Navigant Research Blog

China’s Coal Conundrum

— June 21, 2013

International climate-change diplomats, who have had a rough decade, got some potentially exciting news in May when reports emerged that China will consider an absolute cap on carbon emissions in advance of the climate talks scheduled in Paris for 2015.

A hard emissions cap would be a dramatic policy shift for the People’s Republic, which has previously limited emissions reduction schemes to compressing the Chinese economy’s energy intensity (the amount of CO2 released per unit of GDP) and which has decried international efforts to limit the greenhouse gas (GHG) emissions – and thus the economic growth – of developing countries.

The shift was signaled by remarks made by Jiang Kejun, a carbon policy researcher at the influential National Development and Reform Commission in Beijing, who told the Financial Times, “I am sure China will have a total emission target during the 13th Five-Year Plan.”

The move could enable an achievement that has eluded the world’s major nations for years: a binding international agreement on carbon caps that includes both the developed economies of West and East Asia and rising economic powers like China and India.

If true, this move would mark the latest in a series of measures to reduce GHG pollution in China, the world’s largest producer of atmospheric CO2.  Seven Chinese cities plan to enact experimental carbon-trading programs, starting in 2014.  Already the world’s largest investor in renewable energy, China has set the goal of obtaining 15% of its power from nuclear power and renewables by 2020.  Since taking office in March, President Xi Jinping has made shifting to a less resource-intensive economy and reducing the country’s catastrophic air pollution major priorities.  In many respects China has leaped ahead of both the United States and the European Union in its efforts to shift away from fossil fuels.

There’s one problem with this scenario: any program to reduce carbon emissions on the mainland depends on shrinking China’s reliance on coal – and coal-fired power in China is not going away anytime soon.

No Peak Soon

“It is very unlikely that demand for thermal coal in China will peak before 2030,” said William Durbin, the Beijing-based president of global markets with Wood Mackenzie, an energy research and consulting firm, in a statement accompanying the release of a new report entitled “China: The Illusion of Peak Coal.”

“Despite efforts to limit coal consumption and seek alternative fuel options, China’s strong appetite for thermal coal will lead to a doubling of demand by 2030,” the report concludes.  Coal consumption in China, bolstered by a period of rampant construction of coal-fired plants that has only recently slowed, must rise to feed China’s explosive demand for power, which will nearly triple to 15,000 TWh by 2030.

Even existing goals for reducing coal consumption are sketchy, many analysts believe.  “Achieving these targets eventually would come at considerable economic cost,” John Reilly, an environmental economist at MIT, told New Scientist magazine.

China is by far the world’s largest importer of coal, and despite massive investments in nuclear, wind, and solar power, along with a crash program to develop domestic natural gas reserves, no other energy source can replace coal as a source of primary power in the next two decades.  China’s leaders are determined to replicate America’s shale gas boom, but “natural gas supplies will struggle to meet demand growth due to modest investment in conventional reserves and the very slow development of domestic unconventional shale gas reserves,” Wood Mackenzie states.

Gray Market, Black Fuel

The continued coal boom in China also reflects the provincial divisions that make enacting nationwide policies increasingly challenging for leaders in Beijing.  Most coal-reduction schemes are centered in the big cities of the coast, while the poorer provinces of the interior still rely on dirty, cheap coal.  Ambitious plans to build long distance ultra-high-voltage transmission networks, for example, won’t reduce overall coal burning; they’ll simply shift coal demand from the coast to the interior.  What’s more, official statistics on coal use in China significantly underestimate the true demand, because of the size of the gray market consisting of small, unlicensed mines and untracked sales.  A 2011 report on the Chinese coal industry produced by Stanford’s Program on Energy & Sustainable Development stated the problem clearly: “One important driving force underlying the existence of gray coal markets in China is the historic and chronic difficulty of compelling local officials to obey central policies.”

China’s evident intention to institute firm caps on GHG emissions is an encouraging sign.  But the grim reality is that such a cap has no chance of succeeding without a dramatic, and unlikely, reduction in power generation from coal.

 

In the West, Big Coal Makes Its Stand

— May 17, 2013

Overshadowed by the debate over natural gas exports, a battle is brewing in the Western United States over exports of coal to Europe and, especially, to the booming economies of Asia.  Buoyed by rising overseas demand for American coal, big coal producers including Arch Coal and Peabody are seeking to build new ports and new shipping facilities, particularly along the West Coast, to send U.S. coal from the Powder River Basin, in Montana and Wyoming, across the Pacific.

