Industrial Capture Project Also Inks Contracts for Methanol, Hydrogen, Argon
Tamar Hallerman
GHG Monitor
11/2/12
This story was modified Nov. 5, 2012 to clarify the details of a potential joint venture agreement between Denbury Resources and Indiana Gasification.
Denbury Resources will be receiving all of the CO2 captured annually at the Lake Charles Clean Energy project in Louisiana, a subsidiary of Leucadia Energy announced earlier this week. Lake Charles Clean Energy LLC (LCCE) said it signed a long-term offtake agreement with Denbury Onshore LLC for all 4.5 million tons of CO2 produced annually at the $2.5 billion industrial chemicals plant. The site will eventually be linked to Denbury’s existing 320-mile Green Pipeline, which will transport the CO2 to depleted oilfields in the region for enhanced oil recovery, according to LCCE. “Denbury Onshore and its affiliated companies are pleased to see Lake Charles Clean Energy reach another key milestone in the development of this first-of-its-kind domestic project,” Denbury Resources President and CEO Phil Rykhoek said in a statement. “The CO2 from the plant would supplement our other Gulf Coast CO2 sources and be used to drive additional growth in our Gulf Coast EOR operations.”
The Lake Charles deal is a major one for Denbury, which has been rapidly growing its enhanced oil recovery operations in the Gulf in recent years, GHG Monitor previously reported. Earlier this fall, Denbury announced a major exchange agreement with an Exxon Mobil subsidiary for, among other things, an oil field in southeast Texas ripe for EOR located within miles of its Green Pipeline. The company already has offtake agreements in place for the CO2 produced at Mississippi Power’s Kemper County integrated gasification combined cycle plant and Air Products and Chemicals’ Port Arthur industrial CCS project in Texas, and is in talks with other CO2 capture projects currently under development.
Leucadia Pursues Joint Venture with Denbury for Indiana Gasification project
Hunter Johnston, a development partner for the Lake Charles project from the firm Steptoe and Johnson, said in an interview this week that Denbury and Leucadia, through its subsidiary Indiana Gasification, are also in talks to form some sort of joint venture for a similar gasification project Leucadia is pursing in Rockport, Ind. “We’re analyzing the potential of a joint venture with Denbury on the entire deal,” Johnston said. He added that Leucadia already has CO2 contracts in place with Denbury for its gasification projects in Indiana, Louisiana and Mississippi. Calls to Denbury for additional information were not returned.
LCCE Finalizes Other Offtake Agreements
LCCE this week also announced that BP Products North America Inc. would be purchasing the majority of the one million tons of methanol produced annually at the petroleum coke-to-chemicals gasification plant set for the Port of Lake Charles. The company said it also signed an offtake agreement with Air Products and Chemicals, Inc to purchase all of the hydrogen and argon produced onsite. LCCE said the finalization of all three offtake agreement would “enhance” Leucadia’s ability to obtain third-party financing for the project. Leucadia will be managing the construction of the project, while Turner Industries Group, LLC will head up construction and KBR will provide design, engineering and procurement services, LCCE said.
Johnston said the finalization of the offtake agreements will help the project’s credit rating and boost its chances of securing third-party financing. “Equity investors looking to put their money into the project want to see base returns that are directly associated with the offtake agreements,” he told GHG Monitor this week. “If you’re making an investment in the project, you’re making it on the basis of a return on your investment, and the underpinning of that is the contracts that we have in place.” Johnston said that Leucadia is currently in discussions with potential strategic investors. In addition to third-party financing, Leucadia’s board must also make a final investment decision on the project before it can move forward with construction, which the company hopes to begin next year, he added.
The project received a $261 million grant from the Department of Energy’s Industrial Carbon Capture and Storage program, which will help cover roughly half of the project’s carbon capture components, according to Johnston. He said the project has also secured a $128 million federal investment tax credit and that the Lake Charles project hopes to take advantage of the 45Q tax credit for enhanced oil recovery projects, the focus of legislation meant to smooth out technical wrinkles associated with the credit’s transparency.
