A Vectren Corp. official told a panel of Indiana lawmakers on Tuesday that the state’s 30-year contract to purchase coal-to-substitute natural gas (SNG) from a New York company should be modified so smaller gas customers aren’t stuck with the bill should the deal prove to be a bad investment.
Jerrold Ulrey, vice president of regulatory affairs and fuels for Vectren Energy Delivery, a subsidiary of Evansville, IN-based Vectren, told members of the House Ways and Means Committee that the contract between the Indiana Finance Authority (IFA) and Leucadia National Corp. is uneconomic because of the shale gas revolution and low natural gas prices.
“The coal-to-SNG project, when first proposed five or more years ago, had merit given natural gas prices at that particular point in time were high and extremely volatile,” Ulrey said. “It was commonly, but we now know erroneously, believed that domestic supplies of natural gas were dwindling and that future U.S. natural gas needs would increasingly be met by liquefied natural gas [LNG] imports, which would reflect the higher world-wide prices for natural gas.
“The premise was that gas prices were going up to stay and that, even though expensive, the process of converting coal to SNG would be commercially viable at those higher natural gas prices. But that premise is no longer valid, now that shale gas production has become technically and commercially feasible and widespread.”
Leucadia plans to build a $2.5 billion gasification plant near Rockport, in southwestern Indiana. Under the contract, which was approved by state regulators last November, the IFA would purchase 38 million Dth/year of SNG and resell it on the interstate natural gas market, including to Vectren and other utility companies. The end customers would share 50% of the profits from the deal but would also be on the hook for any losses.
Vectren said it opposes a bill currently before the committee, SB 344, which would exempt large industrial customers from any losses.
“If the state’s largest gas customers are excluded from participating in this process, then the costs to the gas utilities’ residential and small business customers would rise even more to make up for their exclusion,” Ulrey said, adding that his company estimates the most likely outcome for the 30-year contract would be a loss of $1.6 billion.
Rep. Suzanne Crouch (R-Evansville), the committee’s vice chairwoman, told the Evansville Courier & Press that she supported the IFA-Leucadia contract back in 2007 but plans to introduce an amendment to SB 344 requiring industrial users to share in any losses.
“I did support that bill, but a lot has changed with the price of natural gas,” Crouch said. “Certainly, at the very least, we ought to take another look and make sure that it makes good economic sense for not only my constituents, but for ratepayers all over the state.”
Republican Gov. Mitch Daniels supports the proposal, asserting that the coal-to-SNG plant in Rockport would bring hundreds of jobs to an economically depressed part of the state.
“[This project] has also been touted for its job-creating benefits, but at what cost?” Ulrey asked the committee. “Assuming 500 full-time Indiana jobs were created from this project…based on just the first eight years of losses alone, the expected cost is a staggering $1,750,000 per job, all paid for by the gas customers in Indiana, and possibly just the smaller gas customers.”
Mark Lubbers, a former advisor to Daniels who is overseeing the project for Leucadia, could not be reached for comment Tuesday. Leucadia is planning to build a similar $3 billion coal-to-SNG facility in Chicago (see Daily GPI, July 14, 2011).
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