Those plans have met with fierce resistance from local residents and environmental groups.  ”I want to make it absolutely clear: I am vehemently opposed for a private, for-profit corporation to use eminent domain to condemn my private land for a rail line to export coal to China,” Clint McRae, a rancher whose family has owned their ranch in the Powder River Basin for 125 years, told a an Army Corps of Engineers hearing in Seattle last December, according to The Los Angeles Times.

Also lining up to oppose the exports are elected officials in Oregon and Washington who don’t wish to see huge coal export facilities built on their coastlines.  Saying that rail links to bring Powder River Basin coal to the West Coast “threaten the health of our communities, the strength of our economies, and the environmental and cultural heritage we share,” Seattle mayor Mick McGinn announced last month the formation of the Leadership Alliance Against Coal, which includes Native American tribal groups as well as politicians from towns in Washington State.

Black Piles

Behind the export push are the remaining Big Coal companies, particularly Arch Coal and Peabody, who have largely abandoned their mines in Appalachia and have seen their share prices drop by as much as two-thirds over the last 2 years as utilities across the United States have moved to burn low-cost natural gas rather than coal.  Peabody actually projects that U.S. coal consumption for power generation will rise in 2013, by 60 million to 80 million tons. Even as coal consumption drops in the United States over the long run, though, demand continues to climb in China, India, and even European countries like Germany, which is phasing out its fleet of nuclear power plants.

U.S. coal exports set a record last year of more than 124 million tons, topping the previous record set in 1981.  Because of “must-take” contracts signed years ago, some utilities in 2012 literally found themselves with piles of coal they didn’t want, and dumped these supplies of “distressed coal” on the international market. As a result, exports of coal are expected to drop this year, while remaining high.

Of six proposed coal export facilities on the West Coast, three have already been defeated. The battle over the remaining facilities could be Big Coal’s last stand in the United States.

Still, as I’ve written here before, the end of coal is likely to be prolonged.  The Economist Intelligence Unit, in a report released this month, said that increased overseas demand for the “surprisingly dynamic commodity will drive world coal consumption to more than 8.4 billion tons in 2015.  By far most of that growth will come from China – which puts the United States in the uncomfortable position of cutting its own use of the world’s dirtiest fuel, while feeding the coal hunger of less-developed economies.

 

Old Technology Fuels New Energy Boom

— May 12, 2013

With U.S. oil imports hitting a 17-year low, the mainstream media has awoken to the fact that, as I pointed out in a Fortune.com article 3 years ago, peak oil is not happening anytime soon.  Charles Mann’s excellent cover story in this month’s Atlantic, “What If We Never Run Out of Oil?” focuses on an obscure though potentially vast source of energy: methane hydrates, or crystalline natural gas trapped below the seabed.  If early exploration ventures by Japan and other countries succeed, this gas “could free not just Japan but much of the world from the dependence on Middle Eastern oil that has bedeviled politicians since Churchill’s day.”

An Associated Press story last week reached a similar conclusion about “unconventionals” in general: companies are opening huge deposits of shale gas, “tight oil,” and other hard to reach petroleum sources that will essentially flip the energy world upside down, as the United States regains its status among the world’s largest exporters of petroleum.

Both of these stories, though, share a common misconception, captured in the AP article’s headline: “New Technology Propels Old Energy Boom.”

In fact, the technologies underlying today’s petro-boom are not new at all; they are innovative applications and refinements of technology that has existed for decades.  The boom’s core technology is hydraulic fracturing, or fracking.  And drillers have been fracking wells for nearly 60 years.  More than 1 million wells have been developed using fracking since the 1940s, according to EnergyFromShale.org, an industry-supported website.

The early use of fracking to get at reserves previously thought of as unrecoverable, emerged in the early 2000s after exploration companies began examining geologic formations using x-ray computed tomography, or CT scanners.  The CT scanner was invented in 1967.

Tinker Imaginatively

What’s happening today is not a new-technology revolution; it’s an evolution of new applications for existing technology.  We are doing things that we’ve been doing for decades more efficiently, more effectively, and in much wider applications.

