$100 million DOE grant for coal-GTL ULSD project

Diesel Fuel News, Jan 20, 2003 by Jack Peckham

Waste Management & Processors Inc. (WMPI) took another step forward this month in its quest to build a $612 million coal-to-fuels-and-power plant in Pennsylvania, tapping a new, $100 million U.S. Department of Energy (DOE) "clean coal power" grant.

Combined with about $47 million in Pennsylvania state investment tax credits, that leaves about $460 million to be raised in private lending markets for a combined 5,400 barrels/day gas-to-liquids diesel/naphtha plant and 41-megawatts electric power plant.

The DOE grant and state tax credits would shave about 16% off the mortgage cost of the plant. The next critical step involves negotiating a long-term product off-take agreement tied to a price that will generate enough revenue to pay back investment bankers or other lenders, explains WMPI president John Rich.

A product off-take agreement would require the buyer to take a risk position versus crude oil. When crude prices are relatively high (like now), a coal-GTL product offtake agreement conceivably could be profitable. But if crude prices fall steeply, then an offtake deal might not be profitable.

WMPI originally sought exemption from the U.S. 24 cents/gallon diesel fuel excise tax (see Diesel Fuel News 7/12/99, p3), which potentially would have represented a much bigger subsidy than the $100 million DOE grant.

Still, the new DOE grant "puts us in a lucrative position" to find a way to complete the project, Rich told us. "We're in negotiations with several oil companies" on possible off-take deals, he said.

Assuming the offtake and financing deals can be completed by year-end 2003, plant construction (either in Mahanoy or West Mahanoy Township, Schuylkill County, PA) could start next year. If the project moves fast enough, it might be ready around the mid-2006 deadline for U.S. refiners to produce 15-ppm sulfur ultra-low sulfur diesel (ULSD).

The coal-GTL plant would tap Sasol's Fischer-Tropsch synthesis technology; Shell's gasification technology; Uhde GmbH for engineering/procurement/construction, and Nexant/Bechtel consulting.