Memo to W.Va. leaders: Not all industry hates EPA

August 28, 2014 by Ken Ward Jr.

Rally For Coal

Normally, the West Virginia Chamber of Commerce provides the state media with a pretty one-sided version of what’s going on in our world. There’s always a lot of attacks on environmental protections and trial lawyers.

But in reporting yesterday from White Sulphur Springs, the Gazette’s David Gutman found a little bit different story coming from the guy who wants to build the huge natural gas “cracker” plant in Wood County:

David Peebles, a vice president for Odebrecht, the Brazilian petrochemical company that owns ASCENT, cited the Bible in discussing his company’s work in West Virginia.

In the parable of the talents, three servants are given talents (a unit of money) by their master.

Two servants traded their money, doubled their investment and were praised. The third servant buried his money and was reprimanded.

“We’ve been dealt a hand here that’s not five talents, I think it’s 1,000 talents, with shale,” Peebles said. “This is going to be a tidal wave that we do not yet understand.”

He talked about developing a regional hub with neighboring states and pointed out that 45 percent of the plastics industry that cracker plant will serve is within 500 miles of the site.

Peebles promised to work with unions and sign a project labor agreement for the cracker complex.

“We cannot think of labor as a commodity, we cannot think of labor as people that we’re going to use up and spit out,” he said.

Addressing environmental concerns, Peebles said his company would, obviously, disturb the environment but promised to use best practices to mitigate its impact.

“We don’t want to avoid regulations, we don’t want to bash the EPA, we don’t want to bash the Corps of Engineers, we want to have a cooperative relationship, because no one wants to breathe bad air, no one wants to drink contaminated water,” Peebles said. “We have to be out front with progressive policies that allow that to happen.”

Wait, there’s more:

He went out of his way to praise the EPA, the frequent whipping boy of West Virginia politicians.

“Everybody today is upset with [the] EPA, well I grew up in high school in Cleveland, where the Cuyahoga River was burning,” Peebles said. “Mr. Nixon was the guy who started the EPA, and thank God, we have clean air and we have clean water.”

Sadly, David Gutman also reports this bit of paranoia from Sen. Joe Manchin:

Manchin accused the Obama administration of trying to do away with all fossil fuels.

“I’ve been telling my gas friends, if you think they’re picking on coal and not going to come after you, think again,” Manchin said. “They get done with coal, it’s gas, I can assure you that. They don’t want anything.”

This from Sen. Manchin, who not so long ago was saying that he wanted to find middle ground, and work with those who know that greenhouse emissions need to be reduced. It remains hard to consider Sen. Manchin an honest broker on these issues. Perhaps he needs to sit down with the folks from ASCENT and learn a little bit about why we have an EPA and what some business leaders are saying about protecting the environment.

16 Responses to “Memo to W.Va. leaders: Not all industry hates EPA”

  1. Thomas Rodd says:

    Thanks for this post, Ken. Forgive me if as an older person I hearken back to the thoughts of the late Richard diPretoro, my pal, who explained to me why he thought businesses that invest a huge amount in long-term fixed capital infrastructure, like the chemical industry, crave certainty and stability in regulations — even strict ones. He contrasted that to businesses like coal mining, which have relatively low fixed long-term capital costs, basically unlimited amounts of potential product, and therefore open and close mines, lay people off, move machines hither and yon — and are always pushing back at ANY level of regulation. Why? For these latter businesses, Richard says it is the operation that cuts its costs from regulation that can win competitive battles — hence Massey Energy, etc. and many the battles to externalize costs that you have been documenting for quite a while. According to Richard this is the explanation for the two different approaches to regulation. I don’t know where he got it but it has always made sense to me.