That may sound like a fine distinction, but it’s an important one: Silicon Valley has for years invested in sexy new technologies, from smartphones to social media to exotic solar power materials.  The cleantech industry itself has not benefited from a fascination with the new, the exotic, and the high-tech.  The technology for embedding sensors in a drill head so that technicians on the surface can map a formation as they drill is not all that sexy, and it didn’t come from a VC-funded startup in a Mountain View garage.  It came from drilling engineers in the field figuring out, incrementally, how to do things better, cheaper, and smarter.  Often, as in the case of the 21st century oil and gas boom, imaginative tinkering can be more fruitful than reinvention or laboratory R&D.

Leaving aside, for the purposes of this blog, the question of how we can move toward a carbon-free energy system in a world suddenly awash in hydrocarbons, the next phase of technology will almost certainly focus on how to better store, transport, and distribute the seemingly limitless supplies of natural gas now becoming available.  The difficulty and expense of liquefying and transporting natural gas have been a drag on the wider use of the relatively clean fuel for many years, particularly in the transportation sector.  In 2012, GE Oil and Gas introduced its Micro LNG plant to power remote industrial locations and fuel long haul trucks and locomotives, and last month the company debuted its LNG In A Box system for small-scale retail fueling stations.  The Norwegian gas producer and distributor Gasnor in 2009 launched the world’s first specialized, small-scale LNG carrier, the Coral Methane, designed to deliver fuel to remote ports along Norway’s coastline.

These are not “new technologies,” and they’re not being developed and funded as such.  But they’re exciting innovations.  And they are helping to power an energy transformation that will shape the world’s economy and its geopolitics through the rest of this century.

 

Thinking Small, Nuclear Power Enters Distributed Era

— April 26, 2013

The nuclear power industry’s drive to deploy small, modular reactors (SMRs) took a significant step forward this month.  Nuclear technology vendor Babcock & Wilcox (B&W) formalized its funding agreement with the U.S. Department of Energy (DOE) for the mPower reactor project.  With $79 million of federal funds for this year (and a total of $150 million over the 5-year program), B&W plans to build a prototype SMR at the Clinch River site in Tennessee, owned by the Tennessee Valley Authority (TVA).

SMRs have gleamed in the eyes of nuclear power providers for a decade now, as the industry seeks a new model for economical, carbon-free power generation for the 21st century.  The Fukushima nuclear accident in March 2011 seemed to squelch the so-called “nuclear renaissance,” but many countries – including the United States, South Korea, Russia, China, and even Japan – are moving ahead with plans for small reactors that can be factory-crafted (thus “modular”) and assembled onsite.  Economies of scale have dominated the nuclear power industry for most of its life, with reactors expanding to 1,000 MW or even 1,500 MW.

Now, many believe that the future of nuclear lies in SMRs of under 300 MW that can be arrayed in multiple configurations, giving power generators more flexibility and, in theory, lower capital costs.

There are more than a dozen designs currently under development for SMRs.  Most of them are simply miniaturized versions of existing, light-water reactors; the mPower is a 180 MW “advanced integral pressurized water reactor” that could be deployed not only for supplying power to the grid but in more specialized applications, such as powering remote oilfield operations or desalinating water.

Arctic Nukes

“SMRs offer TVA an important new option for achieving clean, base-load electricity generation and we are ready to begin the work to understand the value of that option,” said TVA senior vice president of policy and oversight, Joe Hoagland, in a statement.

Increased safety is also a feature of SMRs, at least potentially.  NuScale Power, a startup principally backed by Fluor Corporation, said at an SMR conference earlier this month that it has developed an inherently safe system that, in case of a full power shutdown such as happened after the Japanese earthquake and tsunami, will self-cool the reactor without the need for external power or water.  Essentially, the NuScale design uses a simplified set of water valves that flip open automatically in case of a power disruption.

“Because of the simplicity of the NuScale design, only a handful of safety valves need to be opened in the event of an accident to ensure actuation of the [emergency cooling system],” said Jose Reyes, the co-founder and CTO of NuScale, speaking at the Nuclear Energy Insider SMR Conference in Columbia, South Carolina.  “These safety valves have been mechanically pre-set to align to their safe condition without the use of batteries following a loss of all station power.”

The earliest applications for SMRs are likely to be distributed generation in remote places, including military forward operating bases.  A Russian consortium is constructing a barge-mounted SMR, based on the nuclear engines that power icebreaker ships, that can be deployed in some of the least hospitable places on Earth.  The idea of nuclear reactors powering oil and gas production in the Arctic is hardly a reassuring thought for environmentalists and diplomats, but it’s likely to become a reality in less than a decade.

The mPower prototype is scheduled to be up and running by 2022.

 

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