September 17, 2010-by Ronald Bailey in Reason Magazine. Even my iPhone was forbidden on the grounds that no photos should be taken. Michelle, the very nice tour guide, explained that curious members of the public and reporters couldn’t tour the plant itself or take any photos on orders from Homeland Security, even of the model.”
“…The other solution was to turn coal into methane. In 1980, Congress created the Synfuels Corporation, endowing it with $20 billion with the goal of eventually building as many as 22 enormous coal gasification plants, each one producing 300 million cubic feet of natural gas per day. Since coal gasification was an unproven technology in the U.S., natural gas pipeline companies were reluctant invest in it. The federal government rushed to the rescue. The Department of Energy helped create a public/private partnership with five natural gas pipeline companies that agreed to put up 25 percent of the cost of building a demonstration plant while the government supplied the remaining 75 percent in the form of loan guarantees. Out of this bold alliance between business and government was born the hugely ambitious Great Plains Coal Gasification plant.
The plant was built at a cost of $2.1 billion and shipped its first thousand feet of natural gas in July 1984. Due to escalating costs, the plant was scaled back to half size so that it was designed to produce 150 million cubic feet of gas per day. In the meantime, the hapless Jimmy Carter unknowingly had already undercut the rationale for constructing a massive coal gasification industry by a simple change in policy—he deregulated the price of natural gas. It turned out that the country wasn’t running out of natural gas; it was running out of natural gas with a government imposed price cap. That old truism—only governments create shortages—was once again proven correct.
Gas supplies soared and the price crashed, meaning that there was no need for the Great Plains Synfuels plant nor for the liquefied natural gas facilities along the coasts. In the face of faltering prices, the five gas pipeline “partner” companies demanded that government give them a price guarantee on the gas, or they would default on $1.5 billion in government backed loans. To its credit, the DOE refused to meet this demand and the companies promptly defaulted, abandoning the project.
The bankrupt plant was sold at public auction by the sheriff of Mercer County, North Dakota, on the local courthouse steps. The auction took five minutes and the only bidder was the DOE which bid $1 billion. No money changed hands since DOE already held $1.5 billion in defaulted loans. The DOE began operating it and looking for someone else to take it off their hands.
As it happens, the electric power generation company Basin Electric had built the next door Antelope Valley station in good part to supply the coal gasification facility with electricity. Closing the coal gasification plant would have had a significant negative effect on the company’s bottom line. In 1988, a desperate DOE agreed to sell the plant to Basin for the fire-sale price of $85 million and a split of future profits, if any. In other words, Basin Electric acquired an operating facility for 4 cents on the dollar. “Not having capital investment is the key,” said Keith Janssen, the head of the Basin Electric subsidiary in a 1990 Washington Post article. Well, yes. But even with taxpayers picking up the tab for building the plant, running it profitably was still a challenge. (MORE)
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