Hearings and Business Meetings

SD-366 Energy Committee Hearing Room 02:30 PM

Mr. Hunt Ramsbottom

Rentech, Inc.

Before the United States Senate
Committee on Energy and Natural Resources

Testimony of D. Hunt Ramsbottom
President and CEO of Rentech, Inc.

Monday, April 24, 2006

Thank you, Mr. Chairman.  Distinguished Senators and guests, I’m Hunt Ramsbottom and I’m the President and CEO of Rentech, Inc.  We are a publicly held, Denver-based firm and we are listed on the American Stock Exchange.  For 23 years, Rentech has engaged in research and development , focusing on enhancing the production of ultra-clean fuels made from natural gas and coal, through a chemical process known as Fischer-Tropsch.  We hold 20 U.S. patents and 4 foreign patents.

The History of Rentech and CTL

I’m here today to share how, right now, we are moving to establish a commercial coals-to-liquid – CTL – industry.  The basic chemistry behind our fuel products ahs been known for 7 decades.  The  basic technology has been developed and used extensively in other countries.  We have tested our Rentech innovations in the lab and in pilot programs, and deployed small-scale production.

We now have developed our technology around Coals-to-Liquids – or CTL – gasification, and for Rentech, the future of CTL in the United States is no longer a theoretical, what-if, conversation. We plan to have a fully commercial, fully operational CTL plant up and running by 2010. 

Even before that, we will be operating our Process Demonstration Unit (PDU).  By the first quarter of 2007, we will have that up and running in Colorado.  It will produce 10 barrels per day of our fuel basis for demonstration and analysis by potential end users.  And it will allow us to optimize our technology for variations in coal and other factors.

East Dubuque, Illinois:  The First CTL Clean-Fuels Plant in the U.S.

Within the next month, Rentech will announce the purchase a fertilizer plant in East Dubuque, Illinois, and we plant to convert it in phases to CTL poly-generation over the next 3 to 4 years.  By poly-generation, I mean that we will ultimately produce 3 products:  ultra-clean transportation fuels, ammonia fertilizer and electricity. 

The plant currently makes ammonia fertilizer from natural gas, and it already incorporates basic technologies that are critical to successfully implementing CTL.  The conversion will include changing the feedstock from natural gas to Illinois coal.  It will also entail adding a gasification unit to produce synthesis gas; adding a Rentech Reactor so that we can produce the basis of our ultra-clean fuels; and a finishing plant to produce the final fuel products.  We chose our final planned product mix carefully.

Fertilizer will still be made in large quantities.  As I’m sure all of you know from our friends in the farm states, domestic fertilizer plants are shutting down rapidly because of high natural gas prices -- the current primary feedstock for fertilizer.  Since 1999, the US has switched from producing all its own fertilizer to becoming a net importer.  We will demonstrate that fertilizer production can still be a thriving domestic industry using clean coal technologies.

Electricity will be produced in small quantities, primarily for the plant’s own use.  A small surplus, however, will be provided to the local grid.

Rentech’s Ultra-Clean Fuels

But the real innovation at East Dubuque will be the production of our ultra-clean fuels.  I’m passing around a sample of Rentech’s ultra-clean diesel.  Please look at it closely -- it is very different than the diesel made from petroleum.  This is clear, refined to a high degree of purity, and has almost no particulates – which is what causes the belching cloud you see when a diesel truck or bus starts to accelerate. When the Air Force tested our fuels and similar fuels made by competitors, the tests showed reductions in particulates of up to and over 80%. 

The Rentech fuel is also extremely low in sulfur – less than 1 part per million, far under the new EPA standard of 15 ppm.  The finished fuel can be used with no engine modifications in any standard diesel engine – including trucks, buses and barges.  It can even be processed into jet fuel.  Under our timeline, the East Dubuque plant will be first commercial scale plant in the U.S. to produce quantities of this fuel –about 2000 barrels per day in 2010.

You should also smell the product.  It has none of the typical odor of diesel.  There are two other critical differences between this and typical diesel.  Our fuel has a shelf-life of at least 8 years, rather than 3-4 months for petroleum diesel – meaning that for the strategic reserve, for emergency first-responders, and the military, our fuel has incredible advantages.  Next, our fuel is biodegradable.  If it spills, it does not cause irreparable damage to waterways or wells.

Environmental Benefits

Let me take a moment to highlight the environmental policies that we intend to pursue.  Rentech is committed to being environmentally friendly – and both our production and fuels have environmental benefits.
  
As we manufacture our fuel, we remove most of the harmful regulated pollutants in the gasification stage.  Sulfur and mercury come out as elements – they do not go up a smokestack to be scrubbed out, and do not leak into the environment.  Once conversion is complete, regulated criteria pollutant emissions will be reduced about 33%.  Some carbon dioxide emissions will be sequestered in products – in the fertilizer and in items like bottled sodas.  Our fuel itself runs cleaner than traditional diesel, and as I mentioned earlier, it is much more stable and biodegradable.  I would like to enter for the record an analysis that shows the environmental benefits of our CTL process. 

Natchez, Mississippi:  A Possible Second Plant

Our commitment to being environmentally-friendly brings me to our second proposed plant in Natchez, Mississippi, which would produce 11,000 barrels per day.  There, we are pursuing opportunities for 100% capture and storage of carbon.  Our carbon dioxide output would be pumped into nearby older oil well fields, both helping to produce additional oil by forcing out additional supplies and trapping the carbon underground.  
 
