CAN ENERGY AND SAGE GROUSE COEXIST?
CRUDE BY RAIL SKYROCKETS
Q&A WITH TRACY STONE-MANNING
FALL 2013
CLIMATE:
Who Wins, Who Loses In the White House’s Agenda?
TABLE OF CONTENTS FALL 2013 VOLUME 1 NUMBER 3
COVER STORY
DEPARTMENTS
Obama Marches Ahead on Climate: What Does It Mean For Montana? PAGE 20
POLICY & REGULATION Sage Grouse & Energy Development ......... 12 Understanding the Social Cost of Carbon . 14
TECHNOLOGY Carbon Capture Inches Forward ................ 25 ARE POLICY GOALS AND TECHNOLOGY READINESS ALIGNED?
TRENDS Energy By Rail .............................................. 28 IN MONTANA, COAL DOMINATES, BUT MORE OIL MOVING TO MARKET VIA RAIL
IN EVERY ISSUE From the Editor............................................... 4 Energy in Brief ................................................ 6 Power Profile .................................................. 8 TRACY STONE-MANNING, DIRECTOR, MONTANA DEQ
Economic Insights........................................ 16 JEREMY VANATTA, BIG SKY ECONOMIC DEVELOPMENT
From the Field............................................... 31 SHELBY DEMARS, COUNT ON COAL MONTANA
Calendar/Directory ....................................... 34 Photo by Larry Mayer
FALL 2013 I MTENERGYREVIEW.COM I 3
FROM THE EDITOR Recently, I was frantically digging through boxes of old files in search of an important document when I ran across an envelope my grandmother gave me months ago. My grandma is one of those people that saves everything….everything…. and is now in the process of gifting those “treasures” to her grandchildren. In the stack of unidentifiable drawings and illegible cards was a copy of The Billings Gazette from the day I was born. In the paper is a story about the debate over installing two new coal-fired generation units at the Colstrip power plant, units that would be known as Colstrip 3 and 4. The first two units, Colstrip 1 and 2, had been operational for just a few years at the time and the two new units would more than double generating capacity at the plant. The story focused on the incredible economic development in Colstrip caused by the new power plants – folks opening up stores, new construction, opportunity in an area that badly needed it. At the same time, residents expressed worry that the plants wouldn’t move forward and that the community development they were counting on would disappear. Glancing over the debate captured in the article, now some (ahem) 35 years old, I was struck by how little has changed over the decades. When the debates over Colstrip units 3 and 4 were underway, the Clean Air Act and the National Environmental Policy Act were just eight years old, as was the Environmental Protection Agency. Even in that young age of ecological awareness, the tension between jobs and the environment was at the forefront, and people on the frontlines of
development worried that decision-makers fail to understand the real-world impacts of lost jobs and economic growth. Decades later, there appears to be little progress towards rational, balanced energy production that moves forward efficiently. On the contrary, the battle of growth vs. conservation is getting more intractable, shifting from local debates over the right path forward to national cries of war – War on Coal, War on the West. What the 1978 Gazette story so beautifully highlighted, and what seems to get quickly lost today, was the on-the-ground reality of local folks who care deeply about clean air and open spaces, but need the chance to feed their families. No bureaucrat in Washington will ever care as much about Montana’s environment as those of us who live here, but the trend seems to be that more of the power over our lives is headed east. From climate change to species conservation to pollution regulations, the specter of federal regulation hangs heavily over Montana’s economy and few of us feel like the powers-that-be are listening to those of us who bear the consequences. This edition of the Montana Energy Review explores some of those trends, looking at the ever-expanding role of the federal government in regulating how we use our land and resources. Too often, we find ourselves busy living our lives and only become aware of the consequences of federal decisions when it is too late. This edition attempts to look ahead at what Montana’s energy industry may face over the next 1-3 years, so that we can be active participants in processes that could dramatically alter our way of life.
Jennifer Owen jowen@mtenergyreview.com
4 I FALL 2013 I MONTANA ENERGY REVIEW
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Update on Nonattainment Finding
The new silica regulations would require affected industries to engage in dust control activities, monitor silica dust exposure, provide medical exams to exposed workers, and train workers about silica-related hazards.
On July 25, the Environmental Protection Agency (EPA) published a finding that portions of Yellowstone County are not in compliance with newly implemented sulfur regulations for air quality. State and local officials had been urging EPA to reconsider its position, based on the fact that the incident that triggered the emissions violation was EPArequired testing of additives at the ExxonMobil plant in Billings. Additionally, the Montana Department of Environmental Quality announced in June a deal with PPL Montana to reduce sulfur emissions from the Corette plant in Billings, further improving area air quality. The impact on the region of EPA’s determination is unclear. The state must submit new plans to EPA, known as State Implementation Plans, addressing emissions reductions for the area.
6 I FALL 2013 I MONTANA ENERGY REVIEW
Facilities covered under the designation may face operational restrictions, and new permits for industrial development may be restricted. For more on the history of air quality in Billings, see the summer edition of the Montana Energy Review, available at mtenergyreview.com.
Silica Regulations Include Fracking
On Friday, August 23, the Occupational Safety and Health Administration (OSHA) announced a proposed rule designed to curb silica dust in construction and industrial activities. Driven by concerns over lung cancer and silicosis, a potentially fatal respiratory disease caused by breathing silicia, the new regulation would require affected industries to engage in dust control activities, monitor silica dust exposure, provide medical exams to exposed workers, and train workers about silica-related hazards. OSHA estimates compliance will cost industry about $640 million and will result
in benefits of between $2.8 billion and $4.7 billion, including eliminating nearly 700 deaths per year and 1,600 cases of silicosis per year. In the proposed rule, OSHA notes a potentially significant impact in the hydraulic fracturing industry. Workers are generally exposed to silica when they engage in the breaking or cutting of concrete, or when they are using sand in construction or industrial activities. Because the liquid used in fracking contains sand, workers in the oil field may be exposed to silica. Compliance costs for the hydraulic fracturing industry are estimated between $26.4 million and $28.6 million per year, while benefits are estimated at $75 million to $140 million, include eliminating approximately 12 deaths per year. Public comment on the proposed rule will be accepted until Dec. 11, 2013.
Decker Mine Future In Doubt
Cloud Peak Energy, Inc. and Ambre Energy,
Ltd. announced in August that negotiations over the purchase of the Decker mine facility in Montana have been indefinitely postponed. While the two companies will continue discussions, the deal is not expected to move forward in the foreseeable future. Currently, Ambre, an Australia-based mining company, owns half of the Decker Mine and Cloud Peak owns the remaining 50 percent. The two companies had been negotiating to allow Ambre to purchase Cloud Peak’s interest and own the mine outright. Cloud Peak sued Ambre in July 2012 over differing opinions of the Decker Mine’s future. The two companies originally entered into an agreement in December 2012 in which Ambre would pay $57 million for Cloud Peak’s interest, but the deal quickly stalled over doubts about Ambre’s finances. The original deal was set to close on March 31, 2013, but the companies agreed to extend negotiations. Today’s announcement suggests the companies reached an impasse, placing the future of the Decker mine in jeopardy.
More than
BLM Fracking Regulations
Public comments closed on August 23, 2013 on a Bureau of Land Management proposal to establish federal rules for hydraulic fracturing on public lands. Currently, states take the lead in regulating the activity, but the BLM proposal would establish a more aggressive federal role. More than 1.3 million comments were filed on the rulemaking, ranging from calls to withdraw the proposal entirely to a push from environmentalists to ban fracking on all federal lands.
Keystone Delays Stretch to 2014
State Department’s Inspector General has announced that he will not likely complete investigations into alleged conflicts of interest in the preparation of the environmental review for the Keystone XL pipeline until January 2014. Environmentalists have alleged that the contractor who prepared the environmental impact statement for the pipeline expansion previously worked for TransCanada, the sponsor of Keystone XL and thus has a conflict in evaluating the impact of the pipeline. The groups, which include the NRDC and others, are pushing the White House to redo all the environmental work related to the pipeline, and to hold off on making
a final permit decision until after the Inspector General has completed his work.
