$3.7B Gas to Liquid Plant Strides Forward

From left, Brook Brookshire, CEO of S&B Engineers & Constructors; H.S. Hong, CEO of Hyundai Engineering; Roger Williams, CEO of Energy Security Partners; and Leon Codron, president of GTL Americas, celebrate on Wednesday. (Steve Lewis)

When Energy Security Partners announced plans to build a $3 billion-plus plant for turning natural gas into liquid fuels near Pine Bluff nearly eight years ago, the idea seemed remote at best.

Skeptics feared the plan for a massive project using a technology they’d never heard of might tantalize but eventually disappoint a county with one of the highest unemployment rates in the state.

They also wondered who would finance the undertaking.

But on Wednesday, GTL Americas announced contractors to engineer and eventually build the plant, whose revised projected capital investment of $3.7 billion would make it the largest single industrial endeavor in state history. The company also detailed its project finance approach to paying for it, using equity stakes for 30% of the cost and debt for the remainder, secured by the assets and cash flows of the plant itself.

“It’s a massive project,” said Allison Thompson, CEO of the Economic Development Alliance for Jefferson County. About 2,500 workers will build it, “and then once it’s up and running it will offer about 225 jobs [paying at least $40 per hour], so that’s lovely,” Thompson said. “Not to mention the tax dollars that come in from that size of a plant.”

GTL Americas, a subsidiary of Energy Security Partners of Little Rock, chose Hyundai ENG America Inc. and S&B Engineering & Constructors Ltd., both of Houston, as the joint venture engineering, procurement, construction and commissioning contractors for the project. GTLA called their selection “a major milestone in … delivering a world-scale, state-of-the art GTL project to Jefferson County.”

The Economic Development Corp. of Jefferson County paid $2.8 million for 1,100 acres 15 miles north of Pine Bluff in 2016 and leased it for $10 a year for the project. The site has since grown to 1,800 acres.

“Jefferson County has made continued strides in recruiting new industries, creating good-paying jobs and improving our residents’ quality of life,” said Scott McGeorge, chair of the economic development corporation, adding that “GTLA will supercharge our efforts.”

GTLA will service its debt load with predictable cash flows and use immovable assets as collateral. The approach can work well for huge utility and petrochemical projects, according to Professor Tomas Jandik, holder of the Dillard’s Chair in Corporate Finance at the University of Arkansas.

Construction could start as early as 2025, with commercial operations following in 2029, if all goes well.

ESP has secured more land for further phases of the project, and Thompson said other companies will want to be close by. “We’re talking about jobs, good employment, and wonderful things for the county,” she said. “And this isn’t just going to affect our county, let’s face it.” She cited the nearby National Center for Toxicological Research, which pulls in workers from 17 different counties. “This is going to be good for our county, but it’s a positive for all of Arkansas,” she said.

GTLA Chairman Roger Williams assured Arkansas Business in 2016 that the project was perfectly sited and not particularly risky.

“We have an established technology, we’re working with the most reputable contractors, and we have reputable buyers for our product,” he said. “This is not a risky project.”

The plant will use a chemical process called Fischer-Tropsch conversion to turn out 1.7 million gallons of “ultra-clean transportation fuels per day and 150 megawatts of carbon-free steam-generated electricity,” the company said. Heat given off by the process of converting the stock natural gas will drive the steam turbines.

The project has experienced contractors in S&B and Hyundai ENG, a subsidiary of Hyundai Engineering of Seoul, South Korea.

Hyundai Engineering recently completed a multibillion-dollar GTL plant in Qatar, and S&B has built dozens of petrochemical plants in its nearly 55 years in business. It is one of Houston’s largest privately held companies. (See sidebar.)

Facility Data

Source: GTL Americas

“Our vision is to create a center for excellence for GTL and, in turn, a sustainable economic driver for the state,” GTLA President Leon Codron said. “This facility will make Arkansas our nation’s leading producer of ultra-clean, high-grade diesel, naphtha and, ultimately, jet fuel.” On Wednesday, he said GTLA will be paying “tens of millions of dollars” for the front-end engineering and design phase, which will last 18 to 24 months.

Construction, including the placement of two 3,000-metric-ton Fischer-Tropsch reactors, is expected to take three years, and begin after a final investment decision informed by the design and cost assessments.

GTLA hopes to be a catalyst for growth in an area that it called “one of the most impoverished” in the state. The project’s economic impact could reach $200 million a year, the company said.

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“This project will provide a positive economic impact in Jefferson County through construction and beyond,” S&B CEO Brook Brookshire said. “We look forward to getting to know the community as we work alongside Hyundai to deliver this important project.”

Developers also love the site, between three interstate natural gas pipelines and near rail, highway and, crucially, Arkansas River transport. “Being able to transport the large equipment we need via river barge is critical,” Williams said.

The contracts with Hyundai and S&B, first reported by Arkansas Business  a week ago, were announced at a gathering Wednesday evening at the Little Rock Marriott.

“We are leveraging the combined experiences of Hyundai and S&B to develop the facility’s engineering design, project execution plan, work schedule and cost estimate,” GTLA said. Hyundai and S&B will “finalize designs and project-specific requirements to begin construction.”

The plant’s fuel will be cleaner and better for the environment, officials said.

Unlike products refined from crude oil, fuels made through the GTL process contain smaller amounts of air pollutants like sulfur, benzene and toluene, and fewer heavy metals.

Burning GTL fuel emits carbon dioxide at half the rate of burning coal and 70% the rate of burning oil.

GTLA has arranged to get its feedstock natural gas from Energy Transfer of Dallas, receiving it from Oklahoma, Texas and potentially northwest Arkansas by pipeline.

Project Financing

Equity partners will supplement GTLA’s project debt financing.

The Arkansas Teacher Retirement System invested $20 million in a $70 million Series A financing round five years ago and set aside another $10 million to chip in later. In May, the Retirement System’s trustees approved investing $700,000 more in GTLA Holdings LP. The system’s third-party consultant, Arkansas Capital Corp., said in a letter to trustees that “GTLA is now looking to raise a $125 million A2 round” to pay for  the engineering and design phase and see the project through to a final investment decision. Another big equity investor is the Hanwha Group of Seoul.

GTLA expects equity to finance only about 30% of the project. The rest will be in debt.

Jandik, the UA finance professor, said the public generally doesn’t know that financing with debt is “cheaper, in the sense you are paying less in profits back to the investors,” than if you’re financing company assets with equity.

“Project financing carves out assets, and project builders borrow simply against the assets,” Jandik said. “Cash flows from the project are dedicated to repay interest and then retire the debt. Projects of this kind of financing typically have very easily observable cash flows, and the assets cannot be hidden or moved somewhere else.

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“Typically these are power stations, oil or gas facility projects, or even toll roads,” Jandik said. “You can’t move or hide a toll road,” he said, just as you cannot move or hide 3,000-ton Fischer-Tropsch reactors.

Banks, hedge funds and private investors are typical in project finance, Jandik said.

GTLA presentation materials list a “Pathfinder Group” of lenders prepared to underwrite a “super-majority” of the project debt, “subject to final due diligence.” Those lenders include ING Bank of Amsterdam; Intesa Sanpaolo of Italy; KFW of Frankfurt, Germany; and Mitsubishi UFJ Financial Group of Tokyo.

Jandik said he couldn’t speak for the Arkansas Teacher Retirement System, but he hypothesized on why it might favor the GTLA investment.

“Since retirement funds must distribute quite a lot of cash to retirees on a regular basis, retirement funds like to invest in high dividend-paying investments,” Jandik said.

“They can immediately turn around and push the dividends on to the retirees.”