output to more than 2,500 barrels per day, he said. A series of reactors would be installed in an industrial plant, and shouldn't be that hard a technical feat, he said."The tougher nut to crack is the (plant) permitting and the financing," Koenig said. "Those are items that can really slow down a project. And, of course, any change in commodity price."As explained by Koenig and others, any CTL plant will be competing with traditional oil refineries that manufacture diesel fuel. If oil prices drop, then a CTL plant looks less attractive. That could pose a financing dilemma, because a $1 billion to $1.5 billion investment needs a steady income stream over many years to recoup the investment."The problem is, can you make it at a competitive price?" Koenig said. "If oil gets into (the $40 per barrel range), you have to look at these projects real hard." Oil was selling in the high 50s per barrel last week.The permitting is up to state regulators, but it faces potential challenges from landowners, environmental groups or both who aren't enthusiastic about coal development.The CTL plant has been advertised as environmentally friendly, but skeptics point out that it still produces carbon-dioxide - a major greenhouse gas - and still is being used to crank out diesel fuel, which, when burned, doesn't help global warming, either.The developers and the Schweitzer administration have said the plant is committed to "capturing" or "sequestering" its CO2 emissions - a technology not in wide use right now.Barrett said while hurdles lie ahead, the fact that partners have signed agreements to examine the Bull Mountain site is a "major step."They'll be doing what any project developer would do at this point, he said, such as scrutinizing the availability of the coal they'll need, laying out a schedule for obtaining a permit, looking at plant design and figuring out how the technology adapts to the site."They just have to take all of these elements in place and tighten them all down as they proceed," Barrett said. "At what point does that bear fruit? You just keep going until you're stopped. That's the way business deals work."Rep. Alan Olson, R-Roundup, a longtime promoter of the Bull Mountain coal mine and related developments, said local supporters have been waiting years for various plant proposals to take off. They're prepared to wait some more, he said."I think (this one) is the real deal," he said in a recent interview. "But it's going to take time. (We've) been in here for the long haul. Projects like this don't happen in 20 months."