  2. Armored Face Conveyor says:

    Thomas,
    I would agree with your sentiment that businesses crave regulatory certainty. I would disagree with your sentiment that coal mining is not capital intensive. That is a big portion of what has been troubling with the EPA and surface mining in Central App. The opening of a major mine frequently entails $100+Million in capital while the permitting process degenerated to the point where it was impossible to secure more than about four years of mining at any one time. Arch (and I have no affiliation with them) actually tried to do the right thing, permit everything they needed at once, sinking a huge amount of money in doing so and finally had the EPA revoke their permit retroactively. What do you think that did to regulatory certainty? What do you think that did to the ability for anyone to finance a new project? What would the president of ASCENT say if they spent a billion to build a cracker plant and then the EPA said they couldn’t run it? People say that the reason WV is losing coal jobs is because of cheap natural gas. Prior to these regulatory changes, surface mines had no problems producing coal at delivered costs significantly cheaper than natural gas is now. Many people are fine with the result as they are opposed to surface mining and that is their right, but don’t tell me regulation didn’t play a role in it. Also while natural gas is currently viewed with mixed feelings by most environmentalists, I have little doubt they will be the subject of attacks when coal is less of a player. I hope Aubrey McClendon asks for the millions he gave to the “beyond coal” campaign back when they start “beyond gas”. Best Regards
    AFC

  3. Thomas Rodd says:

    AFC — obviously I am not an economist, but I do think the coal business is much more mobile and much less FIXED capital-intensive — compared to the chemical business.
    Also, there is no debate as to whether coal mine regulations are adequate and effective; the dead miners of Upper Big Branch proved that one.
    Lastly,the Sierra Club already has a “Beyond Gas” project, I am pretty sure. However, they have quite an uphill battle: see http://talkingpointsmemo.com/anga-sponsored/natural-gas-drop-carbon-emissions/:
    “Many Americans don’t know it, but U.S. carbon emissions are at their lowest level in twenty years. The reason? America’s historic shift to natural gas for electricity production. From East Coast to West, power companies are using natural gas to generate electricity because of its domestic abundance and affordability. Critically, it also emits about half as much carbon as coal does to produce the same amount of electricity. By 2040, the U.S. Energy Information Administration predicts that natural gas will become the primary energy source America uses to generate power.”
    Aubrey made a smart move, I’d say.

  4. Ken Ward Jr. says:

    AFC,

    Thanks for reading and for your thoughtful comments.

    Three things —

    First, while certainly $100 million for a new coal mine is a lot of money, it simply doesn’t compare to multiple billions for a new petrochemical facility like the cracker plant (see this story, for example, for numbers, http://www.statejournal.com/story/24470619/proposed-wood-county-cracker-plant-site-purchased )

    Second, many folks have raised perfectly legitimate questions about the boom in the Marcellus Shale in northern West Virginia. We’ve written a lot about that in the Gazette. And while Tom Rodd trumpets the greenhouse gas benefits of shale gas, it’s important to remember there are significant questions about whether those benefits are as big — or exist at all. See this, for example: http://www.eeb.cornell.edu/howarth/publications/Howarth_2014_ESE_methane_emissions.pdf .

    Third, most of us would like certainty. I’d like to be certain that the huge changes sweeping the information business won’t eliminate my job as a newspaper reporter. Shouldn’t the government ban the Internet to protect me and people like me all over the country? I’d like certainty that my family will be healthy and that my community will be safe and all manner of other things. But certainty is hard to come by — and in fact, people in the utility business and energy investors say that the biggest “uncertainty” that they face isn’t the tiny change that EPA might revoke their surface mining permit, but the huge uncertainty associated with the lack of a clear set of rules and regulations to govern carbon dioxide emissions going forward. If you want to save coal, support EPA’s rules or congressional action to put an emissions reduction plan in place.

    Ken.

  5. Thomas Rodd says:

    Ken, great points all. To be clear, I personally doubt that the overall wonderfulness of the shale gas boom in that promo piece I linked to is a fair and balanced picture. But it sure does does illustrate just some of the difficulties faced by folks who want to restrain it.

  6. Armored Face Conveyor says:

    Ken,
    I should know better than to respond, but I just can’t help myself.

    In regards to size, no real argument. Getting the cracker plant would be a major boon for West Virginia. However, West Virginia will be lucky to get one cracker. Regulations threaten many multi-million dollar mining projects. Also while I quote $100 Million, many major facilities especially longwall mines are much more expensive.

    I don’t have much to say about your second point other than it shows how much we still don’t know about the potential cause and effects of climate change.