‘Black Lung’ Rule Advances
Proposed regulations to reduce worker exposure to coal mine dust are in the final stages of approval at the White House, suggesting that finalization of the three-year old proposal is imminent. Originally proposed by the Mine Safety and Health Administration (MSHA) in October 2010, the regulations intend to cut breathable coal mine dust in half and would establish new air sampling requirements. MSHA extended the public comment period multiple times in 2011 and held various public meetings. The proposed rule applies to both underground mines and surface mines. Black lung, a generic term for lung diseases caused by inhaling coal dust, has been on the rise in the Appalachian coal region in recent years, as miners work longer hours and attempt to access smaller seams of coal. According to the National Institute for Occupational Safety and Health, more than 10,000 miners have died in the last decade from black lung disease and incidents of the disease have doubled nationwide. Coal miners receive federal assistance for medical treatment related to black lung problems. More than $44 billion has been paid out since 1970.
10,000 miners have died in the last decade from black lung disease and incidents of the disease have doubled nationwide, primarily in the Appalachian coal region.
FALL 2013 I MTENERGYREVIEW.COM I 7
Q&A WITH:
TRACY STONE-MANNING
DIRECTOR, MONTANA DEPARTMENT OF ENVIRONMENTAL QUALITY
1. Explain for our readers the role of the Montana Department of Environmental Quality (DEQ) in terms of regulating energy development in Montana. While we do not regulate oil and gas development – that is overseen by Board of Oil and Gas – we work with energy development in several areas. We are responsible for analyzing and approving applications for coal mines and existing mine expansions. We also issue certificates under the Major Facility Siting Act for construction of large electric transmission lines, pipelines, and geothermal facilities. Perhaps less known is our role in the support of alternative energy development. DEQ provides low interest loans to Montana homeowners, small businesses, non-profits and government entities to install alternative energy systems such as solar, biomass, wind and hydropower. We also assist in commercial development of biomass. We provide technical assistance for and match innovative energy technologies to local energy needs. The department’s Energy Program also administers incentive programs for renewable energy development. Our State Building Energy Program saves taxpayers millions of dollars per year in energy costs. 2. You were just confirmed as Director of the DEQ earlier this year. What are your top priorities as Director? One of Governor Bullock’s top priorities is to provide better, more efficient government. It’s one of my priorities, too. We are doing so on a broad spectrum, from modest changes such as accepting faxed gravel permit applications, to bigger efforts such as breaking down internal silos at DEQ to ensure better service to Montanans. DEQ’s remediation division puts hundreds of Montanans to work cleaning up hazardous waste sites, from places like Silver Bow Creek to a leaking underground storage sites at your corner gas store. I want to ramp up this work of creating good-paying jobs that leave Montana an even better place than we found it. The proposed coal mine at Otter Creek offers up another goal for me: I want this project to be as fair and transparent as possible, for the company and the public. 8 I FALL 2013 I MONTANA ENERGY REVIEW
Courtesy photo
The proposed coal mine at Otter Creek offers up another goal for me: I want this project to be as fair and transparent as possible, for the company and the public. All sides may never agree on the proposal, but I want to ensure that everyone respects the process and believes it is fair. All sides may never agree on the proposal, but I want to ensure that everyone respects the process and believes it is fair. 3. One of the largest energy projects pending in the state right now is the possible development of Otter Creek coal tracts. What updates can you provide on the permitting process, include any timeframes for decisionmaking? Laws around coal development have created a back and forth permitting process: Arch Coal submits an application and staff at DEQ responds to ensure that the necessary information is included in that document. From
that point, the EIS process begins in earnest. The company has indicated it expects to deliver DEQ needed information for the application by mid2014. DEQ is also developing water quality protection plans, known as Total Maximum Daily Loads, (TMDLs) for Otter Creek. We held a public/Watershed Advisory Group meeting in Ashland that had good attendance. We have been in the field this summer, monitoring water quality and plan to have a Draft TMDL proposal on the street later this year. Finally, we are working with Otter Creek LLC on an air quality analysis, because the facility will likely be considered a minor source of emissions.
We expect the company to submit an air permit application later this year. The public is invited to participate in or follow the process on our website: www.deq.mt.gov/ ottercreek/default.mcpx 4. How is DEQ balancing the enormous growth in energy development – oil, gas, and coal – in Montana with the constitutional guarantee to a clean environment? Does DEQ support more energy development in the state? Heating and lighting our homes and taking care of the environment are not mutually exclusive. Governor Bullock has made it very clear that his administration supports responsible and sustainable energy development and DEQ works closely with him on this effort. That means ensuring the state gets top dollar when leasing our resources, that private property rights are always respected, that we protect the clean air and water that makes Montana what it is and that we ensure we invest in infrastructure to support development.
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The important balancing act of protecting the environment while developing our resources is something we do every day. To do it well, we rely on a combination of things: the expertise of our scientists and the quality of data they review, the input we receive from the public and the regulated community, and the framework of laws and regulations we operate within. 5. When evaluating Montana’s regulatory framework for energy against federal rules, how does the state compare? Is Montana in a better position to tackle challenging issues, such as hydraulic fracturing or sage grouse conservation, or do you believe a larger federal role is needed? At DEQ, we are responsible for administering many federal laws: the Clean Air Act and the Clean Water Act, for example. We could choose to turn this responsibility over to the federal government, but we don’t, because we know we can uphold these laws in a thoughtful, practical way. We also believe that Montanans are quicker to solve problems – by working together – than
the federal government. That’s why Governor Bullock has created a sage grouse council, for example. It is his goal to keep management of the bird under state leadership, despite the litigation brought against the federal government seeking to end state control.
but no state should be punished simply for its geology. I look forward to being in close contact with the coal industry as it is an important part of our economy, providing good paying jobs and helping lead our country to energy independence.
6. What do you expect to be the impact of President Obama’s climate initiative in Montana? In particular, how do you expect the coal industry in Montana to respond to regulations on new and existing power plants? I believe the EPA’s regulations, if they go forward, for new and existing power plants must give the states broad flexibility for how the regulations are implemented – or the effort will fail. I think the president’s program should recognize and give credit for existing state programs that have made meaningful carbon reductions, such as the Montana’s renewable portfolio standard. Critically, the program should not punish coal states – this is a national program being implemented at the state level,
7. What role will climate change policy play at DEQ? Is the Bullock Administration planning any major climate initiatives during the next four years? Our country needs an American energy policy for the 21st Century – and that must be a policy that works for a state like Montana. Until the EPA announces its plans, it is difficult to discuss what specific role DEQ will have to play. Meanwhile, DEQ has an existing energy bureau that, as discussed above, has saved taxpayers millions of dollars by reducing energy usage in state buildings. It has also helped many small businesses and homeowners install alternative energy sources such as biomass boilers and solar panels that save money and reduce carbon.
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ENDANGERED SPECIES: CAN THE SAGE GROUSE AND THE ENERGY BOOM CO-EXIST? BY JENNIFER OWEN
A t-a-Glance
• The Greater Sage Grouse, a chicken-sized bird that is still hunted as game in many parts of the West, is under consideration by the federal Fish and Wildlife Service (FWS) for possible listing under the Endangered Species Act (ESA). • Montana is somewhat behind on developing a comprehensive plan for sage grouse in the state, despite having one of the largest sage grouse populations and habitats in the region.
