Lake Charles Clean Energy (LCCE), has announced it has secured major long-term commercial offtake contracts with BP Products North America, Air Products, and Denbury Onshore, a subsidiary of Denbury Resources.
The deal is for the Lake Charles Clean Energy project located at the Port of Lake Charles, Louisiana. LCCE is a subsidiary of Leucadia Energy. Securing long-term commercial offtake contracts is a major milestone, as it enhances Leucadia Energy’s ability to seek and obtain necessary third-party financing for the project prior to commencing construction. This project, employing commercially proven gasification technologies to cleanly manufacture industrial products from petroleum coke, would be the first of its kind in the US LCCE is expected to be one of the world’s lowest-cost producers of methanol and hydrogen and a low-cost producer of other products used in the chemical and refining industries.
In addition to extraordinary limitations on emissions of Criteria Pollutants, the plant is designed to capture, compress and sell 90% of its carbon dioxide (“CO2”) production for use in Enhanced Oil Recovery (“EOR”) in the US Gulf Coast.
BP Products North America Inc. will purchase the majority of the methanol production and Air Products will purchase all of LCCE’s hydrogen and argon and also provide the air separation units to supply the required oxygen for the project. Denbury Onshore will purchase all of the captured CO2.
Thomas E. Mara, President of Leucadia Energy (an indirect wholly owned subsidiary of Leucadia National Corporation), said, “The commercial offtake contracts with BP and Air Products, together with the existing long-term CO2 contract with Denbury Onshore, are major commercial milestones required to facilitate financing for the project. Having these companies as our customers validates our business model and our vision of bringing a clean fuels facility to Lake Charles. These offtake contracts, along with our success at obtaining all required federal, state, and local permits and approvals, mean the ongoing site work will continue and should facilitate project construction next year. Our current success is a direct result of the ongoing strong support of the Port of Lake Charles, Calcasieu Parish, the Cities of Sulphur and Lake Charles as well as the many local businesses working with LCCE to turn this project into a reality.”
LCCE was awarded $1.56bn of Gulf Opportunity Zone (“GO Zone”) and Hurricane Ike tax-exempt bonds by the Louisiana State Bond Commission. The issuance of these bonds demonstrates the state of Louisiana’s strong financial support for the project. The low-cost GO Zone financing provided by the state was a large incentive to develop the project in Lake Charles.
In addition to the state bond financing, the LCCE project is one of three large-scale industrial carbon capture projects that were awarded a Department of Energy (“DOE”) grant as part of an effort to capture carbon dioxide from industrial sources for storage or beneficial use. The DOE grant is for approximately $261m.
As part of the clean fuels aspect of the project, all of the captured CO2, which is expected to equal approximately 4.5m tonnes annually, will be sold to Denbury Onshore, for use in its Gulf Coast EOR operations. Denbury currently produces over 35,000 barrels of oil per day from its Gulf Coast CO2 EOR operations and will use the captured CO2 to further increase this production. When used in EOR, CO2 is stored in underground oil producing formations.
Phil Rykhoek, President and CEO of Denbury Resources Inc., commented, “Denbury Onshore and its affiliated companies are pleased to see Lake Charles Clean Energy reach another key milestone in the development of this first-of-its-kind domestic project. The CO2 from the plant would supplement our other Gulf Coast CO2 sources and be used to drive additional growth in our Gulf Coast EOR operations. The captured CO2 would be transported through the 320-mile Green Pipeline, which was built to move CO2 to Gulf Coast oil fields ideally suited for CO2 EOR from natural sources near Jackson, Mississippi and projects like this one. From an environmental standpoint, EOR using man-made CO2 results in a net reduction in carbon emissions as the amount of CO2captured and stored exceeds the amount of CO2 contained in the oil produced. Also, CO2 EOR allows us to recover oil that would otherwise be stranded in existing domestic oil fields, reducing our country’s dependence on foreign oil imports. As a result, when coupled with our EOR operations, this project is a positive for the environment and for domestic energy supply, a true win-win.”