by Kyle Massey
Posted 3/5/2018 12:00 am
Updated 2 weeks ago
Roger Williams’ vision to put a $3.7 billion gas-to-liquid fuel plant in Jefferson County has him arguing in two directions: convincing some people that the largest economic development project in state history can realistically happen, and explaining to others why it’s not happening quicker.
Williams insists that the technology and economics will work, that a vast plant on the Arkansas River can profitably turn 350 million cubic feet of cheap, plentiful natural gas into 33,000 barrels a day of naphtha and liquid diesel so clean that it’s biodegradable and even drinkable. (Williams doesn’t recommend swigging it, though. “There’s no nutritional value.”)
Through two years of feasibility studies, site scouting and land acquisition — not to mention pitching the idea to risk-averse investors — he has also had to manage expectations in a depressed region hungry for the thousands of jobs that construction and production would bring.
Williams, CEO of Energy Security Partners, says his politically connected firm is weeks from a $100 million front-end engineering design contract.
That deal, known as FEED, will engage a major contractor and flash a pivotal green light for investors, Williams said. Groundbreaking on nearly 1,100 acres north of Pine Bluff could come within 30 months. But with a project so large and complex, he warns that nothing is certain,” and construction is as distant today as it seemed two years ago.
Trained as an engineer, lawyer and oil company executive, Williams spent nearly 90 minutes last month telling Arkansas Business where the project stands, and why he’s optimistic but cautious about accelerating its timeline.
In a conference room at ESP’s Little Rock offices, overlooking the same river that barges will navigate hauling the project’s components, Williams uttered the phrase “long-term” a dozen times. His topics included a decade-long revolution in oil and gas, shifts in investment strategy and global ecological imperatives that make turning gas into clean fuel good for America, good for Arkansas and sound for long-haul investors.
He also spoke of elephants, and how long they take to give birth.
“This is an elephant project,” he said. “The gestation time for an elephant is 22 months. There are other gray animals, like squirrels, whose gestation time is two weeks to a month. But ours is an elephant project, and it takes a long time to give birth to this type of endeavor.”
Shortly into the interview, Williams was interrupted by Gen. Wesley K. Clark, the onetime presidential candidate who heads a list of political heavy hitters working with ESP, including former Clinton administration Transportation Secretary Rodney Slater and Andrew Card, a White House chief of staff under George W. Bush.
“Excuse me, Roger, but I’ve got the contact from Wells Fargo on the line talking about the Wells investment,” Clark said, asking Williams into his office. “I know you’re doing an interview, but could you just come in and say hello?”
“Sorry about that,” Williams said 15 minutes later. “Where were we? Yes, we were talking about how everybody is wanting this to happen faster than it can happen.”
The intricacies of the project’s engineering and construction are “just phenomenal,” said Williams, who studied engineering at Vanderbilt and law at the University of Alabama. One example: To install the largest pieces of equipment, the Fischer-Tropsch reactors needed for the chemical process that changes natural gas into liquid diesel and naphtha, builders first must erect the largest crane in the world to lift them off river barges.
“So we’ve been trying to manage everyone’s expectations from the beginning. I can’t tell you how many people call me wanting an update, asking why they haven’t seen something going up. They want some visible sign of progress.”
That eagerness is natural. Economic developers expect the project to bring some 2,750 construction jobs over three years of building, and another 225 permanent plant positions paying an average $40 an hour in one of the most economically depressed regions of the state. Skepticism, too, is natural as big projects hit snags. Williams himself said in April 2016 that construction could start in two years. Now, nearly two years later, a groundbreaking appears unlikely for at least another two years.
“It’s going to be an engineering marvel when people see it happen,” Williams said. “But over the last three and a half years, we’ve been in one of the largest downturns in the history of the oil and gas industry.”
While ESP says its contracts tie the price of the natural gas it consumes to the price of oil, making profits certain regardless of oil price fluctuations, the downturn has stifled investors’ appetite for risk, Williams said.
“Most people inherently think that if oil prices are low, this project is uneconomic. It’s a misconception. When oil dropped from over $100 a barrel to $30, you had Chicken Little running around saying the sky is falling, that Armageddon had come, oil and gas is dead, and electric vehicles are going to take over right away.” Those fears, compounded by a trend of investment-fund consolidation, crippled a mindset of visionary investing, Williams said.
But he said the project has made progress, starting with a pre-feasibility study, then feasibility calculations, pre-front-end engineering, value engineering and the current FEED negotiations. “FEED studies can take 12 to 24 months, and they’re done for every major industrial project around the world. We expect to sign our FEED contract in a matter of weeks, so this is a major milestone.”
Williams said he couldn’t disclose the “major contractor” that will do the study, but said it has “great depth of experience in building things like refineries and liquid natural gas production plants, large petrochemical processing facilities.”
View From Pine Bluff
Caleb McMahon, director of economic development for the Economic Development Alliance of Jefferson County, said in mid-February that ESP had secured about half of the $100 million it needs for the FEED contract, and that ESP executives were in Europe nailing down monetary commitments.
“I’ve been involved with construction since I was young, and I know that nothing happens until it happens,” McMahon said. “I have reasons to be hopeful, but you have to stand back and be realistic about a project this size, involving this much time and money.”
One reason for optimism is a recent rally in oil prices, McMahon said, with West Texas intermediate crude trading well above $60 a barrel. Another is that economic conditions have improved in the United States and worldwide.