To the extent that Montana has titans of industry, few would dispute that agriculture and energy are among the kings of the economy. Each year, these two industries together pump well over $15 billion into Montana, providing jobs to tens of thousands of hard-working people across the state. Despite the combined value to the state and sizable employment rolls, a small bird that populates scrubby rangeland throughout the Western U.S. may bring those industries to their knees – indeed, the mere mention of its name can make you an unwelcome guest in cafes and bars throughout Montana. The Greater Sage Grouse, a chicken-sized bird that is still hunted as game in many parts of the West, including Montana, is under consideration by the federal Fish and Wildlife Service (FWS) for possible listing under the Endangered Species Act (ESA). Potentially impacting 11 Western states, the designation could seal off large portions of the state from agricultural uses or energy development, including the development of renewable energy projects. 12 I FALL 2013 I MONTANA ENERGY REVIEW
“There is a lot of activity over sage grouse – probably the most intense that I have seen with any species that I have had to deal with in the past,” said Jeff Hagener, director of Montana Fish, Wildlife & Parks. Sage grouse concerns erupted in 2010, when the FWS designated the sage grouse as warranted for listing under the ESA, but precluded from actually being listed by other higher priority species. The “warranted but precluded” category, which included dozens of other species, was challenged in court as impermissible under the ESA. In 2011, a federal judge in Idaho directed the FWS to conduct a thorough analysis of all species listed as warranted but precluded and make a
final determination to list or drop each species by October 1, 2015. In response, Montana and other states began to work on state- and privatedriven conservation plans, designed to show FWS that local landowners can preserve habitat better than the federal government. “They [FWS] are asking us to put forward conservation strategies that would minimize impact to sage grouse habitat,” said Hagener. According to Hagener, Montana is somewhat behind on developing a comprehensive plan for sage grouse in the state, despite having one of the largest sage grouse populations and habitats in the region. Earlier this year, Governor Steve Bullock appointed an advisory council of stakeholders to work on developing a conservation plan for the state.
According to Hagener, that plan will be available in late October, and public hearings will be held in November in Billings, Baker, Malta, Glasgow, Lewistown and Dillon. The goal is to have a final plan, signed by the Governor, ready to submit to FWS by January 2014. How FWS will respond to each state plan is unclear. “What we expect is a response to what we have put forward as strategies in Montana. I don’t expect that they will tell us if this will head off listing, because they have to look at all states together,” said Hagener, noting that FWS is also waiting to review the Resource Management Plans currently under development by the Bureau of Land Management to see how sage grouse will be protected on federal lands in Montana. In addition to local efforts, Hagener is working with other states in the area to develop regional coordination, ensuring that cross-border habitat protection is part of each state’s individual plans. According to Hagener, FWS conducts its analysis for listing decisions rangewide – meaning that one state that failing to implement an aggressive conservation plan could trigger a listing that covers the region, if that state has significant habitat. Cross-border coordination, he says, is critical. “This is one of those things that becomes a little dicey. Every state gets a little turf-ish, if you want to call it that, about how we do things,” said Hagener. Driven by concerns over the possible impacts of an ESA listing on Montana’s economy, the U.S. House Natural Resources Committee held a field hearing at the request of Congressman Steve Daines in Billings on Sept. 4, 2013. Representatives from North Dakota, Colorado, and Wyoming, along with Committee Chairman Doc Hastings (R-Wash.), were in attendance. Daines called the sage grouse debate “an abuse of the Endangered Species Act” and called for more rigorous review of the data underlying the listing decision. “We need a good dose of sound science and a smaller dose of political science,” said Daines. During the hearing, witnesses expressed deep frustration with the analyses that have been conducted to date on sage grouse threats and habitat impacts.
Members of the U.S. House Natural Resources Committee hold a hearing on the inclusion of sage grouse in the Endangered Species Act at Cisel Hall at MSU-Billings on Sept. 4, 2013. The hearing was held at the request of MT Congressman Steve Daines, right. Photo by Larry Mayer.
“Hunting has proved to be a very minor impact. But when you look at it from a perception standpoint – we’re not going to let you put an oil rig here, but you can hunt them – that is a pretty big issue,” — JEFF HAGENER, DIRECTOR OF MONTANA FISH, WILDLIFE & PARKS.
“Weather and predation are significant factors that have largely been ignored by the agencies,” said Dave Galt, executive director of the Montana Petroleum Association. Hagener dismissed the idea that predators are a primary threat to sage grouse, citing land conversion for agriculture as well as oil, gas, coal, and wind production as much larger issues for sage grouse preservation. He also noted that, while not a significant threat to bird populations, Montana’s sage grouse hunting season is problematic. “Hunting has proved to be a very minor impact. But when you look at it from a
perception standpoint – we’re not going to let you put an oil rig here, but you can hunt them – that is a pretty big issue,” said Hagener. Witnesses also urged Congress to seek balance in carrying out the purpose of the ESA. “We must make sure that any actions to save a species also takes into consideration the human impact,” said Channis Whiteman, a member of the Crow Tribe and an employee of Cloud Peak Energy’s Spring Creek Coal mine outside of Decker, Mont. “The Endangered Species Act should not force us to choose wildlife over humans and the economic opportunity necessary to my family and my Tribe.” FALL 2013 I MTENERGYREVIEW.COM I 13
UNDERSTANDING THE SOCIAL COST OF CARBON BY JENNIFER OWEN
In May, the federal Office of Information and Regulatory Affairs quietly released a memo on its website, blandly titled “Technical Update of the Social Cost of Carbon for Regulatory Impact Analysis Under Executive Order 12866.” Within days of the release of that memo, Congress exploded, demanding explanations and calling for hearings, while energy companies launched aggressive lobbying efforts to derail the update.
WHY ALL THE FUSS?
• All new proposals for federal rulemakings must include a costbenefit analysis as a part of the overall assessment of the impact of a new regulation. • The increase in the SCC was adopted directly by an interagency working group, without public notice or comment. • The technical memo published by the White House earlier this year raised the SCC by roughly 60 percent.
The Obama Administration is implementing a change to federal rulemakings, establishing a higher “social cost of carbon” metric, meaning that new regulations that reduce carbon emissions have a better cost-benefit profile. The push to reduces carbon emissions could have negative effects on Montana’s convention energy industry, including Colstrip power plants 1, 2, 3, 4, & Westmoreland coal mines near Colstrip, Montana. Photo by Larry Mayer.
