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Coal-to-liquids plant founders

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Emilene Ostlind | May 30, 2011 05:00 AM

In 2008, Montana was abuzz about a huge clean coal project in the works. The Australian-American Energy Company (AAEC) had agreed to collaborate with the Crow Tribe to build the $7 billion Many Stars coal-to-liquids plant on the reservation. The tribe would provide coal and water, both abundant on tribal lands. The energy company would provide technical expertise and funding. Governor Brian Schweitzer announced his enthusiasm for the project, which would, starting in 2016, produce 50,000 barrels per day of "ultra-clean" diesel, jet fuel and naphtha and employ 900 permanent workers on the reservation. The plant would even, supposedly, sequester its carbon emissions underground to keep them from venting to the atmosphere.

Now, this ambitious plan is unraveling. AAEC has been trying to wriggle out of its promise to build the plant, proposing instead to just mine and sell the coal in the U.S. and Asia. This approach, according to the project website, promises to "provide a faster path to first cash flow with significantly lower capital exposure." Giving up on the coal-to-liquids plant is even more appealing , it continued, considering that "the collapse of global equity markets, the unanticipated development in the United States of vast resources of shale gas, and regulatory uncertainty regarding support of coal to liquid projects, have materially and adversely affected the economic feasibility of the project."

Meanwhile, the Crow Tribe hasn't yet signed over a promised water lease to AAEC (coal-to-liquids is notoriously thirsty) and now it's trying to get out of the agreement altogether, citing the energy company's failure to put in enough money. On May 18, AAEC sued(pdf), asking for a restraining order to keep the Crow Tribe from ending the agreement before arbitration takes place.

Botched energy projects -- both traditional and renewable -- are not unusual for Indian country, as the HCN archives show. Consider the Desert Rock coal plant on the Navajo nation in New Mexico, which "would mean not only jobs -- 200 in BHP Billiton's expanded Navajo Mine as well as 1,000 construction jobs and 400 operation jobs for the plant itself -- but also $50 million in annual revenue." As former assistant editor Laura Paskus reported in 2010, despite both the tribe and the energy company pouring millions into legal and planning fees, that project is on the rocks due to delays, changes in electricity markets and loss of funding.

As Gail Binky wrote in 2009, while many tribal lands have renewable energy potential, that kind of development faces difficulty, too. The Gray Mountain wind development, and it's potential to feed $10 million a year in royalties to the Navajo Nation, was delayed because one energy company made an agreement with a local chapter of the tribe while another worked with the tribe's central government, both planning wind projects for the same piece of land. "The situation is unfortunate but far from unknown in Indian Country, where political disputes and other obstacles can hamper renewable-energy development," wrote Binkly, adding, "A long history has made many Indians wary of white exploitation of their lands and resources."

And "tribes that have tried coal mining, like the Crow and Navajo, don’t have appreciably better living conditions and economies on their reservations because they let outsiders -- corporations and the federal government -- set low royalties and dictate the other terms," wrote Bob Struckman in 2003. That story describes the Northern Cheyenne reservation, an island of rich undeveloped fossil fuels surrounded by gas fields and mines. There, tribal members were trying to balance temptation to develop energy resources as a solution to poverty with defending their land from environmental destruction.

One tribe we've covered has proven an exception to this pattern. As Jonathan Thompson reported last year, the Southern Ute Tribe has found ways to keep control of the development of their resources, and "the 1,400 or so tribal members are, collectively, worth billions."

Meanwhile, on the Crow Reservation the scuffle over the coal-to-liquids agreement is far from most people's minds as tribal members and other reservation residents try to deal with devastating flooding that has overwhelmed the water treatment plant, cut off electricity and phone service in some areas, isolated homes and damaged highways and bridges. On May 23, Chairman Cedric Black Eagle declared disaster, and residents have been ordered to boil water. More rainstorms were forecast for the weekend. Natural disasters are devastating no matter where they happen, but for a community that's short on infrastructure and money -- something energy development continually promises to provide -- they're even more dangerous.

 

Emilene Ostlind is HCN's editorial fellow.

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