What causes long-delayed 'zombie' projects? The market, not government permit reviews

What causes long-delayed 'zombie' projects? The market, not government permit reviews

August 22, 2023

When it was first proposed in 2015, the Lake Charles Methanol Plant in southwest Louisiana was designed to convert a waste product of oil refineries called petroleum coke – which is heavy with pollutants like sulfur and heavy metals – into methanol, a fuel and chemical used to make plastics, inks, paints, tires, and other products. It would have been the first plant of its kind in the U.S.

But the project has stalled for financial reasons, despite having received billions in government funding. It is not the only one.

Lake Charles Methanol is one of at least seven oil and gas mega-projects across the U.S. that have delayed construction as a result of bankruptcy, financing delays, or market forces, according to a review of public records by Oil & Gas Watch. The stalled projects include a new methanol plant and two liquefied natural gas (LNG) export terminals in Louisiana, two new fertilizer plants, one in Indiana and one in Alaska, and a new condensate splitter in Texas. All of these projects were issued Clean Air Act permits to allow construction more than seven years ago but have failed to move forward, largely for financial or economic reasons.  

While the oil and gas industry and some politicians have argued that permitting reform – in the form of an accelerated government permit approval process – is necessary because cumbersome environmental reviews stall otherwise shovel-ready projects, more often than not, the cause of delays is economics. This reality undercuts claims that fast-tracking of environmental reviews by government is needed.  

Often shifting markets and funding delays in the private sector create “zombie projects” that seem to die, but then lurch back to life in a different form – and then shuffle along for months or years, without it ever being clear if they are living or dead.

A map of the proposed Lake Charles methanol plant location in Lake Charles, Louisiana.

One such zombie project is the Lake Charles Methanol project, which was first proposed more than a decade ago by Leucadia Energy, LLC.  Although the company received approximately $261 million in financial assistance from the U.S. Department of Energy, the project was canceled in 2014.  

It was resurrected just a year later by Lake Charles Methanol LLC – a subsidiary of little-known Clean Energy Resources, LLC – which is thought to be led by Don Maley, a former employee of Leucadia. Under new leadership, the project was redesigned and the company requested “expedited permit review” from the state to hurry up the review process.  The project then obtained a pre-construction permit under the Clean Air Act from Louisiana in February 2016.  

That was more than seven years ago. And despite the company’s demands for an accelerated review and approval of its permit, the developers still have not broken ground on the new plant.  

Originally proposed as a petroleum coke gasification facility, the plant was designed to produce methanol, hydrogen, and other industrial gases and chemical products, like sulfuric acid. The company planned to transport the methanol and sulfuric acid by pipeline to a neighboring tank farm owned by the Port of Lake Charles, where the chemicals were to be stored and later exported.  

The U.S. Department of Energy issued a $2 billion conditional loan commitment to Lake Charles Methanol in late 2016, arguing that the project would create thousands of jobs and capture 77 percent of its carbon emissions. However, the project’s claims to be climate-friendly are questionable, because the company planned to pipe its captured carbon into the oil fields of southeast Texas to "enhance" or boost oil production.  

Despite the plans to install carbon capture technology, the project – if built – would be one of the largest emitters of greenhouse gases to be proposed in Louisiana over the past ten years. It was authorized to emit over 6 million tons of greenhouse gases every year – well more than the average coal-fired power plant. The plant’s permit would also allow it to emit hundreds of tons per year of dangerous air pollutants, like fine particulates and volatile organic compounds, as well as toxics like benzene, ammonia, and sulfuric acid.  

The setting sun silhouettes an industry skyline in Lake Charles, Louisiana. Photo by David Wilson.

Even with taxpayers covering over 50 percent of project costs, the company asked the Louisiana Department of Environmental Quality (LDEQ) for three permit extensions due to “delays in the financing process.”  

After LDEQ issued a draft operating permit renewal for the nonexistent plant two years later, community members gathered in Lake Charles to express their concerns.  

