INDIANAPOLIS— Arguing that the shale gas boom can’t keep gas prices down much longer, developers of the proposed Rockport coal-to-gas plant defended the economics of their $2.6 billion project during an Indiana legislative hearing Wednesday.
Two energy industry experts hired by Leucadia National Corp., which is financing the Rockport project, told the House Utility Committee that they expect companies to slow shale gas production until gas prices get close to doubling the current $3.96 rate.
“Shale gas is a miserable commercial failure,” said Arthur Berman, a Houston-based petroleum geologist and consultant.
Shale gas has seen a rapid increase in production in the United States in recent years leading to a decrease in natural gas prices. It is at the core of opponents’ argument that the synthetic natural gas the Rockport plant would produce is too expensive — and therefore, the project should be killed before the plant is built.
Berman and his colleague at Labyrinth Consulting Services, fellow shale gas skeptic Lynn Pittinger, told lawmakers that energy giants that have started drilling already to hold onto their land leases are betting on gas prices to increase in the coming years and will stifle production of shale gas to force that to happen.
Meanwhile, the companies that have pumped the most money into buying equipment and land and producing shale gas at a low cost are burdened with heaping debt and are hemorrhaging money, they said.
“The whole thing is a sham, and maybe even a fraud,” Berman said.
The developers and their experts argued for the project in the face of stiff opposition from lawmakers, business lobbying groups and environmentalists, all of whom said they are more optimistic that natural gas prices will beat the Rockport plant’s rates.
They said the necessity of the Indiana Finance Authority’s contract to buy its product at a pre-negotiated rate and then resell it to Hoosier ratepayers — a move that locked in a guaranteed buyer so that Leucadia had a better chance of qualifying for a federal loan guarantee — is evidence the project could not succeed on its own merits.
“What does it say that nobody is going to finance this project unless the utility ratepayers in Indiana are saddled with losses for the next 30 years?” said Sen. Doug Eckerty, R-Yorktown, the author of the measure the panel was considering.
Opponents of the project — again, chiefly Vectren Corp. — lined up to testify at what was likely their last opportunity to do so publicly during this year’s legislative session.
Those opponents ranged from the consumer advocacy group Citizens Action Coalition and the environmental organization Sierra Club to business interests such as the Indiana Chamber of Commerce, the Indiana Farm Bureau and the Indiana Manufacturers Association.
“Practically every sector of the Indiana economy has a problem with this project,” said Grant Smith, a Sierra Club volunteer.
They dubbed the project Indiana’s “Leucadia tax,” since 17 percent of all ratepayers’ gas bills will be tied to the rates laid out in the state’s contract with the Rockport developers, rather than open-market prices.
“This deal without question is the epitome of the government picking a winner and picking a loser,” said Kerwin Olson, the Citizens Action Coalition’s executive director.
Both sides last week petitioned the Indiana Supreme Court to weigh in on numerous legal issues stemming from the state’s 30-year contract.
On Wednesday, those sides couldn’t even agree on whether the contract is valid at this stage. They disputed the impact of a months-old Indiana Court of Appeals decision that required a technical change to the contract but left its substance intact.
The bill lawmakers are considering — it’s passed the Senate and is set for a House committee vote next week — would defer action until the state’s high court takes the next step.
If the court orders changes to the contract, though, the whole thing would go back to the Indiana Utility Regulatory Commission for another in-depth review, with regulators this time instructed to consider whether the deal is in the “public interest.”
It’s a solution that pleases neither side. Developers say utility regulators have already thoroughly vetted the project and the price issues surrounding it. Opponents say they prefer to amend the actual contract by strengthening its ratepayer protection mechanisms.
House Utility Committee Chairman Eric Koch, R-Bedford, could opt to overhaul the bill when the panel meets again next week. But he did not tip his hand during Wednesday’s hearing on what changes, if any, he could seek to make.
Rep. Suzanne Crouch, R-Evansville, is carrying Senate Bill 510 in the House and said lawmakers should advance it in its current form because the state leans heavily on the Indiana Utility Regulatory Commission, which is tasked with protecting ratepayers and through the measure would be given new instructions on what to consider.
“This project should go forward if it’s right for ratepayers, but it should not go forward if it is not,” Crouch said. “Let the state’s experts make the right decision for Hoosier ratepayers.”