Rentech, Inc. said Dec. 4 that it will build its first commercial synthetic fuels plant utilizing the Rentech Process at the site of its proposed Strategic Fuels and Chemicals Complex in Adams County, Mississippi, near the city of Natchez, rather than at its existing fertilizer plant in East Dubuque, Illinois.
Rentech purchased Rentech Energy Midwest Corp., a nitrogen fertilizer facility in East Dubuque, Ill., in April 2006, with plans to improve the economics of the facility by converting the feedstock from natural gas to coal using gasification technology and then using the excess capacity in those gasifiers to run a commercial-scale Rentech reactor.
Rentech explained that the shift away from East Dubuque to Natchez was driven by several factors, including: the uncertainty surrounding proposed greenhouse gas legislation, which could increase operating costs at REMC post-conversion; strong pricing and demand for fertilizer products at REMC; and recent changes in the relative economics for coal gasification versus natural gas feedstock at REMC as a result of stabilized natural gas prices and rising construction costs.
Rentech said the move to Natchez will enable the company to build and operate a full commercial-scale reactor at a lower overall capital cost than the proposed REMC conversion, to lower emissions of carbon dioxide through carbon capture and sequestration, and to achieve design, cost, and efficiency improvements in the overall Natchez project.
The Natchez facility, which will help meet the nation’s growing need for clean-burning, alternative transportation fuels, will now be built in two phases. The company is targeting to complete Phase 1, the production of 1,600 barrels per day, in 2011 or earlier. The company’s preliminary estimate is that Phase 1 will cost less than half the expense of the previously announced plan to convert the REMC facility. Rentech is targeting to produce an additional 28,000 barrels per day during Phase 2 of the Natchez project.
“We are pleased that we have an alternative site which, under current market and public policy conditions, is ideally suited for the commercial scale up of the Rentech Process,” said D. Hunt Ramsbottom, Rentech president and CEO. “By redirecting our initial production efforts to our Natchez facility, we can preserve the enhanced value of REMC resulting from the dramatically improved market conditions for the products produced there, lower our capital costs and reduce our carbon footprint.”
Using the patented Rentech Process, Natchez Phase 1 will be designed to use coal or petroleum coke together with at least 5 percent (as measured by energy content) of biomass as the gasification feedstock. In addition, the captured carbon dioxide that will be produced at this facility is designated to be sold under an existing long-term agreement with Denbury Resources for enhanced oil recovery in the region. With the carbon capture and sequestration plan as well as a biomass blend, the carbon dioxide emissions from the production of fuels at Natchez Phase 1 are expected to be substantially lower than those generated in the production of petroleum-derived fuels. The company believes the fuels produced at this facility will be among the most greenhouse gas friendly fuels available in the country.
The final production mix at Natchez is still to be determined, with jet fuel, diesel, and chemicals all being considered.
Rentech will continue to pursue its permitting efforts at REMC. Receipt of the permits is one of the factors that will enable the company to move forward with the REMC conversion in the event that market and public policy factors change, such as construction of the Midwestern Governors Association’s proposed carbon dioxide pipeline. Ramsbottom told analysts that another positive for Natchez over East Dubuque was that at Natchez, Rentech has a ready buyer – Denbury – for the carbon dioxide.
Rentech also plans to continue pursuing grants from the federal government and state of Illinois for a proposed biomass energy technology center at REMC. The proposed center would focus on the development and production of advanced bio-fuels and/or bio-fertilizer, and is expected to include the installation of biomass gasification technologies at the REMC site.
“We are looking forward to continuing to work with the State of Illinois, including the Department of Commerce and Economic Opportunity, Jo Daviess County, and the Food for the Future Coalition to maintain and improve REMC, which is a significant asset for East Dubuque and the surrounding agricultural community,” said John Diesch, REMC president.
As a result of the shift to the Natchez site, Rentech expects to incur a non-cash charge of approximately $30 million, which is net of payments received from third parties of approximately $10 million, in the fourth quarter of fiscal year 2007 related to costs of the REMC conversion through fiscal year 2007. Rentech also expects to incur additional costs related to the REMC conversion of approximately $8 million in the first quarter of fiscal year.
In the meantime, Ramsbottom told analysts there is nothing new to report on the company’s response to an offer by Sherwood Investments Overseas Ltd. to buy Rentech (GM Nov. 26, p. 1). Ramsbottom said he regarded Sherwood’s letter to the company as more of an offer to make an offer than an actual offer.
During the audio conference, Sherwood’s Julian Benscher asked Ramsbottom if the company would consider monetizing REMC in order to finance Phase 1 of Natchez. Ramsbottom said the company has no immediate plans to do so, and that it is enjoying the cash flow from REMC.