New plants wouldn't mean lower heating bills

Jan 21 - McClatchy-Tribune Regional News - Julie Wernau Chicago Tribune

If two coal-to-synthetic gas plants are built in the state, Illinois consumers can expect to pay as much as $191 more a year to heat their homes beginning around 2015 and continuing for roughly two decades.

That's because two recently passed bills would force utilities to purchase all the gas produced by Leucadia National Corp.'s Chicago plant for 30 years and for 10 years from a similar plant proposed by Power Holdings of Illinois LLC for Jefferson County. And the synthetic gas is expected to cost twice as much as natural gas.

Consumer advocates say prices for natural gas aren't expected to surpass prices for synthetic gas until 2035, based on draft projections from the U.S. Energy Information Administration.

"It is a possibility that synthetic natural gas could be a good hedge at some point in the future, but right now it looks like that point is the year 2035," said Barry Matchett, the Environmental Law and Policy Center's co-legislative director.

The Chicago plant's bill calls for Leucadia to create a $150 million fund that would be tapped to make up any difference in costs for consumers. The fund is to be replenished annually with revenue Leucadia would receive from selling various plant byproducts.

But if natural gas prices remain as low as predicted, that fund would be depleted within two years, consumer advocates maintain.

"After having approved a large tax increase, the legislature then went on to far more quietly impose a large rate increase on consumers as well. That's what's going on here," said Howard Learner, executive director of the ELPC.

Hoyt Hudson, with the Leucadia project, argued that the Energy Information Administration's forecast could easily change and, in the past, tended to shoot low. Either way, he said, if natural gas prices increase as predicted by the year 2035, the project would pay consumers back on the order of $130 million, with most of that savings coming in the final years of the contract.

"We put forward what we think is a really good idea that aligns with the interests of consumers," he said.

As recently as last year, the federal government had predicted that natural gas prices would remain high. And that's when proponents of coal gasification said that fixed-priced, synthetic gas could buffer cost increases for natural gas customers.

But recent technology makes it possible to tap vast gas reservoirs (or "shale gas") trapped inside bedrock. That led the U.S. Energy Information Administration, in December, to predict natural gas will remain abundant for years, starting at half the cost of synthetic gas.

"(Shale gas) is a fantastic economic gift to the American people," said Jack Plunkett, chief executive of Plunkett Research, a Houston-based market research firm and author of "The Next Boom." "We're going to see a really abundant supply of shale gas production for the foreseeable future, which is going to drive natural gas down to very reasonable prices."

jwernau@tribune.com