Volume 8 | Issue 4 | Year 2005

Basin Electric Power Cooperative (Basin Electric), with headquarters in Bismarck, N.D., is one of the largest electric generation and transmission cooperatives in the United States. As a cooperative, it is not a for-profit entity, with earnings used to improve or maintain operations solely on behalf of its consumer-owner membership. How, then, did Basin Electric get involved in the Dakota Gasification Company, not only a more traditional profit-making enterprise, but one with a troubled financial history that included bankruptcy? And, moreover, turn it into a model of clean alternative energy production? That actually makes money?

“In the late 1970s during the height of the oil crisis, the Carter administration was promoting development of other energy sources,” explains Floyd Robb, vice president of communications. “For a variety of reasons, natural gas looked like a good low-cost option to pursue. A consortium called Great Plains Gasification Associates sought to take advantage of federal Department of Energy (DOE) incentives and loans to establish a new gas-from-coal plant here in Beulah, N.D., the heartland of lignite coal country, with a 34-mile pipeline to connect into the Northern Border Pipeline that is pumped southeast to north-central Iowa.” Today, about 160 million cubic feet of natural gas manufactured at the plant are pumped through this two-foot diameter pipeline for eventual distribution to the eastern United States. However, getting from there to here was hardly a mere matter of irastructure.

The plant broke ground in 1980 in what at the time was the largest construction project of its kind in North America. As Stan Stelter notes in “The New Synfuels Energy Pioneers,” a history of the plant and the energy and economic issues that enveloped it, “A two-page Newsweek ad [claimed] the two-billion-dollar-plant would convert lignite into 125 million cubic feet of natural gas per day, enough to heat a quarter million homes annually.” Stetler goes on to point out that the plan was to double that amount in a second phase as part of its efforts to decrease “our nation’s dangerous dependence on foreign oil.”

However, in 1984 when the plant went on-line, the natural gas market was much different than at the time of groundbreaking, and certainly economic conditions were not as anticipated. While federal regulations to promote natural gas as an alternative to oil had made it attractive to invest in new exploration for supplies and production, the so-called natural gas bubble burst just at about the very time the plant went into service. Says Stelter, this was the result of a number of factors. “Higher inflation produced higher gas prices. Natural gas consumers balked. Large consumers began conserving and switching to other fuels. Suddenly, in the early 1980s, pipelines and distribution companies discovered they had too much gas on their hands. There wasn’t enough of a market for them – markets collapsed, prices dropped and the economics underlying the nation’s first coal gasification plant evaporated.”

And with that, the consortium sought, but failed, to obtain a federal bail-out, and subsequently faulted on its loans and contracts. The DOE took over ownership with the intent of selling it or shutting it down. At this point Basic Electric made its fateful move.

A Venture
At first glance, it might seem odd that a non-profit in an industry not noted for risk-taking would touch this with the proverbial 10-foot length of pipeline. But the cooperative had vested interests in reviving the plant.

“Basin electric had, and still has, an electric power generation plant adjacent to the synfuels factory and we had entered into several joint agreements with the original owners to share water, rail and other facilities,” Robb noted. “The plant was also going to be a big customer for us to supply electricity.”

“Basin calculated that closing the gasification plant could mean an increase of about $37 million in costs annually to the cooperative,” Stetler says.

Still, Robb points out that initially, as the successful bidder in what was the largest real estate transaction in North Dakota, “We took a big financial hit. There was a huge debt to assume, and a product that was priced too high for the market. Besides the cost of acquiring the plant, we invested over $150 million to upgrade the equipment with better environmental controls and achieve efficiencies to lower production costs. Another critical reason for spending the money was to aggressively pursue byproduct development that we saw as a necessary diversification to achieve profitability. So, we took considerable risks, but over the long-term those risks have paid-off.”

This is perhaps a bit of an understatement. Kurt E. Yeager, president and chief executive of the Electric Power Research Institute, in October 2003 in The Wall Street Journal, contends the synfuels plant is a model for the industry. “In the long run, the plant at Beulah may not be a white elephant, but may be more like a life saver. The power plant of the future will be a ‘coal refinery’ that turns coal into hydrogen fuel and electricity with zero emissions.”

“Things were tough at the beginning,” admits COO Al Lukes. “Fortunately, there was a management group in place that had the vision to turn the plant into an asset that is not only profitable in today’s economy of high energy prices, but is at the forefront of environmental issues, both in terms of running a clean plant and making use of limited resources.” Today, as Kyle Worth, a project engineer for the Petroleum Technology Research Centre notes, “The Great Plains Synfuels Plant is a world-class facility for the clean conversion of low-rank fossil fuel into a variety of high quality products.”

