Reviving Arkansas’ Economy: Turning Brown Coal into Black Gold

Curtis Coleman, Contributing Author:

Come and listen to a story about a man named Jed
A poor mountaineer, barely kept his family fed,
Then one day he was shootin at some food,
And up through the ground came a bubblin crude.
Oil that is, black gold, Texas tea.

It’s not “bubblin,” but it certainly may be black gold for South Arkansas. It’s some tea Texans have been enjoying for a long time. And it could be a boon for a nation desperately in need of becoming energy independent.

It’s call lignite. It’s considered the lowest rank of coal and is used almost exclusively as a fuel for steam-electric power generation. Because of its low energy density and typically high moisture content, lignite, also known as “brown coal,” is inefficient to transport and is not traded extensively on the world market compared with higher coal grades.

And there are environmental concerns. Primarily because of its latent high moisture content, carbon dioxide emissions from traditional brown coal-fired plants are generally much higher than for comparable black coal plants.

Replace Oil Imports from Venezuela?
A new process under development at the University of Texas at Arlington (UTA) may be about to eliminate all those concerns and turn Arkansas’ 548-year supply of readily available lignite into a brown gold bonanza for Arkansas – and the nation. Some estimates suggest that refined Arkansas lignite can potentially replace all of the oil the U.S. imports from Venezuela annually.

UTA microrefinery

UTA has reportedly developed a microrefinery process that will convert Arkansas’ lignite into “syncrude,” a synthetic crude oil that can be refined into diesel fuel. UTA has “gone quiet” on its technology, reportedly completing its patent and proprietary information protection process. Reports are that UTA plans to license the technology to a commercial partner who will then pay UTA a royalty on each gallon of syncrude produced using its proprietary process.

Requiring a remarkably small footprint allowing it to be moved as needed, a UTA microrefinery can produce approximately 1,000 barrels of syncrude per day. Estimates are that each microrefinery can be constructed for as little as $5 million.

Different from burning coal to produce electricity, the UTA process liquefies the lignite, “instantly” converting it syncrude. Remarkably, the process reportedly produces no carbon emissions and has no “carbon footprint.”

Information available from the Arkansas Bureau of Legislative Research (BLR) and the Arkansas Geological Commission indicates that a UTA microrefinery can produce two barrels of syncrude per ton of Arkansas lignite. Arkansas has approximately 4 billion tons of readily accessible lignite reserves (with some estimates as high as 9 billion tons). Assuming 20,000 tons of lignite are mined each day, 200,000 days – or 548 years – would be required to extract 4 billion tons of lignite from South Arkansas earth.

The estimated cost of producing a barrel of syncrude using a UTA microrefinery is in the neighborhood of $40 although no one I’ve talked to as of yet has known if that cost estimate includes the cost of extraction.

Assuming a $40/barrel production cost, and assuming that the cost of oil drops from its current $100 level down to $80/barrel, the economics are extraordinary and compelling.
• 10,000 tons of lignite mined each day
• Produces 20,000 barrels of syncrude daily
• Market price of $80/barrel produces an annual revenue of $584 million
• Production cost of $40/barrel yields an annual profit of $292 million
• Four billion tons of lignite produces a total revenue of $640 billion

The only thing one can know for certain about these estimates and projections is that they are all wrong (as is the case for all estimates and projections of this nature). The $640 billion question is, “What is the magnitude of the error?”

Projected Impact on Arkansas’ Economy is Enormous
The known facts are more than adequate to make the case for moving forward. The projected impact on the economy of Arkansas is enormous, dwarfing projections for natural gas in the Fayetteville shale.

According to the BLR, studies on potential lignite mines in Clark and Dallas Counties produced these projections:
• 200 full-time employees per mine
• An annual payroll of $14.5 million per mine
• Wage rates from $17.50 to $25.22 per hour for operators with skilled positions higher
• Development cost for each mine: $135 million
• Each mine purchases $18 million of supplies from the local economy
• Each mine provides additional ad valorem tax revenues of $600,000 annually
• Royalties paid to land owners for each mine: $1.8 million annually
• Each mine provides $2 million in state sales tax revenue annually
• Each mine provides an additional $350,000 in state severance tax annually

The Economic Impact Projections for Clark County:

One time impacts: • Total employment 875 • Total payroll $44 million • Additional GSP $85 million

Annual impacts: • Total employment 467 • Total payroll $23 million • Additional GSP $52 million

Current Economics • Total employment 10,000 • GSP $622 million

The Economic Impact Projections for Dallas County:

One time impacts: • Total employment 875 • Total payroll $44 million • Additional GSP $85 million		Annual impacts: • Total employment 467 • Total payroll $23 million • Additional GSP $52 million		Current economics: • Total employment 3,340 • GSP $186 million

One More Study Needed – To Be Funded by Taxpayers?
Arkansas geologists say that another study is required to be ready to move forward with converting Arkansas’ brown coal to black gold. Core samples need to be taken throughout the target area to determine the locations of readily accessible lignite and the depth and purity of each vein – yielding information critical to profitable extraction and refining. (The last core sample study was done 30 years ago and the samples have deteriorated beyond use.) This study, involving thousands of core samples and costing approximately $3 million, is expected to require up to three years to complete.

A group supporting the development of lignite mining in south Arkansas is working to raise a $2.5 million match for a federal grant to conduct lignite core sampling and a special account has been established at Southern Arkansas University (SAU) in Magnolia. SAU, which has a vested interest in lignite research as a member of the Arkansas Lignite Resources Pilot Program, will be the fiscal agent for the project.

Reportedly Land Commissioner John Thurston’s staff is investigating their available funds to determine if any “unobligated” funds can be directed to this project. And according to a May 2, 2011 news release from SAU’s College of Science and Technology, Arkansas Governor Mike Beebe, who has opposed lignite mining in the past, “has pledged to support the project if funding is available.” Information regarding the terms and strings attached to the federal “grant” (taxpayer money) was not readily available.

Map Via Arkansas Bureau of Legislative Research

I asked Richard Wilson of the Arkansas Bureau of Legislative Research why taxpayer monies (instead of an investment from a private commercial entity) should be used to fund the study. He explained that the UTA technology will not be commercially available for another two years and that the core sample study could take as long as three years. He said public funding of the required study will expedite the commercialization of the project, more quickly lead to private commercial investments and revitalization of the South Arkansas economy and therefore also expedite Arkansas’ tax revenues from the new industry. He said that he expects Arkansas to gain significant new revenues directly from the lignite mining and refining industry via both severance and conversion taxes.

The Arkansas counties that have been identified as having significant lignite reserves include Ashley, Bradley, Calhoun, Cleveland, Columbia, Dallas, Grant, Hempstead, Hot Spring, Miller, Nevada, Ouachita, and Saline counties.  Lignite extraction involves a technique know as “strip mining,” a process that includes returning the topography of the mined area to either its original pristine condition or a landscape desired by the landowner.
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Curtis Coleman is the President of The Curtis Coleman Institute for Constitutional Policy and contributing author to the ARRA News Service.

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