Pine Bluff officials unveil possible $3.7 billion gas-to-liquids superproject

Little Rock-based Energy Security Partners LLC and Pine Bluff officials announced Tuesday (Feb. 16) that Jefferson County is being considered as the top location to build and operate a potential $3.7 billion industrial gas-to-liquids (GTL) processing facility – a project that could be an economic boon to the Delta city and surrounding area and the largest economic development project in state history.

The GTL project, first reported by Talk Business & Politics in June, is being developed by former Clinton Administration officials – Gen. Wesley Clark and Rodney Slater – and a team of top energy industry leaders with expertise in a proprietary GTL process that will convert natural gas into clean-burning diesel fuel.

Co-founded by Clark and former ExxonMobil executive and chemical engineer Roger Williams, the multi-billion dollar “super project” would be the first large-scale GTL processing plant of its kind in the U.S. It would be located on 1,000 acres near the Pine Bluff Arsenal.

“This demonstration of support by Jefferson County is a bold step that shows Arkansas can compete for big projects. This sends a strong signal to our investors, the industry, our contractors and strategic partners that we’ve identified an excellent place to locate with great people leading the effort,” said Williams, CEO of Energy Security Partners.

The project, considered by some to be the “holy grail” of the alternative energy sector, is a planned processing and refining facility that would turn cheap natural gas into premium quality petroleum products such as diesel, gasoline and jet fuel using a proprietary technology first developed by the Nazi war machine in World War II.

ESP, first incorporation in 2012, has identified a number of locations suitable to build and operate a natural gas-to-liquids (GTL) facility, company officials said. Jefferson County is at the top of the list as the prime location site, mainly because of its strategic geographical value.

“We believe Jefferson County is the best possible location for major industrial projects. It offers access to the Arkansas River, proximity to high voltage lines, interstate gas and product pipelines, access to a major railroad, a terrain with few streams or wetlands issues, and proximity to a major interstate,” said Bryan Barnhouse, director of Economic Development for the Jefferson County Alliance.

PROJECT WOULD BE FIRST FULL-SCALE GTL PROCESSING FACILITY IN THE U.S.
According to ESP officials, the GTL facility will produce approximately 33,000 barrels per day (bbl/d) of diesel and naphtha and has an anticipated capital cost between $2 and $3 billion. If completed, the project would be the first “full-scale” GTL refinery in the U.S., meaning that it would be capable of at least 20,000 bbl/d of production.

The project calls for the creation of 225 new, permanent plant operator positions with an average wage of $40 per hour, ESP officials said. The construction period is anticipated to create or support more than 5,000 jobs within the state and would add $333 million in annual labor income statewide, according to an economic impact analysis performed by EMSI, a recognized leader in labor market data and regional economic analysis.

Jefferson County economic development officials said the GTL project qualifies for incentives available through Jefferson County’s 3/8-cent sales tax, which voters approved in 2011 for economic development and is administered by the Economic Development Corporation of Jefferson County (EDCJC).

The Alliance has been coordinating support for this project since ESP began discussions in 2013. The company completed its application for local incentives last summer. In January, the Jefferson County Industrial Foundation, a member organization of the Alliance, voted to recommend action by the EDCJC.

PINE BLUFF COMPETING ‘TO WIN,’ OFFICIALS SAY
The alliance met on Tuesday and approved resolutions expressing its intent to offer a formal incentives package of $3.9 million and to use those incentive funds to purchase land, conduct site preparation, and support the installation of infrastructure. Upon completion of an incentives agreement, ESP will be required to meet specific construction milestones, job creation thresholds, and capital investment expectations in order to earn credits toward payback of the incentive amount. The intent is for ESP to use these credits to lease the property from the EDCJC and cover improvements costs.

“This package and this project are exactly in line with the purpose of the County’s voter-approved sales tax. The (alliance) recognizes the soundness of an incentive that develops industrial property to attract investment and supports a project of this magnitude,” said Jefferson County Alliance Chairman George Makris, who is also chairman and president of Simmons First National Bank.

Makris added: “The economic impact of this project on Jefferson County will be transformational — we’re competing to win.”

Lou Ann Nisbett, President and CEO of the Jefferson County Alliance, said the Pine Bluff area welcomes the GTL project “with open arms.”

“Our economic development team has worked with Energy Security Partners over the past three years. Our hope is that this offer will instill the confidence that Jefferson County, Arkansas, is open for business and we are prepared to compete for big projects,” Nisbett said.

INCENTIVES UNDER DISCUSSION
ESP officials also said they are in ongoing discussions with the Arkansas Economic Development Commission and the Governor’s office concerning a possible incentive package offer from the state.

“I commend the alliance and official from Jefferson County along with ESP’s leadership for taking these important steps. Once fully developed, this project could have a significant economic impact for Southeast Arkansas,” said Mike Preston, executive director of the Arkansas Economic Development Commission.

Roger Williams, in a 15-minute presentation before the overflow crowd at the offices of the Jefferson County Alliance, said ESP has already spent $12 million in the development stage of the project.

