Ashby Consultants LtdMining to Keep the Home Fires Burning – NZ’s Energy in the 21st Century

Mining to Keep the Home Fires Burning

- NZ's Energy in the 21st Century

Ashby Consultants LtdMining to Keep the Home Fires Burning – NZ’s Energy in the 21st Century 2

NZ has enjoyed some of the cheapest energy of any OECD country over the past decades:

Cheap Maui GasPlentiful hydro

0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40

JapanNetherlands

GermanyItaly

United KingdomFrance

SwedenUSA

New Zealand AustraliaCanada

Residential Cost NZ cents/kWh 1998

.

Ashby Consultants LtdMining to Keep the Home Fires Burning – NZ’s Energy in the 21st Century 4

NZ is Facing an Energy Crunch! -resulting from:

Demise of Maui Gas

Ashby Consultants LtdMining to Keep the Home Fires Burning – NZ’s Energy in the 21st Century 5

NZ is Facing an Energy Crunch! -resulting from:

Demise of Maui Gas Oil at $US60/bbl and beyond

Jun-68 Feb-82 Oct-95 Jul-2009 Mar-20230

50

100

150

Price U

S$ / b

bl

Price of Crude Oil

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Oil beyond US$60/bbl?

11-Jun-68 18-Feb-82 28-Oct-95 06-Jul-2009 15-Mar-2023

$0.00

$10.00

$20.00

$30.00

Pri

ce N

Z$

/GJ

OIL: International Crude

COAL: Australia OECD Export FOB

COAL: Estimated = Oil / 3.8

OIL: Projected Growth Curve 7% pa

COAL: Projected Growth Curve 7% pa

COAL: Newcastle Spot FOB

International Price of Crude Oil & Steaming CoalActual and Projected at +8%pa

Ashby Consultants LtdMining to Keep the Home Fires Burning – NZ’s Energy in the 21st Century 7

NZ is Facing an Energy Crunch! -resulting from:

Demise of Maui Gas Oil at $US60/bbl and beyond Hydro capacity being pushed

Ashby Consultants LtdMining to Keep the Home Fires Burning – NZ’s Energy in the 21st Century 8

NZ is Facing an Energy Crunch! -resulting from:

Demise of Maui Gas Oil at $US60/bbl and beyond Hydro capacity being pushed Insufficient Capital Investment

Electricity consumption in New Zealand, 1947–2002

Source: New Zealand Official Yearbook, 1947–2002

Ashby Consultants LtdMining to Keep the Home Fires Burning – NZ’s Energy in the 21st Century 9

NZ is Facing an Energy Crunch! -

resulting from:

Demise of Maui Gas Oil at $US60/bbl and beyond Hydro capacity being pushed Insufficient Capital Investment Distorted thinking

Ashby Consultants LtdMining to Keep the Home Fires Burning – NZ’s Energy in the 21st Century 10

Distorted thinking:

Results from poor or lacking information We will find more cheap gas - convert it to electricity rather than

reticulate it Gas is clean -perhaps comparatively but still a fossil fuel that

produces GHG Coal is dirty - coal is a fossil fuel along with gas and oil LNG will save us NIMBY and BANANA No nukes – the dangers of not going nuclear Green Alternatives will save us Hot air: Wind will save us Groupthink?

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Wind will save us:

Ashby Consultants LtdMining to Keep the Home Fires Burning – NZ’s Energy in the 21st Century 12

Ashby Consultants LtdMining to Keep the Home Fires Burning – NZ’s Energy in the 21st Century 13

The Outcomes:

Price increasesShortages

Ashby Consultants LtdMining to Keep the Home Fires Burning – NZ’s Energy in the 21st Century 14

The Outcomes:

brown outs

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The Outcomes:

price increasesShortages brown outsblack outs

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Focused thinking

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The Outcomes:

Price increasesShortagesRecession

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NZ’s Energy Sources

0

100

200

300

400

500

600

700

800

1975 1980 1985 1990 1995 2000

0.0

0.5

1.0

1.5

2.0

Other RenewgeothermalHydroGas ex P'ChemDomestic OilImported OilCoal (net)Real GDP Index (rhs)

Primary Energy Supply - PJ

Source: Energy Data File, MED

Ashby Consultants LtdMining to Keep the Home Fires Burning – NZ’s Energy in the 21st Century 19

What has lead to the crunch?Oil:

Oil at $US60/bbl and beyond depletion of world reservesprofligate useemerging consumers

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What has lead to the crunch?Maui Gas:

Too cheap Take or pay - Methanex 20% - Electricity Generation 40% - Huntly coal mine mouth generator run on 70% gas!!!