    Your third point I think goes to my case. I am thoroughly a capitalist. Competition improves the breed. I don’t want the government to ban fracking. More cheap energy is good for everyone. I don’t like the government picking winners and losers, and I am morally opposed to radically changing the rules after huge investments have been made. If the EPA can revoke one permit they can revoke any of them. That uncertainty and ambiguity kills capitalism. I also feel this way about the EPA’s new power plant rules. They could have said that any new coal plants must be at least 40% efficient which would have been a huge improvement over many existing designs and would emit much less CO2/ton than current designs, but is still achievable. Then years later they could have pushed that to 50%, etc. This would lead to improvements in design that would filter out across the world resulting in much lower global emissions. Instead they picked a number that gas plants can meet but coal plants can not with out CCS. There was nothing magical about the number they picked except that they knew it would prevent the construction of new plants. This will limit U.S. innovation and thus world wide innovation. You might find this article interesting in the regard of high efficiency coal plants: http://www.worldcoal.com/news/power/articles/Exporting-US-coal-to-South-Korea-1235.aspx#.U_-f5qN0zIU

    Thomas – I hope you did not feel attacked, I was merely disagreeing with you. I also must disagree drastically with your comment about UBB. In my opinion it proves nothing regarding coal mine regulation. If someone goes the wrong way down the interstate and kills someone, it doesn’t mean the speed limit needs to be lowered nation wide.

    I would also like to leave you with this opinion piece on the EPA:http://www.foxnews.com/opinion/2014/08/27/if-only-epa-stood-for-enough-protection-already/

    Best Regards All
    AFC

  7. Montanus says:

    AFC,

    How many longwall mines are there in southern West Virginia? Very few anymore. That’s largely because, as Ken and others have documented, the government and industry have acknowledged for decades that, around 2015, the coal reserves in southern WV and central Appalachia would no longer be able to support large-scale mining operations. Justice sold out to the Russian Mechel company. Now Mechel is getting out of Appalachia and putting its money into the rich Elga coalfield in Siberia. In advertising their Appalachian business for sale, Mechel has specifically stated that “political tensions” (i.e. regulatory concerns) are not a factor — the operations simply weren’t earning a profit. http://www.mechel.com/press/mechel_in_media?rid=26966&oo=1&fnid=68&newWin=0&apage=1&nm=121496&fxsl=view.xsQ&A w/ Mechel senior executive Oleg Korzhov: “What is your estimate for the possibility of selling Bluestone now, as political tensions are high and the facilities have been halted for lack of profit?
    We have seen no glitches in our negotiations. We hired Deutsche Bank to sell Bluestone. So far we have had no negative politics-related feedback. There are prospective buyers, but I would not name them as yet.”

    There will always be some mining in central Appalachia, though much less than there has been historically. And those remaining mine operators will always whine about regulatory costs for the reasons Tom Rodd outlined. But, if the fundamentals make sense, the companies will produce coal. Regulatory costs are fixed costs that a profitable business can manage. If the business is fundamentally unprofitable, then yes the regulatory costs will be too much to bear — but that’s because the fundamentals are bad, not because the regulatory costs are unusually oppressive. As an illustration, read each quarterly report from any publicly traded mining companies, and you will see that they all say that MSHA regulatory costs are immaterial to their business.

  8. Montanus says:

    Corrected link to Q&A w/ Mechel senior executive Oleg Korzhov (“Deleveraging goes not as fast as we would like”): http://www.mechel.com/press/mechel_in_media?rid=26966&oo=1&fnid=68&newWin=0&apage=1&nm=121496&fxsl=view.xsl

  9. Gabby Johnson says:

    Montana calling in here.
    I always get a kick out of Montana and Wyoming politicians who bash the EPA. Environmental regulation (on acid rain) made the Power River developments competitive, with lower energy content — along with lower sulfur — plus the considerably higher transportation costs when compared to Appalachian coal.
    Another thing, at least in Montana, producers are required to put the real estate back the way they found it. I’ve seen reclaimed prairie that you’d never know had been mined.

  10. rex burford says:

    The comments on August 27, 2014 or so by Mr. Peebles at the Greenbrier were indeed very interesting especially in the vacuum that generally envelopes “good” West Virginians when a TV camera is turned their way. The article did also have a plug for the need for “GOOD” oil and gas conservation laws which entail such arcane subjects as forced pooling and forced unitization and even “field” rules. WV has some version for deeper wells but not for the shallower operations where the present developments are taking place. I happened to write an article on this subject some twenty three years ago and it was published in the Eastern Mineral Foundation publication for the year 1991. You might find a copy in the State Law Library. Some arrangement will almost certainly need to be made to stop more internecine sniping among mineral interest owners which expanded drilling will bring to the state. There should be a “talent” or two for the little guy whose mineral interest or even surface is being utilized in future developments. The existing or lack thereof mechanisms leaves a lot to be desired.