14 I FALL 2013 I MONTANA ENERGY REVIEW
In 2010, the Obama Administration implemented an addition to the federal rulemaking process. By Executive Order, all agencies were directed to include a number known as the “social cost of carbon” (SCC). The SCC is designed to estimate the impact of carbon dioxide emissions on human health and the environment. Specifically, according to the May 2013 technical memo, the metric “is intended to include (but is not limited to) changes in net agricultural productivity, human health, property damages from increased flood risk, and the value of ecosystem services due to climate change.” While this may sound like a lot of bureaucratic babble, the real-world impact of the SCC metric is a more favorable analysis of any federal regulation of carbon emissions, everything from direct attempts to reduce carbon emissions at power plants to indirect rulemakings that target appliance energy efficiency and vehicle fuel economy. All new proposals for federal rulemakings must include a costbenefit analysis as a part of the overall assessment of the impact of a new regulation. When those rules take into account the social impact of carbon emissions as a “cost,” then any subsequent reduction of those emissions would result in a “benefit” that could tip the scales in favor of more regulation. The higher the social cost of carbon, the greater the benefit from reducing those emissions. “That’s an effort to quantify a set of indirect costs in such a way that policies, rules, and regulations can be evaluated explicitly according to costs and benefits,” said Scott Rickard, an economist at Montana State UniversityBillings. “They are guessing, using the best science. Science can only inform policy.” The technical memo published by the White House earlier this year raised the SCC by roughly 60 percent, stating that
the cost of carbon emissions in 2020 has increased from $26/metric ton of carbon dioxide to $43/metric ton. That SCC analysis will now be included in all future federal rulemakings that would have an impact on carbon emissions. The increase in the SCC was adopted directly by an interagency working group, without public notice or comment. Administration officials suggested that public comment on the SCC metric would be received in the context of specific federal regulatory proposals. For example, the Department of Energy (DOE) released on June 17, 2013 a new final rule for microwave oven energy efficiency standards, incorporating the revised SCC. That rule estimates the consumer energy savings – due to more efficient microwaves – between $1.5 billion and $3.4 billion. The SCC-related benefits, using the 2013 updated metric, are estimated between $288 million and $3.6 billion. Costs are estimated at around $1.4 billion. After Congress and industry groups expressed procedural concerns, the Department of Energy agreed to accept public comment directly on the SCC, in the context of a formal petition from the Landmark Legal Foundation to withdraw the microwave rule. The 30-day comment period closed on September 16, 2013. The Government Accountability Office also announced in August that it will undertake a review of how the Administration developed the SCC. In July, the Energy Subcommittee of the U.S. House Oversight Committee held a hearing to explore the Administration’s motivations for modifying the SCC metric. During the hearing, Howard Shelanski, Administrator of the White House Office of Information and Regulatory Affairs, characterized the move as largely technical, updating the metric to reflect changes in carbon models developed over the last three years,
but defended the SCC as an essential component of federal rulemaking. “If there is going to be harm to our environment and to our economy from carbon emissions, many costs will go up – the cost of food, the cost of health care, investment that is needed to protect against sea level rise. There are all manner of energy costs – the need for increased energy usage for cooling, all manner of costs may go up for society. That is why it is extremely important to have some kind of measure of what the social cost, by which I mean the costs to society, are of a ton of CO2 emissions,” said Shelanski during the July 18 hearing. Industry groups and Congress appear to disagree. The U.S. House quickly passed an amendment banning the use of the SCC in federal rulemakings, while the Senate is considering an amendment that would direct the Administration to undertake a formal rulemaking, with public comment, on the changes to the SCC. A coalition of trade associations that includes the U.S. Chamber of Commerce, National Association of Home Builders, National Association of Manufacturers, and energy groups have formally petitioned the White House Office of Management and Budget (OMB) to withdraw the estimate, stating that not only was the process damaged due to lack of transparency, but that the analysis underlying the update is also flawed. “OMB has failed to comply with the transparency policies that it drafted for developing influential policy-relevant information under the Information Quality Act and imposes on other agencies and executive offices. The SCC Estimates are the product of an opaque process, are fraught with uncertainties, and any pretensions to their supposed accuracy (and therefore usefulness in policy-making) are unsupportable,” the petitioners argued in the Sept. 4, 2013 filing.
“That’s an effort to quantify a set of indirect costs in such a way that policies, rules, and regulations can be evaluated explicitly according to costs and benefits. They are guessing, using the best science. Science can only inform policy.” — SCOTT RICKARD, ECONOMIST AT MONTANA STATE UNIVERSITY-BILLINGS
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ECONOMIC INSIGHTS
BILLINGS LOOKS TO ADD INDUSTRIAL SITES, WORKFORCE Attracting and growing existing business in any community can be somewhat of an art. Company executives look to make sure a prospective city has all the right Jeremy Vannatta resources – proper Big Sky Economic Development Authority infrastructure and a qualified workforce in place are definitely at the forefront. For the community of Billings, the energy industry is a key sector that continues to grow. With that growth comes new buildings, a larger tax base, and great paying jobs. Big Sky Economic Development (BSED) recently conducted a Target Industry Analysis (TIA), a report that sheds some interesting light on key industries in Yellowstone County. According to the TIA, Upstream and Midstream Oil and Gas is one of our fastest growing industries and good thing, as the average annual wage for someone in this sector is almost $91,000. And, for every $1 million in revenue generated, 8.3 jobs are created. The Billings area is home to three major refineries, multiple large-scale manufacturers servicing the energy industry, and hundreds of smaller support companies. It doesn’t take long to see the importance this industry plays to our economy. A Need for Buildings and Sites When thinking about growth, many quickly cite the dramatic development experienced by the Bakken, but Billings continues to be poised for growth by many different energy developments scattered throughout the
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entire region. Interestingly, Billings may be in need of more room for expansion. BSED, on a regular basis, receives inquiries from companies looking for 10, 20, even 50 acres for development. Very few existing buildings on the market accommodate the needs of these prospects – so they look to build. And oftentimes, these companies are looking for land that’s ready to go -- with city services including water and sewer in place, as well as land that is close to Interstate access and even connected to rail. BSED recently secured federal and state funding to conduct an Industrial Park Feasibility Analysis. Industrial parks are planned areas of land zoned and prepared with infrastructure for the purpose of industrial development. These parks typically accommodate distribution facilities, light industry, heavy industry or some combination of the three. The report will help the community identify possible areas that can accommodate the space needed for a largescale Industrial Park. This information will then be shared with the private industry to encourage development of such a project. If such a development were started, BSED would work to help foster the project along. At the same time, several developers are considering projects of varying sizes and scope – all of which BSED will work to support. Workforce Development In Process Yellowstone County’s unemployment rate is just over 3 percent, a number labor experts cite as the percentage of people actively looking for work, but doesn’t capture completely those who are either unemployable and/or choose not to work. With a strong economy comes a
greater need to attract and develop an engaged, productive workforce. Employers can find it difficult to hire positions specifically related to engineering, welding, truck driving, and nursing. BSED, along with many other groups throughout the community, is partnering to take the challenge head-on. MSU-Billings, Billings Job Service, Billings Chamber/ CVB and various community leaders have joined BSED to create Billings Works Workforce Council. The initiative’s mission is to cooperatively identify workforce issues, establish goals, develop and implement strategies, and monitor outcomes to address near- and long-term workforce needs. The group has established three goals: 1. Grow a talented workforce pool that will meet the current and future staffing needs of our key business sectors. 2. Connect students to employment and connect our key education, training and career development programs/systems to our current and future workforce needs. 3. Actively collaborate on our workforce efforts to provide timely, useful and research-based workforce data for accountability and critical decisionmaking. The group is actively seeking volunteers to serve on various committees and be an integral part in developing solutions that help the entire community. Interested persons may contact BSED at melanie@bigskyeda.org. Through the active participation of both the public and private sectors, Billings will continue to be a vital link in our growing energy industry.
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On June 25, 2013, President Barack Obama, frustrated with the unwillingness of Congress to implement economy-wide controls on greenhouse gas emissions, unveiled a new federal climate agenda at Georgetown University. The President stated that, in the face of Congressional opposition, he would take executive action in what he called “a fight that America must lead.” The White House’s 38-point plan to combat climate change touches a wide swath of the U.S. economy – everything from power plant emissions to community hospitals to new fuel economy standards. Additionally, the President promises international efforts to reduce carbon emissions. Critics have attacked the President’s proposal as lacking specifics, overreaching, and the equivalent of declaring war on coal. Speaker of the House John Boehner (R-Ohio) called the agenda “absolutely crazy.” Others have suggested that the plan is less about realistic attempts to address climate change and more about exerting control over significant sectors of the economy. “At a more general level, the plan is basically a proposal explicitly to transfer wealth from red states to blue states,” said Dr. Benjamin Zycher, an economist and visiting scholar with the American Enterprise Institute, noting that the President’s proposal fails to quantify the impact of action items on global temperatures, climate change modeling, or overall carbon emissions. “There is no assertion of the temperature effect of his proposal. If you cut U.S. CO2 emissions in half immediately, the effect would be about 1/10 of 1 percent at the end of the century.” While many details of the White House’s agenda are still unknown, certain components are underway. On Sept. 20, 2013, the Environmental Protection Agency (EPA) released proposed regulations to impose limitations on carbon emissions from new power plants, defined as those that begin construction after the date of publication of the proposed rule. The Administration has stated it plans to issue regulations for existing power plants in June 2014. As the Administration moves forward with implementation, Montana’s economy hangs in the balance. The state is a significant producer of fossil fuels, but also has substantial renewable resources, including hydropower and wind. “We think it’s long overdue so we’re pleased there has been leadership now. Climate change is an issue that obviously affects the whole world and affects us here in Montana,” said
Ed Gulick, past chair of the Northern Plains Resource Council. “It’s not going to be easy to change anything overnight, but it is going to shift where jobs are created over the long term. I would expect you will see, particularly in the coal industry, jobs slowly transition. At the same time you will have more jobs created in other industries.” Given the potentially far-reaching impacts of the President’s climate plan, what are the possible impacts for Montana? Which industries stand to lose the most, and which may see a benefit? How do consumers fare?
