Pine Bluff’s $3.5 billion gas-to-liquids project finds financial backing after three years of waiting

More than three years after a motley crew of former Clinton administration officials, top energy executives and Pine Bluff job recruiters announced one of the largest economic development projects in state history, Little Rock-based Energy Security Partners LLC said Wednesday (Aug. 22) it has finally secured financial backing for its much talked about gas-to-liquids (GTL) processing facility.

The GTL project, first reported by Talk Business & Politics in June 2015, was officially fronted by U.S. Army Gen. Wesley Clark and former U.S. Transportation Secretary Rodney Slater – and a team of top energy industry leaders with expertise in a proprietary World War II era energy process to convert natural gas into clean-burning diesel fuel.

Former ExxonMobil executive and chemical engineer Roger Williams, who has served as the spokesman and chief executive of the multistate energy development since ESP was founded in 2012, said funding for the project will come from a consortium of backers that include “a major petrochemical and refining company” as lead investor, the ESP executive team, and the Arkansas Teacher Retirement System (ATRS).

According to scant financial details concerning the project, project investors have also negotiated a right of first refusal to purchase equity securities for funding the construction, completion and operation of the Jefferson County facility. The project’s lead investor may partially transfer its right of first refusal to Morgan Stanley Infrastructure Inc. to provide a substantial portion of the equity needed for development of the project.

Initial financing for the development stage of the multibillion dollar project will go toward Front-End Engineering & Design (FEED) planning, company officials said. That process is expected to take at least 24 months as ESP completes detailed engineering, site preparation, natural gas purchase and supply and product sales.

“Obtaining FEED financing is a significant milestone in our drive to secure full funding for the construction of the Phase 1 GTL facility in Jefferson County,” said Roger Williams, CEO of the Little Rock-based energy firm.

Added Arkansas Economic Development Director Mike Preston: “Congratulations to ESP for taking this important step in securing the necessary funding to move the GTLA Project to the next phase. Roger and his team have traveled the world to secure this funding. This achievement shows that their hard work and commitment is paying off as this project continues to push forward.”

ESP, first incorporated in 2012, originally identified several locations suitable to build and operate a GTL facility before settling on a 1,000-acre location near the Pine Bluff Arsenal. Company officials first announced the south Arkansas county as the prime location site in February 2016, mainly because of the region’s strategic geographical value and access to a bountiful natural gas supply with the Fayetteville and Haynesville shale plays only hours away.

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. If the GTL facility goes into production over the next five years, it would produce approximately 33,000 barrels per day (bbl/d) of diesel and naphtha that can used as a jet fuel, a high-quality wax, or gasoline blend.

Company officials said the project, which is now being called GTL America, will create up to 2,400 jobs during construction and 225 full-time jobs when the plant goes into production. Based on an economic development study shared with AEDC officials, the company estimates the average annual salary of new jobs will be over $75,000. Two years ago, local economic development officials said the GTL project qualified for incentives available through county’s 3/8-cent sales tax, which voters approved in 2011 for economic development. Those funds are administered by the Economic Development Corporation of Jefferson County (EDCJC).

“We are very pleased that ESP has reached this stage of their project after years of hard work,” said Lou Ann Nisbett, president and CEO of the Jefferson County Alliance. “If the message is still not out, Jefferson County – and the entire state of Arkansas – is open for business, and we can compete for big projects like GTL America.”

To date, AEDC has not offered any “super project” incentives for the multi-stage energy development, saying in the past that the alternative energy development did not have enough financial backing nor meet the state’s job count threshold. Under Amendment 82 passed by the Arkansas legislature in 2004 and amended twice since, the state can issue bonds to pay for large economic development or infrastructure projects that exceed $500 million in investment and create at least 500 jobs.

ATRS-DELTA CONNECTION
This long-awaited project will also be the second alternative energy project ATRS has decided to back financially in the economically-depressed Pine Bluff area. In July 2016, the state’s largest public pension fund, which has an asset value of more than $17 billion, approved a 31% equity stake in the Boston-based Highland Pellet Inc. for $25 million.