Williams also said that the project would likely take at least five years before production begins. He stressed that ESP is almost “98% sure” that the GTL processing plant will be located in Arkansas, but still has to work out final details on engineering design, land easement and other financial due diligence.

LOW CRUDE OIL PRICES COULD PRESENT CHALLENGES FOR GTL PLANT, EXPERTS SAY
Despite the vote of confidence from Jefferson County officials, the transformative super project still has several hurdles before it becomes a reality. For one, the Pine Bluff area is among several other potential site locations that ESP executives are looking at for the plant.

In addition, such a project would be difficult to reconcile with crude oil prices plunging below $30 a barrel and equity financing for such a project difficult to put together, according to Mark Agee, former CEO of Syntroleum Corp. and current partner in the Emerging Fuels Technology consulting firm in Broken Arrow, Okla.

Agee said the economics for such a project are driven by the ratio between the value of natural gas versus the value of oil and the finished product. There has been much discussion of GTL projects in the U.S. and across the globe over the past few years, he said, but the huge capital costs and fluctuating price of crude oil have prevented such projects from moving forward.

“In the case of what Energy Security Partners is proposing to do, when oil was around $100 and natural gas was in the range of two dollars, you can make that work in theory,” Agee told Talk Business & Politics in June. “Whether or not they can get past the project finance hump has yet to be demonstrated as far as we know.”

Still, the former Syntroleum executive who left the now defunct Tulsa-based company in 2002 said he is impressed by the team of well-connected executives, power brokers and industry experts that ESP has been able to assemble. Besides Williams and Clark, former U.S. Transportation Chief Rodney Slater is listed as a company director. The ESP leadership roster includes some of the top GTL experts in the energy industry and several executives that have worked for energy giants such as Exxon, Arco, BP and Sasol.

Agee also said with former Clinton administration officials on the ESP team, the Little Rock-based energy firm may be able to get government aid to help subsidize a GTL project, similar to how the renewable energy industry has previously received tax credits and subsidy assistance for approved projects.

“Because they have a lot of government connections, they may be able to find a way around the (capital costs),” Agee said. “Clearly, they have a well-connected group of people, if they wanted any kind of government support – they know which number to dial.”

Edward Osterwald, senior partner at London-based CEG Europe, said any GTL project is in effect an attempt to take advantage of potential arbitrage between (hopefully) low gas prices and higher fuel products.

“Obviously that gap has shrunk on a global basis since 2014. Thus if a full-scale GTL plant were to be built today, it would in effect be placing a bet that the impact of shale gas in the US will ensure that natural gas prices will remain low, while oil prices are sure to rise for geopolitical reasons beyond the control of the US,” said the London-based energy consultant.

In recent work for a Canadian client, Osterwald said CEG has examined the impact of low oil prices on the installed capital costs of large process plants and concluded that such costs may decline between 5% and 10% whenever there is a major drop in oil prices, similar to what is happening now.

The well-known European energy consultant said the proposed Arkansas project, based on the limited information available, would focus on production of ultra-low sulphur diesel and naphtha. He said cost per barrel of capacity might range from $30,000 to $60,000 per/barrel, which is much lower than other large-scale GTL projects having more complex slates of products, such as lubricants.

EIA: ONLY SIX FULL-SCALE GTL PROJECTS IN OPERATION GLOBALLY
According to the U.S. Energy Information Administration (EIA), there are currently only six full-scale GTL plants operating globally, and they all are operated solely or jointly by global oil giants Shell and Chevron, and South Africa’s energy and chemical conglomerate Sasol.

Shell operates the Pearl GTL plant in Qatar, which is the largest gas-to-liquids processing plant in the world. The UK oil giant also operates two other GTL plants in Malaysia. Sasol operates one in South Africa, and the fifth is a joint venture between Sasol and Chevron in Qatar.

Another plant in Nigeria, developed by Chevron, Sasol and the Nigerian National Petroleum, just came online last summer after nearly 16 years of delays. That 39,000 bbl/d project near Lagos began development in 1998 at a cost of $1.9 billion but ended up with a final price tag exceeding $10 billion.

In the U.S., there are three proposed GTL projects: in Lake Charles, Louisiana; Karns City, Pennsylvania; and Ashtabula, Ohio. The Lake Charles facility, also developed by GTL producer Sasol, is the only commercial-scale project on the drawing board, which would make it the first of its kind in the U.S.

However, Sasol announced in late January 2015 that the $14 billion, 96,000 bbl/d project was put on the backburner “to conserve cash in response to lower international oil prices.”

Besides Clark, Williams, Carpenter and Slater, the ESP leadership roster includes several high-level energy industry executives and other managers who are recognized experts in the GTL sector.

ESP’s leadership team also includes several experts in Fischer-Tropsch technology, which is hailed in the energy industry because of the near impossible process of turning cheap and stranded natural gas into a usable liquid such as gasoline, jet fuel or diesel.

It was first used by Germany during World War II to turn coal into synthetic fuels. In Africa, Sasol used the same technology to produce fuels to maintain that country’s economy and military during the Apartheid era. During his helm at Syntroleum in the 1990s, Agee and his brother, Ken, developed more than 180 patents to produce GTL fuels using the Fischer-Tropsch technology.