The Department of Defense can execute long term contracts for alternative synfuels, but only if the synfuel have lower GHG’s than conventional petroleum based fuel. The Department of Defense (DoD) has backers on Capitol Hill that support increasing the length of procurement contracts that the DoD can enter for supply of fuels. The current law was passed in September 2008 and permits the DoD to enter into contracts that are a maximum of 10 years in length. Senator John Thune (South Dakota) announced that the Senate approved the National Defense Authorization bill for Fiscal Year 2009. Recently the Senate Budget Committee voted unanimously to approve an amendment to the Fiscal Year 2010 Budget that will permit the Department of Defence to increase the contract length from 10 years to 20 years.

Senator Bunning (Kentucky) sponsored an amendment to the Fiscal Year 2010 Budget to increase the DoD contract term to 20 years and it was passed by the Senate Budget Committee.

The increased contract term length for fuel supply contracts is considered to be due to the US Air Force has been considering various coal-to-liquid proposals. The U.S. Air Force has a strategic objective to convert it’s fleet of aircraft to a domestic coal-to-liquids synfuel. Proponents of coal-to-liquid plants have noted that the U.S. Air Force must be able to enter long term contracts for developers to successfully negotiate lender funding to build the facilities. The Governor of Indiana recently signed legislation that allows the State to enter into 30 year contracts for this same reason.

A key requirement of any long term contract is that the alternative fuels are environmentally friendly. Section 526 of the Energy Independence and Security Act (EISA) was included in the 2007 energy bill to prohibit Federal agencies from procuring alternative synfuel unless its life cycle Green House Gas (GHG) emissions are less than those for conventional petroleum sources.

EISA Section 526 states: “No Federal agency shall enter into a contract for procurement of an alternative or synthetic fuel, including a fuel produced from nonconventional petroleum sources, for any mobility-related use, other than for research or testing, unless the contract specifies that the lifecycle greenhouse gas emissions associated with the production and combustion of the fuel supplied under the contract must, on an ongoing basis, be less than or equal to such emissions from the equivalent conventional fuel produced from conventional petroleum sources.”

Coal and petcoke gasification provides exceptional opportunity to capture CO2 and state enviromental quality departments issued air permits for two projects in March. Two solids gasification projects received their air permits in March. Coal and petcoke gasification provides the highest CO2 capture rate. This is a factor in each states’s enviromental quality departments decision to issue air permits for the two projects.

DKRW Energy received the air permit for the Medicine Bow Fuel and Power project in Medicine Bow, Wyoming. The Wyoming Department of Environmental Quality (DEQ) approved the air permit March 6, 2009. The Medicine Bow Fuel and Energy project is a coal-to-liquids project and will gasify Wyoming coal and produce gasoline as the primary product. The CO2 will be captured and pumped under pressure into pipelines to be used for CO2 enhanced oil recovery in the Powder River Basin oilfields.

Hunton Energy received the air permit for the Lockwood Project in Brazosport, Texas. The Texas Commission on Environmental Quality (TCEQ) issued the air permit on March 4, 2009. The Lockwood project will gasify petcoke and produce synthetic natural gas (SNG), a pipeline quality natural gas. The CO2 will be captured and pumped under pressure into pipelines to be used CO2 enhanced oil recovery in the Texas oilfields.

Indiana state legislators support coal gasification and provide legislation that will create jobs and secure energy for the state.Indiana Governor Mitch Daniels signed legislation into law that will enable the state of Indiana to negotiate long term contracts for SNG. This is an important step in removing hurdles for construction of a coal gasification plant that will produce SNG.

Indiana has first hand experience with the benefits that can be derived from a coal gasification plant. The state is the site of the Wabash Power Plant in Terre Haute, Indiana and Duke Energy is currently constructing the Edwardsport Plant. Both of these plants produce electricity.

Governor Daniel and the state legislators are familiar with the technology and benefits of coal gasification and have been working with state business leaders since 2006 to encourage the construction of a coal gasification plant to produce and distrbibute SNG, pipeline quality natural gas, to natural gas user’s in the state of Indiana.

Just as a homeowner must be able to demonstrate that he/she can make payments on a home purchase loan to be approved for the loan, a developer of a coal gasification plant must be able to demonstrate that it can make payments to be approved for a construction loan. A long-term offtake agreement of the end product is necessary to demonstrate ability to make the loan payments. This means that the developer must have long term offtake agreements for the SNG. However, the utility companies are not permitted to enter into long term contracts. This legislation was passed to provide a means to provide the long term offtake that any project developer will need to get financing.