That initial investment in Highland allowed the privately-held East Coast pellet company to begin construction on a $230 million, 600,000 metric ton pellet manufacturing facility in Pine Bluff, which when fully operational will convert unused south Arkansas forest waste into tiny wood pellets that will be shipped to Europe and burned in power plants to generate a renewable form of electricity.

Since purchasing its initial equity stake in Highland, ATRS’s board of directors also committed up to $26 million in debt equity in September 2017 to help the Pine Bluff pellet producer improve its cash flow and access to capital funds. That deal also allowed Highland investors to make scheduled payments on a contract with Chattanooga, Tenn.-based Astec Industries to deliver and construct the company’s modular, multi-line manufacturing plant in Jefferson County.

And just a month ago, ATRS backed a $150 million Highland loan that originated with a Wall Street investment group that offers financing for large infrastructure projects mainly in the power and energy sectors. Originally set to be operationally in late 2017, construction on Highland’s Pine Bluff plant has seen several delays due to ongoing loan negotiations between New York-based Global Infrastructure Partners, Astec, ATRS and other investors in the project.

In its second quarter earnings report, Astec took a $1.03 per share charge related to the company’s unresolved issues to meet contract provisions to complete Highland’s integrated pellet plant in Pine Bluff. In late July, Astec agreed to pay Highland $68 million over the course a period of 120 days and forgive approximately $7 million in receivables. In exchange, Highland agreed to release Astec from all contractual obligations related to the construction of the manufacturing facility, which still has not been commissioned to begin operations.

ESP nor ATRS provided details on Wednesday of how much the state’s largest public pension fund will invest in the GTL America project. The teacher retirement system also invested up to $125 million to help underwrite some of the senior debt for the complex financing arrangements to fund the $1.3 billion Big River steel superproject that broke ground four years ago.

Just last month, Big River officials announced a $1.2 billion expansion at its scrap recycling and steel production facility in Osceola that will create at least 500 new jobs paying a minimum of $75,000 per year.

FINANCIAL ARRANGEMENTS UNCLEAR
Concerning the GTL American project, ESR’s executive team will still have to complete the process of raising additional capital for the project’s developmental stage by selling equity stakes in the privately-held deal. All told, from the two-year development stage to the expected 39-month construction and completion of the GTL refinery, the plant start-up is not anticipated to occur until late 2023, company officials said.

In a response to a query from Talk Business & Politics, ESP officials have not offered further details on the initial financial backing or costs of the development stage of the project. They also provided no information on whether former Clinton and Bush administration officials – Clark, Slater, and former White House Budget Director Andy Card – still have a financial stake in the mammoth private venture.

According to industry experts, there are still substantial risk that the south Arkansas GTL project must overcome, notably sustained financing over the duration of the entire project, crude oil prices above the industry’s breakeven level, and continued access to cheap natural gas supplies.

“New capital investments in GTL need to demonstrate their profitability on a forward-looking basis,” said MIT researcher David Ramberg in a 2017 study exploring the long-term viability and profitable of the gas-to-liquids refining process. “Our research shows that with any carbon constraints, GTL technology is not viable. Even without a carbon cap, the prospects for GTL are not bright because it needs a certain price ratio of oil to natural gas: relatively high oil prices and relatively low natural gas prices. We tested the potential futures and concluded that large-scale deployment of GTL is not economical.”

Today, there are only five full-scale GTL plants operating globally, with capacities ranging from 2,700 barrels per day (bbl/d) to 140,000 bbl/d. British oil giant Shell operates two in Malaysia and one in Qatar, Sasol operates one in South Africa, and the fifth is a joint venture between Sasol and U.S. oil giant Chevron in Qatar, U.S. Energy Information Administration data shows.

If completed, the multi-billion dollar project would be the first large-scale GTL processing plant of its kind in the U.S, meaning it would be capable of at least 20,000 bbl/d of production, according to industry analysts.