    The other point I would like to make is, at least in the abstract, natural gas is far too valuable a product to be wasted by burning. The petro-chemical aspects represented by a “cracker plant” is one of the highest utilization and highest value for this mineral source (i.e. more money for the drillers, etc.). Natural gas is a product not just a fuel. More emphasis in this area should be placed on the prospective bonanza presently in your midst. There are many other alternatives than either coal or natural gas to generate electricity.

  11. armored face conveyor says:

    Montanus,
    I know of three active longwalls in southern WV. There are many in northern WV which is more conducive. I am personally aware of many properties in central app that could support major mines, but uncertainty of return on investment along with regulation prevents their development.
    in regards to your statement on fundamentals you are mistaken. Coal is a commodity and trades almost exclusively on cost per btu. Regulatory costs of just a few dollars shift production from central app to Illinois basin, and tax dollars out of WV.
    best regards
    afc

  12. Chuck Wood says:

    Thanks, Ken Ward, for the link to the Cornell study of green house gas impact of fracking gas. The last paragraph of the papers says it is not a recommendation to continue burning coal but points out the need to quickly transition to renewable energy sources that release little greenhouse gases, don’t pollute air and water, and reduce the need for the US to intervene in the Mid-East to protect oil supplies. These, and the competitive disadvantage of remaining WV coal, is why our state and 100% of its politicians have to stop spending all effort on defending coal, and robustly work to develop solar and wind energy enterprises. Such alternative now provide 22% of total world energy, and Germany (at 33%) shows how rapid such transitions can be. WV needs to work for the future or rest secure in our rank of #50 in so many quality of live measures. http://www.Write-inChuckWood.com

  13. Rex Burford says:

    Thanks Ken, for this post:
    The actual article in the Gazette, by Gutman brought out the need for attention to what used to be called oil and gas conservation laws, based on community property concepts from the southwest. Usually this issue is inflamed by the use of the dirty words: pooling, forced unitization and field rules. It is an arcane world understood by lawyers specializing in this area of the law. A lot of money is a stake. Usually these laws are crafted to get rid of “dog in the manger” mineral owners. If these laws are to be implemented, there should be room for a “talent or two” among the 1,000 “talents” anticipated by Mr. Peebles (Ascent). There might even be some consideration given to “Surface” owners.Properly drafted language which is reasonably fair will avoid a lot of the present internecine sniping between the parties which leads to tedious litigation. The oil and gas companies have more money for lawyers and the judiciary is not normally very receptive, especially in West Virginia. An attempt was made some 23 years ago to bring this issue at least to the attention of the legal community, especially with the developments in the East in regards to both emerging issues, i.e. horizontal drilling and “fracking”. See: 12 Eastern Min. L. Inst. Ch. 21 (1991). If you wanted to do some investigative reporting, it should be available in the State Law Library.

    Mr. Peebles is to be congratulated on his positive outlook toward the EPA. Over the years, regardless of what some like Senator Manchin know in their hearts, they can be dealt with in a forthright way and industry can generally proceed. West Virginia as far as the Oil and Gas industry was concerned did well with this approach. It does seem the direction has changed in more recent years. General permits for pit discharges and Permits by rule for in situ (well site) solid waste disposal worked until the recent need for modifications. In the final analysis you have to get a permit to drill a gas well, and you have to get a permit to drill or convert to a disposal well. If you do not work with the government in these situations (and some do not) life gets tedious and expensive in a hurry. With all of the Federal oversight you are going to be dealing, even at a state level, with the EPA rules, etc.

    One point that is often overlooked in the periodic debate over natural gas versus coal, is that natural gas in extremely valuable “product” as well as a fuel. A cracker plant is looking to its use as a product. The ultimate product, some kind of plastic or fertilizer is a product. That is why it is called petro-chemical. When I was a young person Carbide used coal tar derivatives and they were then processed into product, but that was just too expensive. That is one reason a lot of industry moved to Louisiana. That was when the Kanawha Valley was black with emissions from Carbide and others. Of course there was a War in progress and the EPA probably was not a gleam in any environmentalists eye. Business people like Mr. Peebles should be encouraged. I can only hope he escaped the Greenbrier without being wood shedded.

