Long-term commercial offtake contracts are secured to build a first-of-its-kind facility in Lake Charles, LA, to manufacture industrial products from petroleum coke (petcoke) using gasification technologies, Leucadia Energy LLC said Monday. The proposed $2.5 billion project is expected to provide up to 1,500 construction jobs beginning next year.
Lake Charles Clean Energy (LCCE) has long-term commercial offtake contracts with BP Products North America Inc., Air Products and Chemicals Inc. and Denbury Onshore LLC, which give Leucadia the ability to seek required third-party financing for the project before construction begins.
LCCE is expected to become one of the world's lowest cost producers of methanol and hydrogen, as well as a low-cost producer of other chemical and refining industry products, Leucadia said. In addition to limiting emissions of criteria pollutants, the plant would be designed to capture, compress and sell 90% of its carbon dioxide (CO2) production for use in enhanced oil recovery (EOR) in the Gulf Coast.
"The commercial offtake contracts with BP and Air Products, together with the existing long-term CO2 contract with Denbury Onshore LLC, are major commercial milestones required to facilitate financing for the project," said Leucadia Energy Thomas E. Mara. "Having these companies as our customers validates our business model and our vision of bringing a clean fuels facility to Lake Charles.
"These offtake contracts, along with our success at obtaining all required federal, state, and local permits and approvals, mean the ongoing site work will continue and should facilitate project construction next year."
The BP unit agreed to purchase most of the methanol production, while Air Products agreed to purchase all of the facility's hydrogen and argon, as well as provide the air separation units to supply the required oxygen for the project. Denbury, an EOR expert, would purchase all of the captured CO2.
A final investment decision depends on whether third-party financing can be obtained; it also requires board approval by parent Leucadia National Corp., officials said. As part of its financing efforts, LCCE has retained Credit Suisse AG, Citigroup and Jefferies & Co. Inc. for advice related to potential project equity.
The project's construction, which Leucadia Energy would manage, is projected to take three to four years to complete. Turner Industries Group LLC of Baton Rouge, LA, would build the facility and Kellogg, Brown and Root, KBR, would provide design, engineering and procurement services. Located on property leased from the Port of Lake Charles, the project would be adjacent to ship, barge and rail facilities, and port authorities would provide logistical services such as storage and loading and unloading of cargoes.
LCCE would acquire petcoke from Koch Carbon LLC under a long-term feedstock supply and logistics service agreement, expected to amount to about 7,000 metric tons/day from Gulf Coast refiners. Through this process, LCCE would extract the beneficial energy in petcoke while avoiding harmful emissions and producing no waste product, it said. Once the facility is up and running, it would have around 165 full-time employees and contract employees. Operations and management at the plant would cost an estimated $2 billion during its 30-year life.
"The majority of costs will go to pay local workforces and purchase locally procured materials and services," Leucadia Energy stated. "The project would have a tremendous economic multiplier effect in the surrounding area, through housing demand and services needed for the facility and its employees."
To support the project, LCCE was awarded $1.56 billion of Gulf Opportunity Zone and Hurricane Ike tax-exempt bonds by the Louisiana State Bond Commission. In addition to the state bond financing, the LCCE project is one of three large-scale industrial carbon capture projects that were awarded a U.S. Department of Energy grant for about $261 million as part of an effort to capture CO2 from industrial sources for storage or beneficial use. In addition, the project was awarded a $128 million federal investment tax credit under Internal Revenue Service Section 48B.
"Commercial offtake agreements with BP and Air Products demonstrate the strength of the project and the viability of clean energy technologies and investment," said former Louisiana Senator Bennett Johnston, whose Johnston Development Co. is a joint venture partner of LCCE. "Our project is a great demonstration of how government incentives and private enterprise can work together to implement clean energy technologies."
Jeff Byrne, general manager of Air Products' Tonnage Gases, said the hydrogen his company receives from LCCE would "again demonstrate the value of our Gulf Coast Connection Pipeline. We can take this hydrogen and supply the vast number of refinery and petrochemical customers on our Texas to Louisiana pipeline. On the merchant side of our business, the argon will be a valuable source to our existing and new customers in North America."
All of the captured CO2, which is expected to equal about 4.5 million tons annually, would be sold to Denbury Onshore for use in its Gulf Coast EOR operations. Denbury currently produces more than 35,000 b/d of oil from its Gulf Coast CO2 EOR operations and would use the captured CO2 to further increase production. When used in EOR, CO2 is stored in underground oil producing formations.
"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," said Denbury Resources CEO Phil Rykhoek. "The captured CO2 would be transported through the 320-mile Green Pipeline, which was built to move CO2 to Gulf Coast oilfields ideally suited for CO2 EOR from natural sources near Jackson, MS, and projects like this one.
"From an environmental standpoint, EOR using man-made CO2 results in a net reduction in carbon emissions as the amount of CO2 captured and stored exceeds the amount of CO2 contained in the oil produced. Also, CO2 EOR allows us to recover oil that would otherwise be stranded in existing domestic oilfields, reducing our country's dependence on foreign oil imports. As a result, when coupled with our EOR operations, this project is a positive for the environment and for domestic energy supply, a true win-win."
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