OIL AND GAS
Under the White House’s agenda, natural gas appears to be a clear winner. The new EPA rules regulating carbon emissions favor natural gas-fired generation over coal, and the Administration repeatedly highlights an international push for more natural gas use in its climate plan. Montana produces about 74 billion cubic feet of natural gas, ranking it 21st among U.S. states. Both North Dakota and Wyoming produce significantly more natural gas. Natural gas production in the region is increasing dramatically due to exploration in the Bakken/ Three Forks shale. Indeed, while natural gas production may benefit from the White House’s climate plan, evidence suggests that technology is the true driver of the natural gas boom. “The resurgence of natural gas is something not due to a mandate,” said Scott Rickard, economist and director of the Center for Applied Economic Research at Montana State University-Billings. “That is a case where you have a disruptive technology making something available and relatively cheap.” On the downside, many wells in the Bakken area, including those in Montana, are flaring natural gas, partially due to low gas prices but also to a lack of pipeline infrastructure to gather and transport natural gas. That suggests that shifting electric generation to more natural gas would require not just new power plants, but investment in pipeline infrastructure.
(Left) An oil drilling rig near Williston, North Dakota, in the heart of the Bakken oil play. The White House has proposed a comprehensive climate change agenda that appears to favor natural gas over coal and leaves domestic oil production largely untouched. Photo by Larry Mayer.
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The Westmoreland coal mines near Busby mine more than 5 million tons of coal annually and provide numerous jobs on the Crow Indian Reservation. Under proposed new carbon regulations, domestic demand for coal is projected to decline, leaving regions such as these dependent on access to export markets. Photo by Larry Mayer.
“There are huge challenges there,” said Montana Public Service Commissioner Kirk Bushman. “ They aren’t complicated, but it is about getting a lot done in a short amount of time.” For the oil industry, the potential impact of the President’s climate change agenda is less clear, but will likely be limited. The Administration proposes to establish new fuel economy standards for heavy duty vehicles, which could impact the trucking industry that serves the Bakken and other industries in Montana. “I would expect oil and gas probably won’t change much for foreseeable future. It is mostly renewables and coal that are going to be in play,” said Gulick. Experts expect the impact of reduced petroleum consumption from new fuel economy standards to be small, but caution that air emissions regulations could be a longer-term problem for the industry “There will be some relative diminution of the industry,” said Zycher. “There will be attempts to impose stringent regulations on drilling wells.”
COAL
On the other hand, coal appears to be a potential loser in the White House’s climate
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plan. The draft greenhouse gas rules issued on Sept. 20 impose a strict limit on carbon emissions – a standard that coal will struggle to meet. In addition, the proposed rules require all new coal-fired power plants to deploy a system of carbon capture and sequestration (CCS). Critics have suggested that these regulations will essentially ban coal use in the U.S., given that the commercial viability of CCS is still unproven, while proponents say the rules are needed to push technology deployment. (see related story, page 25) “Necessity is the mother of invention. I think it is time for the coal industry to live up to its rhetoric of being clean,” said Gulick. “No one has a problem with coal per se. It is the carbon pollution that comes from it. It will be interesting to see in the marketplace how clean coal and renewables compete.” While the Administration sees its regulations as technology-forcing, others say that market forces are more likely to produce sustainable technology development. “Often we see technology happen in baby steps. Coal is deemed the bad guy right now, but there has been lots of innovation in the coal industry. That’s free enterprise – there is always some guy in his garage trying to make something better,” said Bushman. “I don’t buy into the idea that if EPA just regulates it,
people will solve the problem. I think that’s an irresponsible way to look at it.” Montana has the largest coal reserve in the nation, representing 25 percent of U.S. coal and roughly 7 percent of global coal reserves. Together, Montana and Wyoming account for nearly half of the nation’s coal resource. The survival of the coal industry in the region and across the country may depend on the ability producers to access global markets, where demand for energy is growing rapidly as global incomes rise. “In an absolute sense, it is hard to see the market for coal depressing,” said Zycher. “There will be some short-run rigidity, but over the medium- and long-term, coal will remain a big industry and exports will grow.” At the same time, global demand for coal appears to be in the cross-hairs of the White House’s climate plan. Internationally, the Administration intends to end financing for coal projects that don’t include CCS, push aggressively for more efficiency in buildings and appliances around the world, and urge global partners to shift to cleaner-burning fuels. Despite the efforts to reduce carbon emissions related to coal, even the White House seems to concede that coal will remain the foundation of domestic energy production. In his June 25 speech, President Obama stated that his plan “does not mean that we’re going to suddenly stop producing fossil fuels. Our economy wouldn’t run very well if it did.” “All of these discussions are on the margin. We’re still going to be using carbon-based energy,” said Rickard, suggesting that the economic basis for rapid changes in energy generation in Montana simply doesn’t exist. “They are trying to adjust the heading of a very large supertanker. It’s not turning on a dime.”
RENEWABLES
The President calls for a doubling of renewable energy generation by 2020 and urges federal land management agencies to permit 10 gigawatts of new renewables on federal lands by 2020. In his Fiscal Year 2014 budget proposal, the President requested a 30 percent increase in funding for clean energy projects, as well as $8 billion in new authority to issue loan guarantees for clean coal projects. “The Administration fundamentally doesn’t like conventional power and they really think
IN BRIEF: OBAMA’S CLIMATE PLAN I. CUT CARBON POLLUTION IN AMERICA
• Deploying Clean Energy: place carbon emissions limits on new and existing power plants, double renewable energy generation by 2020, permit 10 gigawatts of renewable electricity on public lands by 2020, streamline transmission siting on public lands, and provide $8 billion in federal loan guarantees for clean coal projects. • Building a 21st Century Transportation Sector: new fuel economy standards for heavy-duty vehicles post-2018, federal investment in biofuels and other clean fuels, and federal leadership in deploying advanced vehicle technologies. • Cutting Energy Waste in Homes, Businesses, and Factories: new energy efficiency standards for home and commercial appliances, $250 million for rural utility efficiency upgrades, and energy efficiency in multifamily housing facilities. • Reducing Other Greenhouse Gas Emissions: reduce emissions of hydrofluorocarbons, reduce methane emissions, focus on venting and flaring in the Bakken, and improve forest conservation and critical landscapes. • Leading at the Federal Level: federal agencies will consume 20 percent of their energy from renewables by 2020, as well as pursue energy efficiency efforts.
II. PREPARE THE UNITED STATES FOR THE IMPACTS OF CLIMATE CHANGE
• Building Stronger and Safer Communities and Infrastructure: direct federal agencies to engage in climate risk-management planning for infrastructure and natural resource management; establish a State, Local, and Tribal Leaders task force on climate preparedness; test local infrastructure for climate change vulnerabilities; improve disaster planning; convene a panel on disaster-resilient building codes and standards; and dedicate more than $7 billion to rebuilding and learning from Hurricane Sandy. • Protecting our Economy and Natural Resources: make protection of critical sectors, such as energy and health care, a federal priority; develop national assessment of climate-change impacts on energy sector; establish new effort to create climate-resilient hospitals and health facilities; encourage insurance agencies to develop risk mitigation plans for climate change. Also includes conserving land and water resources, providing grants and technical support to farmers and ranchers for sustainability, improved drought preparedness, reducing wildfire risks, and preparing for floods. • Using Sound Science to Manage Climate Impacts: direct $2.7 billion in federal funds to climate change research, update U.S. National Climate Assessment to include action items for decision-makers, establish new Climate Data Initative, and create a virtual climate-resilience toolkit.