  14. the curious says:

    Rex,
    “Cracker plants” convert ethane (c2H6) to ethylene (C2H4) for use in the plastic industries and other applications. If not separated, some ethane can be left in pipeline natural gas, but too much ethane and the gas won’t meet spec (it would be too rich, and burn too hot, risking damage to equipment and appliances).

    The “cornell study” has serious shortcomings (driven by bad assumptions and probably political bias) and has been picked apart at length elsewhere.
    Here’s a pro-industry compendium for example, http://energyindepth.org/national/new-study-debunks-cornell-ghg-paper-again/
    Science also had a recent Special issue:
    http://www.sciencemag.org/content/344/6191.toc
    and the University of Texas has an ongoing study:
    http://dept.ceer.utexas.edu/methane/study/

    Chuck,
    As I am sure you know, much of that global renewables % is driven by hydro… what WV rivers / hollows / gorges are you proposing for inundation?

    Regarding Germany,
    http://www.nytimes.com/2014/03/20/business/energy-environment/german-energy-push-runs-into-problems.html?_r=0
    “The price of industrial electricity has risen about 37 percent since 2005, according to the Federation of German Industries. The price in the United States has fallen by 4 percent over about the same time.”

  15. Ken Ward Jr. says:

    the curious,

    It’s interesting you make note of the U Texas study, but don’t really talk about what it said … Here’s a link to a story we did about that study:

    http://newslibrary.cnpapers.com/cgi-bin/texis/search/+pmeOVHqe1hbtqgiwGmaAnDaBnLw5aMnBrwDna5B1mOqzmnwwwmFqh+XWX5hFq0eRGlnGeRRHmqwceRkHmGprveRDxxLo5eRS3t+XWXtFqwrFqw/storypage.html?id=523972229

    Among other things:
    “… the team also found higher emissions from some pneumatic pumps used for controlling mechanical devices at well sites and from other equipment leaks, areas that the authors said warrant more attention by scientists and the industry.”

    And another recent study, as we explained in this story, http://www.wvgazette.com/News/201402140085 found:

    U.S. emissions of the powerful greenhouse gas methane are considerably higher than previous official estimates, according to a new review of more than 200 earlier studies.

    Among other findings, the study, published Friday in the journal Science, concludes that switching buses and trucks from traditional diesel fuel to natural gas could make climate change worse.

    While burning natural gas produces less carbon dioxide, leaks of methane during the drilling and production process complicate the equation, according to the study by scientists from Stanford University and a collection of other institutions.

    “People who go out an actually measure methane pretty consistently find more emissions than we expect,” said lead author Adam Brandt, an assistant professor of energy resources engineering at Stanford.

    “Atmospheric tests covering the entire country indicate emissions around 50 percent more than EPA estimates,” Brandt said. “And that’s a moderate estimate.”

    Results of the research will continue a growing debate as the Obama administration promotes the use of natural gas — generally thought to be a cleaner alternative to coal — as part of a plan to combat potentially devastating impacts of global warming.
    – See more at: http://www.wvgazette.com/News/201402140085#sthash.BYXlpBJu.dpuf

    Regarding Germany, read the comments on this blog post from Bill Howley, http://blogs.wvgazette.com/coaltattoo/2014/08/01/facing-facts-fighting-the-epa-wont-stop-the-decline-of-southern-west-virginias-coal-industry/ for example …

    Ken.

  16. the curious says:

    Hi Ken,
    Thanks for your thoughtful replies. Re-reading my original comment, it can come off as kurt and for that I apologize. I’m actually rather circumspect about all this. Regarding Germany, I never said they were turning back to coal, and I was a fellow commenter with Bill Howley on the post you reference. Germany has clearly made great technological strides in the areas of renewables and significant investments in deployments of wind and solar. However, it is coming at a cost and how those costs are distributed is an important issue — both in German society and vis-a-vis the competitiveness of energy intensive German industries such as chemicals.

    Measuring methane emissions is an important area of ongoing science. Clearly, there are areas for improvement — to name just a few examples: green completions (loosing less methane turning the cleanup of the well post-fracing), less loss from gathering systems, and also less flaring, which is a terrible waste of the resource and unfair to mineral owners and neighbors. Colorado provides an example of constructive improvements.

    Thanks again for all you do.

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