The law permits the State to enter into 30 year contracts to purchase SNG. Utility companies will purchase the SNG from the state with contract terms that are less than 30 years. This was bipartisan legislation with broad support in the State of Indiana. It was approved overwhelming by the Senate (48-0) and House (90-8).

The State of Indiana is the 12th largest consumer of natural of natural gas. Indiana uses approximately 534 trillion BTU’s of natural gas annually. A single coal gasification plant producing SNG is capable of supplying the state with 15% to 20% of it’s natural gas requirements.

GTL Energy filed a reply to the Dakota Resource Council complaint in accordance with the North Dakota Public Service Commission regulations. The Dakota Resource Council had filed a complaint with the North Dakota Public Service Commission asserting that GTL Energy was required by state law to apply for and be granted a permit as a coal mining operation before commencing construction of the coal beneficiation plant near South Heart, N. Dakota.

GTL Energy denied each material allegation in the complaint. In addition, GTL Energy stated that the beneficiation plant will operate separately and independently of any mine and especially the Great Northern Power Development mine and that GTL Energy plans to test on a commercial scale its beneficiation process on the coal from other sources and other mines.

March 23, 2008, was the deadline for Phase 2 applications for the DOE September 22, 2008 solicitation for up to $8 billion in federal loan guarantees for coal gasification projects that employ advanced technologies that avoid, reduce or sequester emissions of air pollutants or greenhouse gases in the area of coal-based power generation, industrial gasification, and advanced coal gasification facilities.

Most assuredly applicants have been working long hours to prepare a compelling case for their proposal. In addition to providing the “meat and potatos” of the project, applicants must make sure they don’t run afoul of any of the many administrative rules. For example, “Documents supporting and forming a part of
applications must be submitted electronically, typed single-spaced, and must adhere to a format
consisting of standard 8.5” x 11” paper with 1” margins (top, bottom, left and right) with font not
smaller than Times New Roman 11 point . . .”

This writer has been trying to guess who the final applicants may be. Six projects come to mind, but not many more. It will be interesting to learn which project developers submitted Phase 2 applications. After all, Phase 2 applications require the final 75% of the application to be deposited – $600,000.

It’s certain that many a developer has breathed a sigh of relief knowing that their application has been submitted. Coal Gasification News says good luck to all and hopes for a speedy DOE selection process and a generous loan guarantee for all deserving projects.

Department of Energy Secretary Chu has made changes to the project application review process that are designed to shorten the time that is necessary to get loan guarantees for energy projects approved. The DOE announced a solicitation for loan guarantees for coal gasification plants on September 22, 2008. The changes are described as broad based organization structure and process changes that are aimed at reducing the length of time the DOE requires before approving direct loans and loan guarantees for energy projects.

Secretary Chu said that the purpose of these changes is to move forward quickly with funding for projects that will put Americans back to work and reduce the United States dependence on foreign oil imports. Secretary Chu has been personally involved in the review of DOE procedures for approving direct loans and loan guarantees.

Secretary Chu’s reforms to the programs include:

Rolling appraisals of applications – instead of delaying the consideration of an application until a far off deadline, the Department will review them when they are submitted so that decisions can be made more quickly.

Streamlining and simplifying loan application forms and other paperwork.

Accelerated loan underwriting by using outside partners.

In cases where up-front fees may deter companies from applying, the Department will offer applicants the opportunity to pay the fees as part of the loan at closing.

Further reduction of up front costs by restructuring credit subsidies so they are paid over the life of the loan.

Additional staff and resources to process applications.

Working with the industry to attract good projects into the loan guarantee program and helping them navigate the process.

A website that will provide increased transparency in both process and results, as well as information to help applicants through the process.

These changes will enable the DOE to issue approval notices for loan guarantees for coal gasification projects with carbon capture and sequestration within months and DOE loan commitments are expected to be issued in April and May 2009.

Texas Representative Phil King introduced a bill in the Texas legislature that will provide franchise tax credit of up to $100 million for a coal gasification plant that meets certain requirements. It’s common for states to provide tax credits or abatements to attract large, industrial investments that will benefit the local economy. The construction of a coal gasification plant will pay off with benefits that far outweigh the $100 million in franchise credits.

To qualify a coal gasification plant must generate a minimum of 200 megawatts, use integrated combined cycle technology, and be capable of capturing and sequestering at least 60% of the CO2. There must be reasonable evidence that the CO2 will be sequestered for 500 years.

In addition to the gasification plant owner getting a $100 million franchise tax credit, any oil developer that purchases the CO2 will get a tax incentive. It is a common practice to inject CO2 into mature oil fields to improve field production.