Ashby Consultants LtdMining to Keep the Home Fires Burning – NZ’s Energy in the 21st Century 21

What has lead to the crunch? Electricity capacity:

Hydro capacity being pushed to limit Insufficient investment in new generation Current economic model failing (SOE’s) Lack of responsibility for security of supply No independent generators Thermal coal supply inflexible 1.25 Million tpa import to Huntly!!

Ashby Consultants LtdMining to Keep the Home Fires Burning – NZ’s Energy in the 21st Century 22

What can NZ do? Gas

price properly develop / find morereticulate and use directly

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What about Coal?

0

1

2

3

4

5

Aus

NZ

RSAFSovU US Ger

Polandworld China Rest

World Coal Reserves (tonnes/capita)

Coa

l Res

erve

s (t

onne

s/ca

pita

)

3924 2178 1115 902 850 837 503 150 90 35

World Coal Reserves Per Capita

0

5

10

15

20Aus

RSA PolandUS Ger

FSovU China NZ world Rest

World Coal Production 2002 (tonnes/capita)

Coa

l Pro

duct

ion

2002

(to

nnes

/cap

ita)

17.3 5.1 4.4 3.4 2.7 1.8 1.2 1.0 0.8 0.3

World Coal Production Per Capita

Ashby Consultants LtdMining to Keep the Home Fires Burning – NZ’s Energy in the 21st Century 24

Coal

Coal kick started the industrial revolution

- It can provide the transition to post oil and gas

Ashby Consultants LtdMining to Keep the Home Fires Burning – NZ’s Energy in the 21st Century 25

NZ Coalfields

Sub Bituminous 870Mt (18,000PJ)Bituminous 340Mt (9,000PJ) Lignite 7500Mt (110,000PJ)

(NZ Consumption 750PJ/yr 2007)

Ashby Consultants LtdMining to Keep the Home Fires Burning – NZ’s Energy in the 21st Century 26

What about the Cost of Coal?Estimated Cost of Mining North Island Thermal Coal

Cost *NZ2006$

Rotowaro Callaghans OC 3.7$/GJ

Rotowaro Pukemiro OC 3.9$/GJ

Mokau OC 4.3$/GJ *

Maramarua OC 4.5$/GJ

Huntly West UG 5.2$/GJ

Ohinewai OC 5.4$/GJ

Maramarua UG 5.8$/GJ

Kawhia East UG 5.9$/GJ

Kawhia West UG 6.3$/GJ

Mokau UG 7.0$/GJ

Tihiroa UG 7.1$/GJ

Note * Estimated average discounted cost NZ$2006 of mining coal at a rate of 800,00tpa for at least 10 years, to mine gate after tax , excluding GST at a discount rate of 10%OC- opencast UG – underground

Ashby Consultants LtdMining to Keep the Home Fires Burning – NZ’s Energy in the 21st Century 27

What about Pollution?Coal as a Fuel or as a Raw Material

Don’t burn coal – refine it

C + H2O + heat = CO + H2

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Fossil Fuels Price and Carbon Content

(per GigaJoule)

Coal Crude Oil Natural Gas

Price NZ$/ GJ 5 18 1242% 150% 100%

Carbon Kg / GJ 25 20 14

179% 143% 100%

Ashby Consultants LtdMining to Keep the Home Fires Burning – NZ’s Energy in the 21st Century 29

Global Warming - A theory

Global or Urban warming!

Effects:

1841 Ross

Benchmark:

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What about Environmental Costs?2004 Cost of Generating UK Electricity from various fuels and new plant NZ¢/kWh

Nuclear Gas CCGT

Coal Pulverised

Coal Fluidised Bed

WindOnshore

WindOffshore

Basic Cost 6.6 6.3 7.1 7.4 10.6 15.7

With CO2 $315/t * - 9.7 14.3 14.6 - -

With CO2 $15/t (JPA)

- 6.4 7.5 7.8 - -

With Back-up - - - - 15.4 20.6

Note NZ$=.35GBP, * A very high CO2 tax had been assumed in original workSource: The Costs of Generating Electricity, Royal Academy of Engineering, 2004

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What can we as Mining Professionals do?

Encourage responsible investment in energyPromote informed decision makingEncourage new techniques for utilising our natural resources including coal

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What can we in NZ do?

Become better informedConservelobby for shrewd use and investmentLifestyleBe more efficient - insulate - heat pumps - gas for heating - solar space heating or water heating

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Solar

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Private Coal