$3 Billion Coal-to-Gas Plant to Be Built in Kentucky

Kentucky has been picked as the site for the new $3 billion coal-to-gas plant from Peabody Energy (BTU) and Conoco Phillips (COP). The decision was announced Monday in Louisville, KY, in front of the University of Louisville's Speed School of Engineering.

The $3 billion coal-to-gas plant will convert coal into a synthetic natural gas, which is supposed to be cleaner burning. Peabody Energy had considered several different locations in Kentucky, Illinois, and Indiana. However, Kentucky's state legislature had passed an energy bill earlier this year with the proper regulatory provisions to provide the incentives Peabody was looking for, if the plant was to be built in Kentucky. The bill was passed, even though it faced opposition and criticism from citizens of the state of Kentucky. It was argued that the tax incentive package was too great and because of it, it would take decades to realize any real economic benefit from the plant. Furthermore, the plant's negative environmental impact would greatly outweigh any economic benefit Kentucky could realize. By the time any economic benefit might in fact be realized, the plant might even be obsolete due to new environmentally friendlier energy production methods.

Nevertheless, the bill was passed and went into effect. Last week the Kentucky Economic Development Finance Authority, based on the new energy bill, had made provisions for a $250 million tax incentive package for Peabody. This provision prompted the company's decision to narrow down the search for a proper location to Kentucky.

According to Rick Bowen, a Peabody Energy executive, the location search will be centered on areas in western Kentucky. The company will conduct a feasibility study 'followed by a detailed engineering and design study'. Based on the results of these studies, the final location and investment decision will be made by the project managers.

Western Kentucky is the focus of the site search because this would keep the new plant close to Peabody's coal reserves. The company has coalmines in Henderson, Union, Ohio, Webster, and Muhlenberg counties. The project is expected to create 400 to 500 new jobs. The plant is projected to convert 2.5 million tons of coal per year.

Ernie Fletcher, Governor of Kentucky, is expecting that hundreds of jobs and extraordinary long-term benefits will be created for Kentucky. He described Peabody as "an important partner in achieving energy security within the state."

St. Louis based Peabody Energy is the world's largest private-sector coal company producing about 10% of the electricity in the U.S. The company plans to begin production at the new plant by 2012.