session iii policy perspective and options for clean coal industry development

8/3/2019 Session III Policy Perspective and Options for Clean Coal Industry Development

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POLICY

PERSPECTIVES &OPTIONS FOR CLEAN COAL INDUSTRY

DEVELOPMENT

Gürcan Gülen, Dmitry Volkov, Michelle Michot Foss

Center for Energy Economics, The University of Texas at Austin



Regional Clean Coal Partnership Programme - 2 -

Resources are distributedTotal proved reserves – 847 billion tonnesEstimated resources – ~9,000 billion tonnes

Proved Reserves, % of the World (2007)

0%

5%

10%

15%

20%

25%

30%

35%

U S

R u s s i a

U k r a i n

e

S . A f r i c a

A u s t r a l i a

C h i n

a I n

d i a

Anthracite and bituminous Sub-bituminous and lignite

Source: BP Statistical Review 2008




Major Consumers

Total consumption – 6,500 million tonnes

Coal Consumption, % of the World (2007)

0%

5%

10%

15%20%

25%

30%

35%40%

45%

U S

G e r m a n

y

R u s s i a

S . A f r i c a

C h i n

a I n

d i a

J a p a

n





Steam Coal Value Chain EconomicsRepresentative costs of steam coal value chain

(2006/2007), cif ARA

$0$10$20$30$40

$50$60$70$80$90

Q d , O N S

W , U N S

W , O

S . A r i c a , O C o l , O

R u s s i a , O

I n d o n

e s i a , O

V e n , O

Costs free mine, USD/t Transport domestic, USD/t

Port handling, USD/t Sea freight, 2006, USD/tSource: World Market for Hard Coal , 2007, RWE




Coking Coal Value Chain EconomicsRepresentative costs of coking coal value chain

(2006/2007), cif ARA

$0

$20

$40

$60

$80

$100

$120

$140

Q d , O

Q d , U

N S W

, U

N S W

, O B C

, O

C . A p p

. , U

Costs free mine, USD/t Transport domestic, USD/t Port handling, USD/t Sea freight, 2006, USD/t

Source: World Market for Hard Coal , 2007, RWE




Coal trade




Coal trade to increase

• Coal meets 28% of world’s energy needs, but

• Relative to oil & gas, coal trade has been small – Only 16% of coal as compared to 29% of natural

gas and 60% of oil are traded

– About 75% of traded coal is steam coal• But, global coal trade has doubled between

1995 and 2005 (mostly after 1999) and is

projected to increase further• More than 90% is maritime trade and that’s

where expansion is expected




Source: EIA 2004




Coal Pricing

Coal Prices - Spot vs. Contract ($/tonne)

010203040

5060708090100

1 9 8 8 1 9 9 0 1 9 9 2 1 9 9 4 1 9 9 6 1 9 9 8 2 0 0 0 2 0 0 2 2 0 0 4 2 0 0 6

Northwest Europe marker price † US Central Appalachian coal spot price index ‡

Japan coking coal import cif price Japan steam coal import cif price





Coal contracting

• Spot contracts are on the rise (bidding)• Long-term contracts are becoming lesscommon and shorter-term (<5 yrs)

• Producers increasingly displace dealers

• Hedging in contract prices, freight rates and

currenciesSource: World Market for Hard Coal , 2007, RWE




Increased commoditization• Paper trade = ~2.5 x physical trade

• Lack of quality ‘standards’ is an issue – Indices (calorific value, fob or cif, port of origin, destinationport, etc.)

– www.globalcoal.com (Standard Coal Trading Agreement)





Expensive transportation

• Bulk commodity - very high

transportation costcomponent in overallcommodity price

– Shipping costs at 55-60% arenot unusual

– Overland transportation is

expensive, yet inlandwaterways are underutilized




Bottlenecks – land transportation

• Overland transportation – Less troublesome compared to

maritime but still some issues

– Backlog on railroad carsreplacements (e.g., 3-4 years inRussia, Ukraine and Kazakhstan)

– Upgrades of major railroad routes

require $US tens of billions ofinvestments




Bottlenecks – maritime transportation

• Bulk carrier order book:57% of the existing fleet(April ‘08) v 32% in April

‘07 and 21% in early ‘06; – 90% for all vessels above100,000 dwt and

– 182% for Very Large BulkCarriers (over 200,000dwt)

Source: DNV




Increasing freight rates





• Beginning of 2008 – major supply interruption

and congestion in Queensland (Australia),China and South Africa

• Queensland provides 49% of world’s

metallurgical and 7% thermal coal supplies• Other major exporters experience

transportation bottlenecks:

– Colombia exported 65 mt in 2007 with about 75mt/y of terminal capacity (implied exports for 2010 – 90 mt/y)

Problems at major exporters




Expansion in Australia

• Coordinated transportation capacity plans (track and

rail expansions) to match current planned mine andport expansions – joint public-private initiative;

• Newcastle export terminal (2010) - 30 mt/y with

possible expansion to 66 mt/y;• Kooragang Island terminal expansion – up to 11 mt/y

• 7X Expansion (2009) – from 54.5 to 85 mt/y

• Total estimated capital cost - A$2.6 billion or around40% of total committed capital expenditure in the coalindustry




Input constraints

• Lead times – for large haul trucks and tires have increased from

around three months to around two years,

– from 18 months to 3 years for draglines and

– from 9 months to 2 years for rope shovels*

• Significant skilled labor shortage, mainly inOECD countries

*Source: Australian coal 2008. In “Coal International • July/August 2008”




