This week, power regulators in Mississippi advocated no further rate hikes by a regulated utility generator, Mississippi Power Co. (MPC), a subsidiary of Southern Company (NYSE: SO), in relation to the billions in cost overruns incurred in building the first-of-its-kind clean coal power plant showcase known as the Kemper County Energy Facility. What’s more, they advocated against operating the plant as a clean coal plant and instead recertifying the facility to run only on lower-cost, readily available and secure natural gas.
The essentially complete and partially operating 582 MW facility was conceived and approved by the state’s public utility commission in 2009 for a 2014 startup. The plan was to gasify locally produced lignite coal into lower-carbon syngas to fuel gas turbines to produce clean power, all the while separating and recovering nearly two-thirds of the CO2 emissions from the coal before combustion such that the emissions from this plant were as clean as those from a natural gas plant. A price cap of $2.88 billion was set and approved by regulators and $382 million in federal DOE grants were committed to MPC for use at the project.
The project may have made sense if that investment cost was accurate and if the expected operating costs of coal would remain low relative to the high gas fuel costs that predominated in 2009 when the U.S. was expected to become an LNG importer. But neither has held true.
Today, after the shale gale revolutionized gas supply, Gulf Coast coal and gas benchmark prices on an equivalent energy content basis are much lower now and are separated by far tighter differentials.
Furthermore, the estimate for completing the plant has escalated by billions in the seven years since approved by Mississippi regulators. On June 22, the Mississippi Service Commission issued a press release regarding its intent to have the plant now forego the costly coal gasification operations and instead be permitted only to run and charge for power produced from natural gas. A release also that day by MPC referred to a process of negotiations with the state to come.
The MPC release noted that the firm provides power to 187,000 customers. At around $7.2 billion of incurred capital cost and another $382 million in DOE grants through today, the prorata Mississippi customer share of the Kemper clean coal project can be seen as nearly $40,400 each. Using the U.S. Energy Information Administration’s latest capital construction cost factors, we note that had the whole science project been avoided in the first place, a 582 MW gas fired combined cycle turbine plant would have likely cost just $580 million (about $3,000 per customer).
Though it is unlikely to operate often or fully in clean coal mode, the Kemper project shows that it takes a lot of green to be green and that when investing in first-of-a-kind technology, it may be best to be second rather than first. Next meeting between the parties will be July 6, according to MPC.
With rates and operations soon to be determined, it will be interesting to see how Denbury Resources Inc. (NYSE: DNR) reacts to the various potential outcomes. Denbury has contracted to receive via pipeline a flow of 160 million cubic feet of CO2 per day (70% of design) from the coal syngas and carbon capture facilities at the Kemper plant for use in its CO2 flooding enhanced oil recovery operations. That will have to be rethought if the Kemper plant operates only in natural gas mode per the state regulator’s latest release.
As we highlighted in the June 9 edition of the Gas Comparables Weekly report available to subscribers of the North American Natural Gas Service, abundant shale gas has proven to dampen the future potential for another type of clean coal technology. Rather than re-engineering the fuel side of a coal power plant, the recently completed $1 billion Texas-based Petro Nova project re-engineered the post-combustion back side of a coal power plant.
Siphoning off and treating a portion of the overall combustion emission stream, the Petro Nova carbon capture project is not going to be repeated, according to comments to the Senate Energy & Natural Resources hearing that week by NRG Energy executive, David Greeson. Media reports that week highlighted comments by Greeson that relayed how the project was first sanctioned in 2009 and completed in 2016. Today, according to reported comments by Greeson, policies, relative coal and gas prices, and shareholder interests no longer support investing in another CCS, even in Texas where multiple coal plants could supply CO2 to multiple CO2 flood projects in the oil patch.
Research from this year’s Colorado School of Mines’ Reservoir Characterization Program includes a field project in the Eagle Ford Shale conducted in Gonzales County, Texas.
The Midland Basin, located within the eastern region of the Permian Basin, has seen a steady amount of new E&P activity since 2011.
EOG Permian Wolfcamp wells, Chesapeake Powder River Basin completions plus a new prospect offshore Ireland top this week’s drilling activity highlights from around the world.