As you can see, Rentech is aggressively pursuing commercial deployment.  We have worked extremely hard to get over the significant financial hurdles that building – or as we are doing, converting – a plant takes.  That is especially true of a first-of-its-kind-in-the-US plant.

What the Government Can Do

We are planning to make full use of the EPACT 2005 incentives designed to jump-start this critical clean-fuel industry.  Let me note that the States are also lending their assistance.  The State of Illinois has been extraordinarily helpful – they helped us to complete feasibility studies, engineering studies and provided grants to assist with conversion to coal.  The State of Mississippi has also been exceptionally supportive of the possibility of our second plant being located in Natchez, and they just passed a $15 million bond bill for the proposal.

Federal Loan Guarantees

What you have been doing at the federal level, though, is absolutely vital to our efforts.  We intend to seek the DOE self-pay loan guarantees for our conversion closing, planned for the first quarter of 2007. We understand that DOE’s implementation has begun and we commend the Department and the Secretary of Energy for quickly moving to implement the authorized programs.  The self-pay guarantees are integral to our financing of the East Dubuque conversion, so we appreciate and hope you will continue your efforts to ensure that the DOE loan programs are fully funded and implemented expeditiously. 

Industrial Gasification Investment Tax Credit

To meet our aggressive timeline, we also will apply for the industrial gasification investment tax credit provided by the Energy Bill.  The recent initiative by Senators Grassley and Baucus to raise the current $350M cap to $850 million is very helpful.  If Congress is serious about trying to reduce our dependence on foreign oil import then allow me to offer an observation.  Maintaining the current cap of $350M could slow the rollout of industrial gasification using coal to the point where the US winds up losing more industry.  Even an $850M cap will assist the development and deployment of only 6-7 plants– hardly the creation of a full-fledged industry.  At $75 per barrel, the price of oil last Friday, the U.S. is paying $850 million to foreign countries for oil every two days.  To create a real incentive, it might be better to lift the caps altogether.

Fuel Excise Tax Credit

There is another way for the federal government to help, by making the 50 cent-per-gallon fuel excise tax credit provided in the Highway Bill available to CTL fuels.  To do that, you could extend the expiration of the current credit from 2009, when no CTL plants will yet be operational in the U.S., to at least 2014.  Senator Bunning, I recognize your unique position a member of both the Senate Energy and Natural Resources Committee and the Senate Finance Committee, so any supportive words that you can pass on to other members of the Finance Committee would certainly be appreciated.

Department of Defense Fuel Use

There are other ways that the government could catalyze commercial deployment of the CTL industry.  Use by the military as diesel and jet fuel under long-term contracts could assist with financing the first plants – but it is going to take a realistic assessment based on the actual costs of production.  Historically, the cost of generating fuel from CTL in the US has been the major stumbling block to commercialization.  Until recently the costs were not competitive with petroleum.  Now they are.  Today, fuels from CTL technology can be produced – finished – for $36 to $42 per barrel.  That’s the equivalent to purchasing raw crude at prices of $30 to $35 per barrel.  EIA’s AEO 2006 projected long-term oil costs at $50 and above.  The same forecast shows CTL production growing to 700,000 barrels per day by 2030.  But the first plants must be financed and built, paving the way for the industry to flourish and add to the nation’s energy security.

Conclusion

I think the great potential of CTL is using American resources, American know-how, and American innovation to create both energy independence and American jobs.  It’s a big vision, but it starts with small steps.  As I close, I’d like to let you know how Rentech is moving to commercial deployment. 

We intend to operate the first U.S. commercial-scale plant through the conversion I have outlined of the fertilizer plant in East Dubuque.  We are pursuing a second larger scale plant in Natchez, Mississippi – the Natchez Adams Strategic Fuels Center.  We were invited by the local community to consider the possibility after Hurricane Katrina when Mississippi ran disastrously low on diesel. At Natchez, we can use two feedstocks -- both coal and petroleum coke, a byproduct of the local petroleum industry.  And as I have mentioned, there is the very real possibility of capturing and storing 100% of the carbon dioxide emissions through enhanced oil recovery in nearby oil fields.  To our knowledge, this would be the first large-scale U.S. commercial capture and storage of man-made carbon emissions.   Carbon dioxide injection is already being used in this oil-producing basin, but additional supplies are need.

We are also exploring with several coal companies to create a replicable, iterative plant model that could be located at the mouths of mines.  There, we would size a basic plant model that could be expanded.  For twenty years, Rentech has researched and optimized our technology.  We have refined our process to make it more effective and more environmentally-friendly.  Now we are commercializing it.

We aren’t asking the government to subsidize the industry.  We urgently need your help, though, to get a CTL clean-fuel manufacturing industry launched with private-sector funding.  A robust clean-fuels sector is important so that we can meet our national energy needs, foster greater energy independence, and preserve a full measure of our energy security.  At Rentech, we are ready.  We are using American innovation to produce environmentally-friendly, energy-rich fuels to build America’s future.  And we are doing it using America’s greatest natural energy resource, coal.

Thank you for all that you have done to allow a jump-start of CTL in the Energy Policy Act of 2005, including the tax incentive.  We intend to make use of your help to do just that – jump-start full scale utilization of CTL, and jump-start a new clean fuel manufacturing industry.  Thank you as well for your time today.