A Vision
Dakota’s Great Plains Synfuels Plant produces more than 54 billion standard cubic feet of natural gas annually. Coal consumption to fuel that production is about 18,000 tons daily, or in excess of six million tons each year, obtained from the nearby Freedom Mine, owned and operated by The Coteau Properties Company; of course, that has a huge positive economic impact in the surrounding coal mining community. This is one reason why Dakota Gasification received the Vision 2000 award from the Greater North Dakota Association in recognition of how the company has contributed to this rural area’s successful economy.
The company’s commitment to environmental protection employed new control systems and approaches to reduce both the particle emissions and odor that results from burning coal to extract synthetic natural gas. It invested over $150 million in environmental control systems to achieve a more efficient scrubbing process. That process creates a number of byproducts, which are highly marketable commodities in their own right. For example, Stelter points out that an “estimated 80,000 to 100,000 tons of ammonium sulfate produced annually from the scrubber – represented about 10 percent of the fertilizer use in the United States.”

Here was the epitome of the recycling concept: something you had to remove for health and safety reasons could be converted into something else you could sell. Other such byproducts currently sold by Dakota Gas include:

• Anhydrous ammonia, used as fertilizer for farming and as a feedstock for producing various chemicals; Dakota Gasification Company has the capacity to produce nearly 400,000 tons per year and operates a railcar fleet to transport it of about 238 cars.
• Dephenolized cresylic acid used in the manufacture of pesticides and products such as wire enamel solvent, resins and antioxidants. About 33 million pounds are produced annually.
• Krypton and xenon gases essential for specialty lighting, such as high-intensity lighting and lasers, and for thermopane window insulation. About 3.1 million liters are produced annually.
• Liquid nitrogen is used for food processing and refrigeration, as an oil well additive and in chemical processes; the company produces about 24 million gallons a year.
• Naphtha, a gasoline blend stock to make solvents and benzene is produced in quantities running about seven million gallons a year.
• Phenol, used for the production of resins in plywood manufacturing and in the casting industry; 33 million pounds made annually.

Overall, Dakota Gasification has generated $680 million in revenues from the sale of these products, which is a pretty good return on investment on top of the benefits to cleaner running production.

Bubbling Markets
One byproduct in particular that Dakota Gas is noted for is carbon dioxide. The plant produces in excess of 200 million standard cubic feet per day. “We’re the largest sequesteror of anthropogenic CO2 in North America – meaning we don’t vent it into the atmosphere but recover it,” Lukes notes.

Once again, removal of carbon dioxide emissions is a major environmental goal, most famously that of the Kyoto Protocol. Turning it into a marketable commodity is yet another example of the genius behind the concept of the Great Plains Synfuel Plant.

While the plant produces enough carbon dioxide to keep an endless supply of seltzer bottles working, its primary use comes back to energy conservation. Many oil fields lay fallow simply because the technology didn’t exist to economically recover more difficult-to-tap reserves of the crude.

The most common method used to literally flush-out otherwise hard-to-get-out oil pockets is to flood the oil reservoir with water to increase pressure and boost production. Injection of carbon dioxide, which acts as a solvent to get at oil trapped in tiny rock pores, sweeps up oil still left behind even after the water flooding process.

A case in point is the Weyburn field in Saskatchewan operated by Encana, Ltd. That field had been subject to water flooding for over 40 years and would have been virtually tapped out. However, thanks to carbon dioxide injection, it is still a productive resource and, consequently, a major Dakota Gas customer, accounting for $38 million in annual revenues. Moreover, carbon dioxide that may have been released into the air instead remains trapped in the ground where it has no environmental impact.

“We ship about 60 percent of our carbon dioxide through a dedicated 200 mile pipeline to the Weyburn field,” says Lukes. “We think there is considerable opportunity to sell the gas for oil recovery to other markets in the U.S. as well.”

For the immediate future, Lukes sees the need to continue doing what it has been doing so well and continue to expand markets. Higher oil prices have meant higher natural gas prices, so the value of the oxymoronic synthetically manufactured natural gas is optimum. In 2003, The Great Plains Synfuels Plant sold 49.1 million dekatherms of natural gas.

Lukes notes that the underlying technology in creating its products isn’t necessarily anything cutting-edge. “We’re basically using the same processes of reactor vessels and furnaces and distillation that was used in the 70s. What’s unique is how we’ve applied other proven processes to work more efficiently, and to leverage that efficiency to take the byproducts it creates and create marketable products.”

He emphasizes, “What we’re doing here really is the forefront of clean energy. People tend to be afraid of chemical production plants, but we’re showing not only how it can be done safely, but also in ways that benefits both the environment and the bottom-line.”

An additional benefit to its parent company is that Dakota Gas is the biggest customer of Basic Electric. Stelter says this amounts to as much as $30 million in yearly electric revenues, which allows the cooperative to lower rates to a level members wouldn’t otherwise enjoy had the plant ceased operations.

Talk about your win-win situations. The turnaround of what could have been a folly into a model for energy production that is profitable, environmentally beneficial, a boost to both the local economy and energy consumers and that helps the U.S. reduce its dependence on foreign oil – that’s an energizing American success story if ever there was one.