III. LEAD INTERNATIONAL EFFORTS TO ADDRESS GLOBAL CLIMATE CHANGE
• Working with Other Countries to Take Action to Address Climate Change: launch major global initiative on energy efficiency in buildings; expand bilateral cooperative agreements with other countries; continue global leadership to reduce short-terms pollutants, such as methane, black carbon, and HFCs; establish systems and institutions to reduce deforestation and forest degradation; promote global adoption of natural gas, nuclear power, clean coal, and energy efficiency; work towards global free trade in environmental goods and services; eliminate U.S. fossil fuel tax incentives and encourage international partners to do the same; end U.S. support for coal-plant financing overseas; promote global preparedness for climate change; and encourage availability of financing for climate resilience and low-emissions projects. • Leading Efforts to Address Climate Change through International Negotiations: promote development of a global climate change accord in 2015 that includes emerging economies, develop internationally applicable energy efficiency standards, and reduce global emissions of civil aircraft.
“I think some of the things [Obama] is doing will exacerbate prices tremendously. You are going to see prices go up.” — KIRK BUSHMAN, MONTANA PUBLIC SERVICE COMMISSIONER
you can make renewables more affordable,” said Zycher. In Montana, both wind and hydropower stand to gain from increased attention on renewable energy. Hydropower represents about 43 percent of Montana’s total energy production, while wind power comprises another 4 percent. Hydropower is uniquely valuable in that it can serve as both a baseload source of renewable energy generation as well as a means of storing excess production from intermittent sources such as wind. “What you run into with hydro is that it is not favored by the environmental movement. Having said that, there are a lot of really innovative things going on with hydropower at irrigation dams. There are some new things that are very promising,” said Bushman. “Wind is actually looking very marketable right now. Wind seems to be starting to play. That is going to be a challenge. Hydro can be used for wind integration, so that’s kind of a neat thing. As we bring more intermittent sources on-line, there will always be a challenge. But I think we are meeting that challenge.”
STATES AND COMMUNITIES
In addition to directly combating greenhouse gases, the White House’s climate plan also seeks to accelerate national preparedness and response efforts. While acknowledging that natural disasters, droughts, and wildfires have multiple causes, the President stated in his speech that “this plan will also protect critical sectors of our economy and prepare the United States for the impacts of climate change that we cannot avoid.” Among the items are increased planning efforts for floods and fire, evaluations of transportation infrastructure readiness, and development of “climate-resilient” community hospitals. The Administration intends to incorporate climate-risk management considerations into federal infrastructure and resource planning, including new criteria for the popular Drinking Water State Revolving Fund. New funding is proposed for climate-ready infrastructure, and the White House plans to engage the insurance industry in preparing risk management strategies for climate impacts. “There is an effort to engage in a good deal of social engineering on the grounds of environmental planning,” said Zycher. Increased centralized planning for critical infrastructure, including energy transmission, is also included in the White House’s plan. The President proposes to streamline transmission siting among federal, state, local and tribal agencies, and will also establish a federal task force on climate preparedness for states, tribes, and communities. FALL 2013 I MTENERGYREVIEW.COM I 23
Rickard points to a possible internal conflict in the White House’s plan, noting that energy production contributes heavily to the national economy, providing the financial resources that would be necessary to carry out the community planning objectives. “That [community planning] is going to be expensive enough. Do we really want to be pulling the reins back on our economy at the time when we are needing as much ability as possible to address those issues?” he said. “You’re talking about reining in an energy industry that is a significant contributor to the economy. It is a delicate balance.” The costs to communities that base their economy on energy generation could be significant. In August, the Bureau of Land Management held a coal lease sale in Wyoming that received zero bids – something that has never happened. As a result, the Gillette area expects to lose funding for a number of grade schools that depend on royalties for funding. “It is safe to say that if you are concerned about the government revenue side, you have to listen to this debate,” said Rickard.
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Chief among all concerns related to the White House’s climate agenda is the impact to consumers. The President asserts significant benefits to Americans – including reducing energy bills through efficiency programs and decreasing gasoline costs with more fuel-efficient vehicles. Proponents of the President’s agenda suggest that, while conventional energy jobs may take a hit, there will be a growth in clean energy jobs that is beneficial for Montana. “We think it is a direction we need to be going as a country. It will change the energy landscape for Montana, but ultimately in a good way. That’s not to say there won’t be some painful things. It isn’t easy to transition jobs,” said Gulick. Energy producers and regulators in Montana take a markedly different perspective, suggesting that the only thing certain about the climate plan is that energy costs in the short-term will rise in the state. “I think some of the things [Obama] is doing will exacerbate prices tremendously. You are going to see prices go up,” said Bushman. Bushman dismisses the idea that efficiency programs designed to reduce demand result in actual savings to the consumer, pointing out that in Montana, regulated utilities are entitled to raise rates to cover lost revenues. He offers the hypothetical that if Northwestern Energy, which provides electricity to 342,000 Montanans, gives out energy efficient lightbulbs to its customers and suffers a loss of revenue due to decreased demand, it is entitled to raise rates to cover those losses.
“This is one example of one little thing that is misunderstood,” said Bushman. “ Take that by a thousand when you are looking at global climate change.” Likewise, should federal carbon regulations force power generators to shift production away from coal in Montana to natural gas, investor-owned utilities are entitled to recover the costs of the retrofits or upgrades, as well as a reasonable rate of return on the investment – all costs that are passed directly on to the consumer. Electric reliability is also a concern. EPA regulations may result in plants switching to natural gas or deploying carbon capture technology, but federal energy regulators may not allow facilities to go offline to make those changes if there is a concern about energy reliability. In the event that power plants can’t comply with new EPA regulations in time or are prevented by other regulators from making the transition, Bushman says the law is unclear as to whether utilities can pass the costs of federal compliance fines on to consumers. “We just don’t know. It is a situation to we worry could happen,” he said. “I don’t hold out a lot of hope that we will get the information we need from the Administration.” Equally worried about the cost to consumers are Montana’s electric co-operatives. Electric co-ops are present in all 56 Montana counties, serving 40 percent of the state’s electricity demand. The potential impact for co-op customers splits based on geography – in the western part of the state, co-op customers get more than 90 percent of their power from hydro, while central and eastern Montana is dependent on coal for more than 60 percent of power generation. “Montana electric co-ops are really concerned about the proposal. We think it is basically a tax, a climate tax on our consumers. We think it will severely limit the fuel diversity of generation,” said Gary Weins, assistant general manager of the Montana Electric Cooperative Association. Co-ops are nonprofit entities that are owned by the customers, meaning that any increased cost of electric generation is passed directly on to those same customer-owners. Because rural co-ops serve sparsely populated areas, delivery costs are high and spikes in energy costs are felt immediately. “The consumers own us, so every single expense goes right to them. They get charged everything,” said Weins. “We just hope we can get the President’s policy changed. We hope Congress will step in. This is the number one issue for co-ops. We don’t believe the EPA is going to do much good for us.”
CARBON CAPTURE INCHES FORWARD: ARE POLICY GOALS AND TECHNOLOGY READINESS ALIGNED?
BY JENNIFER OWEN
• Carbon capture and sequestration is the process of capturing waste carbon from industrial facilities and injecting it into underground storage chambers. • CCS has not been proven at commercial scale, but will be required in all new coal-fired power plants under new federal climate regulations. • Montana is leading on a regional CCS project, but won’t have results for nearly a decade.
