INDIANA GASIFICATION PROJECT FACES LEGISLATIVE ROADBLOCK

Lindsay Kalter
GHG Monitor
02/15/13

Stakeholders of a proposed coal gasification plant slated for construction in Rockport, Ind., received their last chance to testify before the Indiana state senate’s Utility Committee this week on proposed legislation that would derail the facility’s construction. The $2.8 billion project under development by Indiana Gasification, a subsidiary of Leucadia National Corp., would gasify 3.5 million tons of Illinois Basin coal annually, converting the feedstock into substitute natural gas that would be sold to the state. Senate Bill 510, submitted by Republican state Sen. Doug Eckerty and signed by more than 20 lawmakers, would force the developer to reimburse every three years any losses the state might incur as a result its 30-year purchasing agreement—rendering the project financially infeasible, according to Indiana Gasification. A vote on the bill will be held Feb. 21.

The bill’s three-year refund mandate runs counter to Indiana Gasification’s long-term profit model, which the company says will provide Indiana with a more diverse gas portfolio and provide consumers with protection should natural gas prices rise over time. The project’s initial plans hinged on a 30-year contract between Indiana Finance Authority and Indiana Gasification, in which the IFA agreed to buy gas from the plant and sell it on the open market. The profits would be split between the two entities.

‘Unprecedented Risk-Reward System’

Proponents of the bill who attended a Feb. 14 Utility Committee hearing said the agreement could be costly for consumers and limiting for the state’s natural gas providers. Patrick Bennett of the Indiana Manufacturing Association expressed concern for small-to medium-sized manufacturers, stating that it was the project’s “unprecedented risk-reward system” that concerned members of the group. Sierra Club representative Andy Bean read a joint statement from two Spencer County residents, who asserted that natural gas providers should not be locked into such a lengthy and unchecked contract with Leucadia. The bill “establishes a more realistic look-back time,” the statement said. “Why wait 30 years?”

Evansville-based Vectren Corp., the primary natural gas-provider for Central Indiana, has predicted that the deal would cost ratepayers $1 billion during the first eight years of operation. But Leucadia representatives say if the bill is passed and near-term refunds are demanded, the project will not be given enough time to generate revenue. “We’re taking a piece of the natural gas portfolio and getting it attached to a different commodity to stabilize the price,” Mark Lubbers, Leucadia’s Indiana lead, said during the hearing. He added that although losses are not anticipated, the written agreement itself would be a financial death knell for the project. “If you force us to say that we [reimburse the state], no one will lend us the money, and investors won’t lend us money to build the plant,” Lubbers said.

Meanwhile, the Indiana Court of Appeals declined a request this week to conduct a more detailed review of the plant, the Evansville Courier & Press reported. A coalition of natural gas companies and environmental groups wanted the court to review the Indiana Finance Authority’s 30-year contract with Indiana Gasification, according to the newspaper.

Leucadia Partners with Denbury for EOR

In addition to the project’s substitute natural gas production, the plant has a contract with Denbury Resources where the 5.5 million tons of CO2 captured annually at the facility would be piped more than 400 miles to the Gulf Coast for enhanced oil recovery operations in depleted oilfields owned by Denbury. However, those close to the project say the carbon capture, utilization and storage would not provide enough additional revenue to make the project financeable if the bill is passed—particularly given costs of transport from the Midwest.