Gov Mead bets on value-added coal in tough market

Amid serious financial woes among Wyoming’s largest coal producers, Gov. Matt Mead and Wyoming lawmakers continue to push for an energy industrial complex they hope could include converting coal into higher-value chemical products. Only one coal conversion plant operates at commercial scale in the U.S. (after a $1.5 billion federal loan guarantee), and investment in a coal-to-chemicals market is uncertain.

Just one week after international coal producer Peabody Energy — Wyoming’s largest coal player — announced it is closing its Gillette office and laying off 250 among management company-wide, Wyoming leaders played host to coal producing counterparts from Shanxi Province, China.

Shanxi’s Gov. Li Xiaopeng and several other senior provincial government officials toured the University of Wyoming and Western Research Institute in Laramie before attending several meetings with high-level Wyoming officials in Cheyenne earlier this month. Rather than considering the Peabody layoffs, poor financial performance among Wyoming coal producers and pending regulations to curb CO2 emissions, the Sino-Wyoming group focused on Wyoming coal’s long play in U.S. and international energy: fine-turning coal conversion techniques, and finding investors and markets for coal-derived chemicals.

“The bottom line, really, is coal conversion; how do we invest and find markets in those long-term coal conversion projects that will provide … industrial products?” said David Wendt, president of Jackson Hole Center for Global Affairs, the organization that arranged the meetings.

Wendt, Gov. Mead and several state legislative leaders see coal-to-chemicals as a bridge to a future for today’s beleaguered Wyoming coal industry. However, such an industry — if one ever comes to fruition — won’t provide any short-term relief to coal operators’ financial and regulatory woes today. Two of Wyoming’s top coal producers are trading at less than $1 — a reflection of a struggling U.S. coal mining industry in the face of abundant and cheap natural gas for utilities, and pending CO2 emission limits that have convinced many investors that coal is toxic for their portfolios.

In an unprecedented move last month, the Wyoming Department of Environmental Quality asked Wyoming coal producer Alpha Natural Resources to prove it has the financial wherewithal to continue to “self-bond” for $411 million in mine reclamation obligations in the state. Alpha Natural Resources traded for 33 cents on the New York Stock Exchange on Monday, down from $65.25 in 2011. Another major Wyoming coal producer, Arch Coal Inc., traded at 42 cents compared to $35.99 in 2011.

Those two coal producers face deadlines for debt payments in the hundreds of millions of dollars in coming years as U.S. utilities move further away from coal in their power plans, diversifying toward renewables and energy efficiency.

Coal mining is a major pillar of Wyoming’s economy — a state that produces nearly 40 percent of the nation’s thermal coal supply for electrical generation. Gov. Mead’s administration — and Wyoming’s congressional delegates — continue to fight the U.S. Environmental Protection Agency via litigation and policy. Yet there’s a realization that those efforts are merely in hopes of preserving Wyoming coal’s existing — and shrinking — U.S. market. Utilities have no plans for new coal facilities, and are retiring old coal plants.

Even as China cools on coal, Wyoming leaders — along with their coal industry partners — desperately want to break into the Asian Pacific thermal coal market, where Japan, Taiwan and Indonesia appear eager to add more coal-fired power, and possibly pay much more per ton than the U.S. thermal — or electric utility — market. As this month’s talks among Wyoming and Shanxi officials suggest, the growing Wyoming-Sino alliance seems focused on this market and on creating new markets for coal-derived products outside — or in conjunction with — electrical generation.

“Everybody wants to add value to the coal resource,” Wendt said of the talks between Wyoming and Shanxi officials last week.

In his State of the State address earlier this year, Gov. Matt Mead promised to “double-down” on Wyoming coal, outlining a plan that includes his continued fight against EPA limits on CO2 emissions from coal plants, as well as a push for exports of Wyoming coal into the Asian market and coal-to-chemicals technology.

“For us we’re very bullish on coal, and particularly Powder River Basin coal,” Gov. Mead’s natural resources policy director Jerimiah Rieman said. “That coal continues to play very competitively on the market.”

Adding value to Wyoming minerals

Gov. Mead and a group of Wyoming lawmakers continue their work to build support for a “value added energy industry park” that would be modeled after the Industrial Heartland in Alberta, Canada, where tar sands oil anchors a multi-faceted refining complex. Wyoming’s industrial energy park would have to be located somewhere in the state where abundant water resources could support it, possibly in southwest Wyoming. It could include streamlined processes for processing trona, natural gas, helium and other resources in addition to coal.

Wyoming lawmakers visiting Shanxi Province last year mentioned the availability of Green River water multiple times when discussing the idea with their coal-producing counterparts.

The Wyoming Legislature has appropriated $17 million to study the potential for an “industrial plan, LNG export facilities, natural gas to liquids, electronics manufacturing, energy strategy, core-sample repository,” as well as “domestic and international markets and deepwater coal ports.”

Last year, former Wyoming Speaker of the House Tom Lubnau (R-Gillette) touted an idea for a $10 million prize for anyone who could demonstrate a commercial coal-to-chemicals test that could be integrated into an existing Wyoming coal-fired power plant — either separate from, or included in a future industrial park. The prize would come from the XPRIZE foundation, Lubnau told coal promoters in the U.S. and in China.

So far, XPRIZE has not agreed to such a proposal.

Meantime, Gov. Mead has hosted several “roundtables” to gather input from potential industrial partners for the “value added energy industry park,” including BP, Arch Coal, NERD Gas Co., Exxon Mobil Corp. and Cheyenne Capital Fund (see complete list below).

“It was a good opportunity for us to have their input in the process,” Rieman said.

The roundtables were hosted at the governor’s mansion, and included several Wyoming lawmakers.

“There were a lot of different ideas — some of them competing. And a lot of discussion about workforce requirements, a lot about aviation and airport support,” said Sen. Chris Rothfuss (D-Laramie), who serves on the Minerals, Business and Economic Development Committee.

As for who would finance the coal-to-chemicals portion of adding value to Wyoming’s coal — that’s a question that has yet to be answered. Wendt said Wyoming must look to international investors. “That’s really the long and the short of it. It’s not going to happen with domestic investment exclusively.”

Rieman, agreed, but said Wyoming “could help finance” such an endeavor.

Rothfuss said he believes Wyoming needs to make up for opportunities lost when projects to add value to coal, or advance carbon-scrubbing coal technologies, were shelved in the past.

GE had teamed up with Wyoming to build the proposed High Plains Gasification-Advanced Technology research center in Cheyenne, but GE pulled out in 2011 due to lack of a national energy policy limiting greenhouse gas emissions. Although not championing limits on CO2 from coal plants, GE clearly stated its anxiety that inevitable carbon limits were in limbo, rather than laid out in law.

Also in 2011 the University of Wyoming’s and U.S. Department of Energy’s Rock Springs Uplift carbon sequestration project was put on hold due to the competing demand for CO2 for enhanced oil recovery. The 3 million tons of CO2 needed to prove the project would have cost $750 million, according to one estimate.

“There’s plenty of possibility and hope out there, we just have to make better political decisions,” Rothfuss said. “I think the litigation [against regulations to curb CO2 emissions from coal] is the opposite of what we need at this point in time. Once a lawsuit is filed we just stop, and no gains are made. If we would have committed to cap-and-trade we wouldn’t even be talking about this anymore.”

CORRECTION: This story was corrected on July 1, 2015 to acknowledge the current level of commercial scale coal conversion in the U.S. — Ed