Environmental challenges - production

• Siting and permitting in some countries isincreasingly difficult

• In Appalachian Region of the U.S., coalproduction declined by 4% in 2007 in part dueto lawsuits with regards to federal permits to

excavate and discharge of dredged and fillmaterial




Environmental challenges – powergeneration

• Coal is a major fuel for power generation worldwide –

covers about 40%• SOx, NOx, mercury, particulates and recently CO2 are

the main concerns

• In many countries, regulations and cap-and-trademarkets helped to reduce many pollutants (e.g., CleanAir Act and its amendments in the U.S., the SO2

market, etc.)• However, there are issues (e.g., mercury); and climate

change discussion puts the focus on CO2




Climate Change - Solutions

• Fundamentally, increasing efficiency helps to

reduce all emissions, including CO2 (1.1 tonsper MWh at 30% v 0.6 tons at 55% efficiency)

• But, capturing CO2 is seen as necessary to

achieve the desired reduction in CO2 emissionsto slow climate impact

• Three major CO2 capture technologies:

– Post-combustion CO2 capture – Oxyfuel process

– Pre-combustion CO2 capture (IGCC power plant)




Capture Technologies




CCS projects pipeline

Total world CO2 emissions in 2005 – 28.1 billion t

Source: PESD Carbon Storage Project Database, Stanford, June 2008




Impact of CO2 Capture, tax and salable products on LCOE at 10%Discount Rate, 25 year

economic life, 90% Capture, $10/ton tax(Used part of plant capacity for capture)

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

C o a l r e t

r o f i t_

n o d e b t

c o a l r e t

r o f i t_

w i t h

d e b t

C o a l D u

s t

S C P C

/ P R B

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N u c l e

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Announced power plant projects

L e v e l i z e d C o s t

o f E l e c t r i c i t y ( L C O E )

$ / M W h

Without CO2 Capture

With CO2 Capture

With CO2 Capture + salables

Do not cite. Work inprogress by JosephEssandoh-Yeddu atBureau of Economic

Geology, UT-Austin (Gulf

Coast Carbon Center).




Relative stability of coal prices ($/MMBtu)




Mining Option and Technologies

• Technological breakthroughs:

– Dump trucks: 45 tons vs 220 tons of capacity (330-ton trucks are now available but expensive)

– Single-bucket excavators : 5 m3

vs 25 m3

buckets – Bucket wheel excavators: up to 5,500 m3 /hr

– Diesel hydraulic excavators (autonomy and

flexibility) – Dredgers: 60,000 t/day of capacity




Best practices in mining –Methane utilization

• Could be used at both active/abandoned mines

• Small-scale (<5MW) methane thermal power plants• Integrated in mine degasification process

• Increased safety

• GHG reduction• Potential economic effect (CO2 certificates - clean

development mechanism, or CDM)

• Most Active: UK, Germany, USA, China, Australia,Poland, Russia




Underground Coal Gasification (UCG)Potential

Source: 2007 Survey of Energy Resources, WorldEnergy Council, 2007

63.7145.6564.7TOTAL

0.813.244Australia-8.248.7S. Africa

1.115.551.8India

2.419.264.1China47.826.387.9Russia

5.721.8130.1Europe

5.941.4138.1USA

2006 natural gasreserves (trillion m3)

Potential gasreserves from

UCG (trillion m3)

Estimated coalreserves available for

UCG (billion tonnes)




UCG case – Australia• 35,000 tonnes of coal gasified at Chinchilla - more

than in any other UCG trial. Within the Rocky

Mountain 1 trial, most successful UCG trial in the U.S.,only 10,000 tonnes were gasified.

• 80 million m3 of gas produced at 4.5 - 5.7 MJ/m3

• Gas production over 30 months - by far the longestever recorded outside the ex-USSR.• 95% recovery of coal resource• 75% of total energy recovery• High quality and consistency of syngas, which is then

used for diesel production (coal-to-liquids): target of20,000 bbl per day of diesel




Coal to liquids• Technology has been around since early 20th

century (e.g., Fischer Tropsch)

• Can be combined with IGCC – Planned IGCC-CCS plant in Germany: diesel

byproduct from lignite at ~$65/bbl• SASOL since 1955

– Current production of ~7.5 Mt per year of fuel (70%

diesel, 30% naphta)• China’s goal is to produce 30 Mt by 2030

– Can be competitive with oil even at $40-50/bbl





Reshaping the industry

• Increasing cost structure combined with enhanced

operational and environmental regulations willprobably lead to consolidation of the industry incountries with large number of small players (in China

- 10,000+)• Already seen much consolidation globally:

– Four companies dominate the coal industry, especially in

Australia and South Africa: BHP, Anglo Coal, Xstrata andRio Tinto (BHP has been trying to acquire Rio Tinto,challenged briefly by a Chinese firm)




Concluding remarks• Coal resources are relatively abundant and distributed

around the world

• Coal-fired power plants meet base load requirementsof electricity systems

• Coal prices have been relatively low and stable

• Climate change (CO2 emissions) and other pollutioncaused by coal burning are main challenges

• Various technologies (CCS, UCG, CTL) should help

• Industry consolidation may help meet large capitalneeds of these new technologies and capacitydevelopment across the coal value chain

session iii policy perspective and options for clean coal industry development

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