America's flagship gasification plant

During our nation's 1970s energy crisis, plans for a flagship coal gasification plant were proposed to reduce America's dependence upon foreign energy resources. The plans were daring and innovative; their success depended upon the leadership of people, companies, and governmental agencies.

Today, the Great Plains Synfuels Plant near Beulah, ND, is a testimony to the shared vision and dedication of many individuals who are working toward clean energy for the United States of America.

In May 1972, representatives of Michigan Wisconsin Pipe Line Co., a subsidiary of American Natural Resources (ANR), and North American Coal Corp. signed an option agreement dedicating 1.5 billion tons of North Dakota lignite coal to ANR. That fall ANR chairman Arthur Seder, Jr. met with North Dakota Governor William L. Guy about plans for a flagship coal gasification plant in North Dakota.

Movers and shakers

The following February, Michigan-Wisconsin applied for a state water permit for coal gasification. Shortly after, ANR formed a synthetic fuels group. The lignite agreement had been expanded to give ANR rights to an additional 1.2 billion tons of lignite coal in North Dakota.

Less than one year later Michigan-Wisconsin got its conditional state water permit for 17,000 acre-feet from the Garrison Reservoir for the gasification plant proposed on a site north of Beulah, ND. Michigan-Wisconsin then opened an office in Bismarck, ND, to handle coal gasification field needs. The company began meeting with Basin Electric Power Cooperative on a possible joint project for gasification and electric generation facilities. A feasibility study on the joint project was authorized. In July, ANG Coal Gasification Co., an ANR subsidiary formed to handle the North Dakota project, shipped 12,000 tons of lignite to Sasolburg, South Africa, for testing. The results were favorable.

By September, a preliminary economic impact report indicated the coal gasification plant would produce $75 million in retail sales when in operation, in addition to 3,000 jobs at peak construction and 1,000 permanent plant and mine jobs with a total annual payroll of $12 million. Before the year's end, ANR and Basin Electric announced plans for a possible joint gasification/power plant project at the site north of Beulah. The plans stated that Basin would supply electricity from a proposed electric plant (Antelope Valley Station) to the gasification facility.

Gasification: a shaky start

In March 1975, ANG and Michigan-Wisconsin applied to the federal government to build and operate the ND coal gasification plant. Plant costs were estimated at $780 million. Construction was expected to begin in 1977. In December, the U.S. House of Representatives killed a bill to provide federal loan guarantees for pioneering synfuels projects like the proposed ND coal gasification plant.

March 1976 brought ANG's announcement of plans to scale down the proposed project and build it in two phases, each with a production of 125 million standard cubic feet per day. Seder cited inflation and procurement problems as reasons for the change. Costs for the first phase were estimated at $600 million, instead of $1 billion which was in the original proposal. ANG (formerly Michigan-Wisconsin) then opened another ND office in Beulah.

In September, the U.S. House failed (by one vote) to pass a bill to provide financial guarantees for synthetic natural gas projects. Several months later, ANR began partnership talks with Peoples Energy Corp. of Chicago to share the financing burden of the ND gasification project. Following this, ANR and Basin Electric signed an imaginative co-generation agreement whereby Basin would build a power plant at the gasification site and reserve power for the coal-to-gas plant. The plants would use joint facilities. Basin also required assurance by the fall of 1978 that the gasification plant would be built. ANG then opened a third ND office in Hazen, ND.

During March 1977, ANG and a Peoples Energy subsidiary signed an agreement-in-principle to build the first phase of the gasification plant. Peoples had the option to join in the second phase. Mercer County commissioners approved a use permit for the coal gasification project with 21 conditions attached the following month. In November,

President Carter vetoed the bill to give the Energy Research and Development Agency (ERDA) loan guarantee authority. The veto was attributed to inclusion of funding for a nuclear project. At the same time, the ND Public Service Commission (PSC) issued site permits for ANG's plant and water pipeline corridor and the ND Health Dept. granted a construction permit.

A different approach

In February 1978, President Carter signed a bill giving ERDA authority to guarantee synfuels loans, but officials said the approval process would go beyond ANG's time commitments to Basin Electric. At urging of the Department of Energy (DOE), a new financing plan which involved a consortium approach evolved. ANR and Peoples then met with four natural gas companies about forming a consortium to finance the ND coal gasification project. Two months later, subsidiaries of five major natural gas companies said they were forming a consortium to build the nation's first coal gasification plant in North Dakota. Inflation has raised the price tax on the first phase to $900 million.

The new consortium - Great Plains Gasification Associates (GPGA) - was formally announced in June, including subsidiaries of Columbia Gas Systems Inc., Tenneco Inc. and Transco Inc. Partners filed for a tariff with the Federal Energy Regulatory Commission (FERC). Construction began on Basin Electric's Antelope Valley Station (AVS) at the gasification project site that July. The following month, a prehearing conference was held with FERC staff to resolve issues brought by interveners. Later, agreements between Basin and ANG were renegotiated because ANG was unable to commit to the project and proceed with water supply. Basin was able to proceed on its own as it had all the rights held by ANG.

The natural gas bubble

In June of 1979, a FERC administrative law judge recommended denial of a certificate to sell product gas from the gasification plant. The judge said costs and risk should be borne by all citizens through federal assistance, not by pipeline customers. By November, FERC approved the sale of gas from the proposed ND gasification plant but cut the initial rate of return from 15 percent to 13 percent. ANR said it was concerned but announced construction to begin in the spring of 1980.