“This facility has been a pipe dream for 15 years… [it] just keeps on getting extension after extension. At some point, the DEQ should be on the side of the people and not the industry and say that’s enough,” said James Hiatt of Lake Charles at a public hearing held that February.  

Others objected to the project’s enormous environmental impacts, the use of novice and unproven technologies to convert petroleum coke waste into chemicals, the plant’s proximity to the Sabine National Wildlife Refuge, and its location in a hurricane zone.  

Now, in a last-ditch effort to save the project, the Lake Charles Methanol plant is being rebranded as a “clean hydrogen” project.  

In response to an inquiry from Oil & Gas Watch News about the status of the draft permits, which have been pending for more than a year and a half, LDEQ Administrator Bryan Johnston explained that the project is not moving forward as planned.  

“Lake Charles Methanol is no longer pursuing a project in which they will gasify petroleum coke and convert it to methanol,” Johnston said. “It’s our understanding that they are going to reapply for permits. And they have not done that yet.”  

Johnston could not comment on the status of project financing or confirm when or if the company plans to reapply for new permits.  

According to the project website, Lake Charles Methanol is still in the process of negotiating a new loan with the U.S. Department of Energy to help finance the project, which has undergone another facelift. The company now plans to take a more traditional approach to methanol production, converting natural gas into hydrogen, and then methanol, which it claims will be used as a green fuel.  

Clean Air Act pre-construction permits issued by most states and EPA require large new sources of air pollution—like methanol plants, fertilizer plants, and LNG terminals—to begin construction within 18 months after their permit is issued. Agencies can usually issue up to two 18-month extensions if the permittee can demonstrate that an extension is justified. This regulatory process has been established to ensure that air quality considerations and emissions limits remain current. It also allows for agencies to reevaluate the best available control technology requirements and to update permitting conditions if advancements have been made, or if additional facilities have been built in the area that could also impact air quality.

In theory, a second extension to the construction deadline would only be justified in rare circumstances. In practice, however, state and federal permitting authorities are more than likely to grant extensions for these massive infrastructure projects.

All of the seven oil and gas mega-projects listed in the table below were authorized by government permits more than seven years ago—well beyond the three-year window recommended by the Environmental Protection Agency—and have been granted multiple permit extensions from state agencies.  

Some of these zombie projects, like the Big Lake Fuels Methanol plant in Calcasieu Parish, Louisiana, and the Midwest Fertilizer Plant in Posey County, Indiana, were permitted as far back as 2014 and have extended construction deadlines fast approaching. Others, like Lake Charles Methanol, have old draft permits pending that would modify and extend their original authorizations.  

These zombie projects – neither dead nor alive, but still shuffling along – include two long-delayed LNG export terminals in Louisiana. The Australian parent company behind the proposed Magnolia LNG terminal in Calcasieu Parish filed for the equivalent of Chapter 11 bankruptcy in 2020. Years later, the company is still struggling to finance the multi-billion-dollar project.  

The proposed Delfin LNG terminal in Cameron Parish is in a similar undead status. In July the company asked the Federal Energy Regulatory Commission for a fifth extension, until September 2027, to complete the project, explaining that the evolution of new technologies, low demand for LNG, and trade complications have resulted in more delays.  

State and federal regulators should carefully consider the potential environmental impacts of these zombie projects before approving more extensions. The seven long-delayed projects featured in the map above could emit up to 15 million tons of greenhouse gases per year, and thousands of tons per year of harmful “criteria” air pollutants.    

Alexandra Shaykevich
Oil & Gas Research Manager

Alexandra joined Environmental Integrity Project in 2019 and primarily supports our Oil and Gas program, including managing the Oil and Gas Watch database.

What causes long-delayed 'zombie' projects? The market, not government permit reviews

What causes long-delayed 'zombie' projects? The market, not government permit reviews

August 22, 2023
Alexandra Shaykevich
Oil & Gas Research Manager

Alexandra joined Environmental Integrity Project in 2019 and primarily supports our Oil and Gas program, including managing the Oil and Gas Watch database.