As the White House seeks to refocus the nation’s attention on climate change policy, the battle lines are hardening around concepts of balance of power and economic harm: can President Obama impose carbon controls through executive authority or must Congress be involved? Will carbon regulations impose excessive costs on consumers or are the rules necessary to avoid catastrophic environmental damage? Overlooked in the current discussion is the viability of technology. The Administration is exploring strict emissions limits for power plants, pushing operators to either switch away from coal to natural gas, or deploy carbon capture and sequestration (CCS) technology. Much of the White House’s framework for carbon reduction depends on the availability of technology, yet little attention is focused on whether that is a reasonable assumption. A first-of-its-kind coal plant with CCS installed is under construction in Mississippi, owned by Southern Company. The $4.7 billion project, in Kemper County, Miss., is nearly $1 billion over budget, facing significant legal challenges – including opposition by environmentalists who say even coal with CCS isn’t acceptable – and is likely to be one of the most expensive coal plants ever built. Ratepayers in the region have seen electricity costs go up by 15 percent, and may see additional increases as the company looks to recoup capital costs. FALL 2013 I MTENERGYREVIEW.COM I 25
The concept of capturing carbon emissions from power plants or other industrial sources is not new. For decades, petroleum producers have used captured carbon for reinjection into oil wells to make them more productive, a process known as enhanced oil recovery (EOR). The more complicated step for scientists and policymakers is whether that same carbon stream can be safely injected into underground storage chambers and stored for centuries. It is that sequestration component of the CCS process that is the challenge, both technological and economic, facing researchers and industry today.
CARBON CAPTURE 101 The capture and storage of carbon happens in a variety of ways. In its most basic and ancient form, carbon is removed from the atmosphere from large forests and plant stands, as well as in agricultural crops, a process known as terrestrial sequestration. Farming and forestry practices used today, such as no-till farming, create carbon sinks, sequestering carbon dioxide through biological processes. Industrial CCS, on the other hand, is the primary focus of policymakers and researchers today. “CCS technology is continuing to evolve. We have done quite a few small scale projects and a few commercial scale projects,” said Neeraj Gupta, senior research leader at Battelle, a national private research institution that has been developing CCS projects across the country. “We’ve come a long distance. We know a lot more about how to deploy this in the field. At the same time, we need to keep doing a lot more.” The industrial CCS process consists of capturing streams of carbon dioxide at point sources – power plants, for example – and either putting those streams to a beneficial use or injecting them into geologic formations. The capture of carbon can be done either precombustion or post-combustion during the industrial process. Post-combustion capture is often employed at power plants. After a fossil fuel such as coal 26 I FALL 2013 I MONTANA ENERGY REVIEW
is combusted, waste gases, including carbon dioxide, are emitted and can be captured in a waste stream. Industrial facilities – those producing chemicals or fertilizer, for example – as well as some power plants, capture carbon pre-combustion, using a gasification process. In this case, the fossil fuel is converted into a synthetic gas, which includes a stream of carbon dioxide that can be captured. Once captured, carbon dioxide can be either used in other industrial processes or can be sequestered by injecting it into deep underground geologic formations. On the cutting edge of technology, the National Energy Technology Laboratory in West Virginia announced earlier this year that a coalition of private companies, supported by federal funds, successfully transformed waste carbon into a basic polymer that can be further transformed into a variety of solid plastics or soft foams. Most commonly today, captured waste carbon is used in EOR. In August 2013, Denbury Resources announced start-up of operations of Montana’s first carbon dioxide injection wells to improve petroleum production at the Bell Creek plant outside
The Bell Creek Plant, outside of Broadus, Mont. and owned by Denbury Resources, is Montana’s first commercial-scale enhanced oil recovery project. The facility could inject up to 50 million tons of carbon dioxide, allowing Denbury to recover up to 30 million barrels of stranded oil. Photo courtesy of Denbury Resources
of Broadus. The carbon is brought from Wyoming by pipeline and injected underground to help Denbury reactivate the field, which could produce as much as 30 million barrels of oil. Crossing the bridge from the known practices of EOR into long-term underground storage and sequestration is the challenge that faces researchers and investors today. According to the U.S. Geologic Survey, the U.S. has the capacity to store 3,000 metric gigatons of carbon dioxide – roughly 500 times the annual greenhouse gas emissions of the United States. Researchers across the U.S. are currently working on site-specific characterizations of those reservoirs, applying the results of pilot projects to commercialscale projects, and long-term monitoring protocols. “I don’t think there is a practical or technological challenge. It is the scale issue. We know we can inject,” said Gupta. “I think we have to start looking at it with an E&P [exploration & production] mindset. Companies spend years and millions of dollars to understand geology. We need to start moving in that direction.”
Carbon Sequestration Options Carbon captured from industrial processes, like coal combustion, can be stored in a variety of ways including longterm sequestration in underground geologic formations, or can be put to beneficial uses such as enhanced oil recovery. Scientists suggest that the majority of technical barriers have been overcome, meaning that widespread development of carbon capture projects depends more on financing, regulation, site characterization, and commercial factors.
Power Station with CO2 Capture
Terrestrial Sequestration
MONTANA CCS PROJECTS UNDERWAY; YEARS TO COMPLETE Congress included in the Energy Policy Act of 2005 a provision committing federal research dollars to tackling the problems related to long-term geologic sequestration of carbon dioxide. Under the bill, Congress allocated funding for pilot and demonstrationscale projects to test issues related to geologic sequestration. Among the projects awarded was a small demonstration-scale project known as the Big Sky Carbon Sequestration Partnership (BSCSP). The project, which is led by Montana State University, is designed to test the feasibility of geologic carbon sequestration in various rock formations through the northwestern part of the country. In particular, the partnership is uniquely focused on studying the viability of basalt rock storage, a volcanic rock not found in many parts of the U.S.
Geologic Disposal
Chemical Conversion
Deep Saline Formation
- Source: U.S. Department of Energy
“We’re going to learn a lot about storage in this project,” said Lindsey Tollefson, project manager for the BSCSP. The BSCSP is now in Phase III of its federal funding, which includes starting injection at the Kevin Dome site in Toole County Montana. The Kevin Dome site is currently in the permitting stage, and is expected to last eight to 10 years with an approximate cost of $85 million. One of the largest challenges that geologic CCS projects face is the lack of available carbon for injection. Few power plants currently capture waste carbon streams, because the technology is expensive and can reduce plant efficiency. Those that do usually sell to EOR projects, driving the price of carbon for R&D projects up. Kevin Dome has naturally sequestered carbon dioxide underground, meaning the BSCSP researchers can pump up carbon and reinject it, reducing costs and creating a unique research environment. “We expect to learn a lot about the behavior of CO2 in a reservoir. We can compare CO2
injected to CO2 that has been sequestered for millions of years,” said Tollefson. Tollefson cautions that while the BSCSP, as well as CCS projects around the country, has achieved many research milestones in the past decade, the real path forward goes through the halls of state legislatures and Congress, and also depends heavily on the cooperation of the energy industry. Comprehensive liability schemes at the national level for CCS are still widely debated, although the state of Montana has taken steps to allow private CCS projects to transfer long-term liability to the state under certain conditions. “We are really going to have to have some policy drivers. We are starting to see some of those at the state level. The technology will be driven by policy,” said Tollefson, noting that more federal involvement can help overcome economic and infrastructure barriers. “What needs to come together for carbon sequestration is putting together the point source with the transportation to suitable storage.” FALL 2013 I MTENERGYREVIEW.COM I 27
ENERGY BY RAIL:
IN MONTANA, COAL REMAINS KING, BUT MORE OIL MOVING TO MARKET VIA RAIL BY TOM HOWARD • PHOTOGRAPHY BY LARRY MAYER
When you tally the millions of tons of Montana products that travel by train, coal unquestionably remains king. But few outside the energy industry realize that about half of the oil produced in the prolific Bakken oil play in North Dakota and Eastern Montana reaches its destination by rail. Of the 36 million tons of coal that Montana produced last year, fully threequarters of it traveled to market by rail, while the rest was burned at the Colstrip power plants, said Bud Clinch of the Montana Coal Council. In its draft assessment of the Keystone XL Pipeline, the U.S. State Department estimates that, by the end of the year, 800,000 barrels of Bakken crude will be transported by rail car each day. BNSF Railway Co. is ramping up its investments in Montana and North
28 I FALL 2013 I MONTANA ENERGY REVIEW
“BNSF’s capital investments in Montana will help ensure our network is prepared for growing demand for freight rail. We are focused on investing to meet our customers’ expectations and on expanding capacity when growth is occurring.” (Left) Oil is loaded onto rail cars in the Bakken oil field activity near Trenton, North Dakota. (Top) BNSF is spending $155 million upgrading and building rail lines throughout Montana this year, largely in response to new demand for energy shipments. One new track is under construction on Sarpy Creek east of Hysham.
