The Tri-State CCS Hub and The Return of The Bad Deal

Do you know a bad deal when you see it? Possibly not, if the deal has to do with something as arcane as leasing underground pore space to an oil and gas company that wants to dispose of carbon dioxide. But that’s the kind of deal property owners and elected officials need to start figuring out, because the “landmen” are coming with pens and contracts in hand.

A few weeks ago a news story, titled “Carbon dioxide storage hub seeks 80,000 acres across Western Pa., Ohio and West Virginia,” described in detail a proposal by Tenaska, Inc. to lease underground pore space across seven counties in Ohio, Pennsylvania, and West Virginia, in which it proposes to sequester some 150 million tons of carbon dioxide waste. The story also included a document, submitted by Tenaska to the Washington County, PA Planning Commission, proposing terms for the acquisition of 1,377 acres of pore space in county parklands.

Tenaska offered to pay Washington County about $3.9 million between 2027 and 2056 for the lease. If the 1,377 acre parcel receives a proportional share of the 150 million tons of CO2 Tenaska says it plans to sequester region-wide, then about 2.6 million metric tons will be buried there. That comes to $1.50 per metric ton of sequestered carbon.

What do you think? Is this a good deal? I’ll spare you the suspense. It’s ridiculous and borderline insulting.

Imagine for a moment you were selling a house and listed it at a very fair price of $225,000, then somebody offered you $100,000. How would you react? Would you laugh? Get angry? Affably cringe? What you wouldn’t do is sell at that price. But that’s the deal Tenaska is offering Washington County and very likely property owners all over the region.

How do we know the deal is that bad? First, there’s already a “comp” out there. In August of last year, Mountaineer GigaSystem, LLC offered the state of West Virginia a royalty of $3.35 per metric ton to sequester carbon dioxide on public land in Mason County. That’s two and a quarter times what Tenaska is offering Washington County.

The Tenaska offer is also a bad deal in another way. The ultimate cost of capturing and sequestering carbon dioxide waste isn’t going to be paid by Tenaska or the industrial customers that engage Tenaska to take the stuff away and bury it. The cost will be shouldered by taxpayers in the form of direct payments from the U.S. Treasury, which is giving away $85 for every metric ton of CO2 that is sequestered.

That means Tenaska and its corporate customers, who anticipate sequestering 5 million metric tons of carbon dioxide waste each year, will receive $425 million annually from the U.S. Treasury. That doesn’t count the $69 million grant Tenaska already received from the government to “jumpstart development”. Meanwhile, at Tenaska’s proposed lease rate of $1.50 per metric ton, property owners in the region will receive only $7.5 million annually – less than 2% of the subsidies Tenaska and its customers are receiving for the one asset that’s indispensable: a place to put 150 million tons of toxic waste.

If you’re a property owner who is inclined to strike a deal with Tenaska (and many of us would not be so inclined) then, given the value of the asset and the risks you will have to take with your health and our property, $7 per metric ton would not be unreasonable. At that price, instead of $3.9 million, Washington County would stand to get over $18 million. At the very least, the payments should match the $3.35 per metric ton Mountaineer GigaSystems will pay West Virginia. And, if Tenaska says they can’t do it at the price we think makes it worthwhile, we should walk away, just like you would walk away from that $100,000 offer on your $225,000 house.

The region got a bad deal when the natural gas boom produced zero job growth. We got another bad deal with the Shell cracker in Beaver County, PA. Despite more predictions of job growth that were used to justify over a billion and half dollars of subsidies, job counts in Beaver County abruptly reverted to their old levels as soon as construction ended. And the promised proliferation of “downstream” manufacturing jobs never materialized.

Now, another industry wants to make a deal. Will we once again roll over even though the proposal is insulting and would leave millions of dollars on the table? Or will we negotiate a better deal? Will we leverage the fact that, because this region is one of the few with the necessary geology, Tenaska can’t just pick up and go elsewhere? Will we refuse to settle for another bad deal?

Sean O'Leary

Sean O’Leary, senior researcher, energy and petrochemicals, is a native of Wheeling, WV. He has written about coal, natural gas, and their role in the economies of Appalachia in a book, a newspaper column, and blog titled, “The State of My State”. Previously, Sean served as communications director at the NW Energy Coalition in Seattle, Washington.