Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, March 11, 1990 TAG: 9003091685
SECTION: BUSINESS PAGE: B-8 EDITION: METRO
SOURCE: BY THOMAS W. LIPPMAN THE WASHINGTON POST
DATELINE: LENGTH: Long
Five years after the consortium that built it abandoned it and defaulted on $1.5 billion in federal loans, the Great Plains Coal Gasification Plant is alive, if not well. Rising like a mirage above the North Dakota prairie, shrouded in plumes of steam from its cooling towers, the vast plant is converting 18,000 tons of coal each day into 150 million cubic feet of synthetic natural gas and making money for its new owner.
"It's going better than we ever expected," said Kent Janssen, chief operating officer of Dakota Gasification Co., a subsidiary of Basin Electric Power Cooperative of Bismarck, which bought the plant from the U.S. Department of Energy at a fire-sale price in 1988.
On Feb. 1, Basin Electric paid the Energy Department $11 million as the government's share of the plant's 1989 profit, the first payback on the government's lost investment. It is unlikely that the Energy Department will ever get all its money back - the profit payout was based on an inflated price for the Great Plains gas that is no longer in effect - but it also is unlikely that the plant will be abandoned.
The 600-acre facility is one of the few operating relics of the energy shocks of the 1970s, when shortages of natural gas and skyrocketing oil prices inspired government efforts to develop new sources of domestic energy, including synthetic fuels. The Energy Security Act of 1980 created a Synthetic Fuels Corp. and gave it $15 billion to prime the pump for new energy projects. But falling oil prices throughout the 1980s undermined the economic rationale for synthetic fuels. The Great Plains gasification plant, built by five energy companies for $2.1 billion, was its most ambitious undertaking and its most spectacular failure.
The consortium dumped the project on the government when then-Energy Secretary John S. Herrington refused to provide an additional $720 million in price subsidies, saying such a commitment "would only have been in our interest had oil prices risen to $160 per barrel by the year 2009." Even now, executives of Basin Electric cheerfully admit that the facility makes money only because they were able to acquire it for a paltry $85 million in cash and because the pipeline companies that buy the gas are obliged by long-term contracts to pay more than current market prices, even after the expiration of the inflated price structure that was in place last year.
Under contracts negotiated before Basin Electric acquired the plant and upheld by the Federal Energy Regulatory Commission, the buyers of Great Plains gas are paying about $2.80 per million British thermal units, $1 higher than the price of natural gas on the spot market, Janssen said.
When the long-term contracts expire in the coming five years, Janssen said, "our estimate is that if we run it well, we think we can produce gas for what would be the average selling price of natural gas. We can break even." If natural gas prices rise, as many experts think they will, the Great Plains plant would benefit, but Janssen said the best prospect for profit lies in commercial sales of the byproducts of the coal-conversion process: anhydrous ammonia, sulfur, naphtha, phenol and carbon dioxide, which can be used to increase the output of oil wells. The agreement between Great Plains and the Energy Department does not require sharing of profit from byproduct sales.
"Not having capital investment is the key," Janssen said. "The plant has very little debt."
The Great Plains plant faced the prospect of closure when the developers walked away in 1985, but the Energy Department kept it operating to avoid writing off the entire Synthetic Fuels Corp. investment and to stave off a potentially devastating blow to the economy of North Dakota.
The plant employs about 900 workers. With the adjacent coal mine and an electric power plant, it is the state's largest industrial enterprise, according to Basin Electric General Manager Robert McPhail. Basin Electric's purchase agreement requires it to operate the plant until 2009, so long as revenue exceeds expenses.
North Dakota's governor, Democrat George A. Sinner, acknowledges the importance of Great Plains to his depressed state, but he argues that its significance goes beyond local borders. Sinner is one of the few who still think it was a good idea in the first place.
"The conversion of coal to gas is something the nation has to do," Sinner said, because coal is the United States' most abundant energy resource and domestic crude oil production is declining rapidly.
"People don't see how fragile our energy supplies are. The economy in a society like this can't stand 10 days without energy," he said. The gas output at Great Plains is equivalent to about 24,000 barrels of crude oil.
But it is axiomatic in the energy industry that no more projects such as Great Plains will be undertaken so long as crude oil remains easily available at relatively low prices. The return on the output cannot make up for the enormous capital investment required or for the cost of processing the fuel. Great Plains, for example, consumes 3,100 tons a day of oxygen in the conversion process, 6.6 million gallons of water and 85 megawatts of electricity, about 9 percent of the output of the adjacent Antelope Valley power station.
That is in addition to the coal, which the conversion plant buys from an adjacent mine owned by another subsidiary of Basin Electric. Great Plains burns lignite, a soft coal with a high moisture content that is unsuitable for burning in conventional power plants but is ideal for gasification, according to engineers here.
by CNB