“But let’s say ESP raises the whole $100 million tomorrow, the FEED and permitting process is still going to take close to two years. Even being hopeful, this is a big, slow-moving thing. And that is to be expected.”
George Makris, the Simmons Bank CEO who helped acquire land for the project as chairman of the board of the Economic Development Corp. of Jefferson County, said “many improvements” have already been made on the land. The tax-funded development group bought the acreage and has leased it to ESP for a conditional sum of $10 a year for 10 years.
“A project of this magnitude would be a great economic boost for our county,” Makris told Arkansas Business in an email. “We are still hopeful they will complete the project according to their original schedule.”
Once FEED begins, there’s a 21- to 24-month process “to get to what’s called financial closing,” Williams said. “That’s F-I-D, the financial investment decision date, which means all the money for a project is committed, and construction can begin almost immediately.”
ESP is headed there, Williams said. “Our financial decision was made long ago. This is the only thing we’re working on, and we’re committed to the project, committed to building it here in Arkansas. So we don’t see anything that’s going to stop it going forward.”
He concedes that raising the $3.7 billion is a daunting task. Major upstream petrochemical projects that averaged 40 to 45 a year before the oil price collapse had dwindled to only nine projects reaching FID in 2016, largely because of investor wariness. “That’s an example of investment that wasn’t made, and future production that’s not in the pipeline.”
In 2017, the number of major projects was back above 20. “What that means is that investor appetite for us is rising,” Williams said. “I wish I had $3.7 billion in my bank account. I could make this project happen without having to rely on investors, but we don’t have that luxury. We’re looking at major investors like infrastructure funds, major sovereign wealth funds, ultra high-wealth family office investors, private equity funds, hedge funds. It’s a list of usual suspects, with names that people might recognize, but a lot of them you wouldn’t.”
Some investors are reluctant because no large-scale gas-to-liquid plant has ever operated in the United States. But the U.S. Energy Information Administration said in October that global production from GTL facilities averages about 230,000 barrels a day. It’s a significant flow, the agency said, though only 0.02 percent of worldwide fuel production. Nine-tenths of the output comes from two projects in Qatar, one in South Africa and another in Nigeria. Another major plant is coming online soon in Uzbekistan.
Williams says the time is right to turn abundant U.S. gas into fuels now derived from oil. The shale drilling revolution, which has revitalized U.S. oil production this century, tapped such great reserves of natural gas that prices fell from $12 per million BTU to around $3 to $4.
“If gas prices are too high, sure, you can’t make product economically,” Williams said. “But now we have on a fundamental basis low gas prices for the rest of our lifetimes. For 50 to 100 years, gas prices shouldn’t change much.”
The purity of gas-made fuels also makes them ideal for a changing world, he said. “We’re going to take the cleanest resource to start making the cleanest possible transportation fuel.” The end-product diesel and naphtha will have no sulfur, create fewer emissions and save engine wear by burning at lower temperatures, he said. “GTL diesel is nontoxic and biodegradable, unlike any other liquid transportation fuel. That means it will not harm the environment even if it were spilled. You could even drink it; there are no carcinogenic substances.”
GTL fuel would also reduce dependence on foreign oil, a factor that weighed into the Energy Security Partners name.
“We just have to find investors who share our vision, interest and expectation,” Williams said, noting that ESP turned down an $80 million offer because the investor hoped to “flip” his investment in a year or two. “When I called the CEO of this fund and told him our board had decided we couldn’t accept … he was apoplectic. I said I’m sorry. You don’t go into a marriage expecting to get divorced in the first six months.”
Williams said the world will take note if America’s first gas-to-liquid plant rises in Arkansas. “Why are we in Arkansas? We get that question almost as the first one. And we give them all the reasons that Arkansas is a great place for business. The people are remarkable, and the resources abundant. We have so much gas in the Fayetteville Shale that we would never need to get gas outside the state. There’s also the business climate. This state is ready for a modern miracle.”
Ready, and waiting.
GTL at a Glance
Energy Security Partners of Little Rock is proposing a $3.7 billion plant in northern Jefferson County near the National Center for Toxicological Research. The plant’s first phase would produce 33,000 barrels a day of ultra-clean diesel fuel and naphtha.
The fuel plant will use the Fischer-Tropsch process, developed in Germany a century ago, to transform natural gas into liquid fuel. Process technologies were licensed from Haldor Topsoe of Denmark and Axens/IFP of France, with plant engineering and design led by another French company, Technip.
A peak workforce of 2,750 would build the facility over three years. Some 225 full-time employees will work there once it begins production, with pay averaging $40 an hour. Across the state, the construction could bring 5,200 direct and related jobs and $333 million in wages, ESP CEO Roger Williams said last year.
The Economic Development Corp. paid $2.8 million in taxpayer funds for about 1,100 acres from several sellers. The lease calls for ESP to pay $10 a year over a decade, with payments rising to $10,000 a year thereafter. In return, ESP promises to spend $2.8 billion to build the facility and to create at least 225 primary jobs.
ESP hopes to fund the project with “classic project financing,” 60 percent debt and 40 percent equity. Project financing, according to Tomas Jandik, a professor of corporate finance at the University of Arkansas, uses a project itself — all assets, equipment and cash-flow contracts — as collateral on the debt.