• Petroleum producers in the Bakken are moving significant amounts of crude oil by rail, allowing flexible access to markets across the U.S. • BNSF is projected to invest $115 million in new and upgraded infrastructure in Montana, part of a $4.3 billion systemwide overhaul. • Coal continues to dominate Montana’s rail shipments, with agriculture also comprising significantly more capacity than crude oil.
Dakota, in part to accommodate the growing need to ship coal and oil. BNSF began making major investments into oil hauling about five years ago in response to a shortage of pipeline capacity to serve the Bakken, the 200,000-square-mile shale oil formation which skyrocketed into national prominence thanks to game-changing technological innovations like horizontal drilling and hydraulic fracturing. Proponents say shipping oil by rail has a number of advantages over pipelines because rail terminals can be built faster. Likewise, oil trains can be easily routed to different markets. Pipeline contracts are generally long-term commitments, locking producers in to a particular market for 10 years or more. Rail contracts are usually shorterterm, allowing producers to take advantage of local market fluctuations. According to BNSF officials, the railroad ships oil to refineries in 14 states. BNSF currently has 1,000 miles of rail line in the Williston Basin area
— MATTHEW ROSE BNSF’S CHIEF EXECUTIVE
with 10 originating terminals. BNSF connects to 16 of the top 19 oil-producing counties in central and western North Dakota, and five of the six oilproducing counties in Eastern Montana. This year, BNSF is investing $4.3 billion into improvements throughout its system, with $115 million slated for maintenance and increases to rail capacity in Montana. Likewise, $400 million will be spent in North Dakota. During an appearance in Billings late last year, BNSF’s chief executive, Matthew Rose, said rail shipments of Bakken crude grew from 1.3 million barrels in 2008 to 90 million barrels in 2012. It’s tempting to consider shipping oil by rail to be a short-term solution. But Rose said the construction of the proposed Keystone XL pipeline wouldn’t put an end to the railroad’s oil-by-rail shipments. Refineries in Washington state began processing rail-delivered Bakken crude in late 2012. That oil will help replace dwindling supplies of Alaskan crude. FALL 2013 I MTENERGYREVIEW.COM I 29
A BNSF coal trail is loaded in this aerial view of the Westmoreland coal mines near Busby. While BNSF is investing in railroad upgrades to accommodate new demand for crude oil shipments by rail, coal remains the dominant energy export in Montana.
“BNSF’s capital investments in Montana will help ensure our network is prepared for growing demand for freight rail,” Rose said. “We are focused on investing to meet our customers’ expectations and on expanding capacity when growth is occurring.” BNSF is in the process of filling 260 vacancies in Montana and 400 in North Dakota. Most of the hiring is taking place in areas where the railroad has its largest employee base: Glendive, Havre, Forsyth, Billings, Great Falls and Whitefish, said Matt Jones, a BNSF spokesman. The railroad employs 2,200 people in Montana, and 40,000 throughout its system. Many have called for increased scrutiny of hauling oil by rail after a train carrying Bakken crude crashed and exploded in Canada earlier 30 I FALL 2013 I MONTANA ENERGY REVIEW
this year, killing 47 people. But BNSF officials say safety remains a top priority, BNSF plans to expand its capacity by building three new unit train staging tracks about three miles east of Glasgow. The expansion also seeks to boost safety by adding “machine vision technology,” a high-tech system that checks for potential damage to equipment. The railroad will resurface 2,300 miles of track and replace about 100 miles of rail and 310,000 ties in Montana. Despite the recent growth in shipping oil by train, coal continues to dominate rail shipments out of Montana. The state shipped 35.2 million tons of coal in 2010, according to the U.S. Freight Railroad Industry. By comparison, 8.5 million tons of grain and
2.9 million tons of petroleum products were shipped that year. About 40 percent of the nation’s electricity is generated by burning coal. But a boom in natural gas production in recent years has prompted some utilities to switch generating capacity away from coal and toward natural gas. “When gas prices went down, there was a big move to maximize the use of those (gasfired) facilities,” Clinch said. But gas prices have been on the rebound recently, causing the market to shift back somewhat to coal. Similarly, in some locations, energy shipments by rail are leveling off somewhat. The North Dakota Pipeline Authority announced in July that crude oil shipments by rail declined 6 percent in May, as some producers shifted back to pipelines.
ABUSING THE ENVIRONMENTAL REVIEW PROCESS Our global economy’s continual development makes it all too easy to forget location can be business’ biggest opportunity and its greatest threat—which is why right now one of Montana’s biggest opportunities is the export and development of our abundant coal resources. The biggest threat to that development is the unnecessary application of the Environmental Impact Statement (EIS) analysis to the potential rail impacts of the Cherry Creek port facility in Montana. Montana’s remote geographic location has historically made exporting Montana coal difficult and expensive until now. Due to the recent shift in demand for coal to Asian markets, what was previously working to the disadvantage of coal development in Montana is now one of our state’s largest assets: Montana’s geographic proximity to the West Coast and the ports being built there. The change in geographic demand has made Montana, and Montana coal, ideal to supply growing Asian demand. Access to Asian markets would mean millions of dollars in economic development and tax revenue that would benefit every corner of our state. In order to realize these opportunities, we have to increase the capacity of existing ports—a feat which first must pass scrutiny by the Washington State Department of Ecology and the Army Corps of Engineers. Unfortunately, the State of Washington has
BY SHELBY F. DEMARS, COUNT ON COAL MONTANA
taken it upon itself to impede the permitting process by calling for the extension of the EIS to include Montana in its analysis, as well as the potential railway impacts that may result from exporting more commodities out of Montana through the new Cherry Creek port facility. Washington has failed to recognize that by broadening the scope of the study to include not only the potential impacts in Washington, but also in Montana, they are inhibiting the timely progression of the permitting process. This, in turn, will delay the construction of the much-needed terminals. By encouraging the Washington Department of Ecology to expand the scope of the EIS, Washington Governor Jay Inslee will add years and millions of dollars to the permitting process—which has the potential to completely stop the construction of the ports altogether. The potential for thousands of new jobs and millions in economic activity is staggering; one would think the governor would take
the logical approach—getting the permitting through fairly and with a sense of urgency. Montana has a wealth of opportunity waiting to be tapped. The market tides have shifted to favor our geographic location and now more than ever before Montanans stand to benefit from the development of coal and the economic activity it generates. All of this benefit is compromised and obstructed by the potential extension of the EIS to Montana. In order to realize the opportunities our proximity to foreign markets affords us we need to ensure the scope of the permitting an environmental review process is kept to the area it is meant to assess—a concept that needs to be impressed upon Washington and one that we at Count on Coal Montana encourage all of our elected officials to reach out to Governor Inslee about. Shelby DeMars is a spokesperson for Count on Coal Montana, a coalition of industry, labor, education, and business interests committed to increasing production of coal in Montana for domestic and export markets. FALL 2013 I MTENERGYREVIEW.COM I 31
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