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.

According to a New York Times report, Japan has successfully mined natural gas from the sea.  While this sounds like major news, the feat is neither all that new nor all that significant.

The availability of methane hydrates as a hydrocarbon resource has been known for centuries, and several other Japanese and Canadian experiments have successfully brought up methane from hydrate beds.  An enormous amount of methane lies beneath the floors of the world’s oceans.  The Japanese research project is a small step towards the economical and safe exploitation of methane hydrates; but a number of advances still remain to be achieved:

1).  Environmental containment: Methane hydrates are essentially ice crystals with a few molecules of methane trapped inside.  But the crystals aren’t blocks of ice like the cubes in your freezer.  They are fragile, lattice-like frames.  Any disturbance to a methane hydrate bed can lead to a cascade of collapsing crystals, followed by one gigantic belch of methane gas from the seabed.

This is bad for two reasons.  The gas you want to mine escapes, and that bubble of valuable hydrocarbons now enters the atmosphere, where it traps heat at nearly twenty times the rate of carbon dioxide.  Some even speculate that methane burps from the seabed caused prehistoric global warming incidents.

How do you stick a drill-pipe into sediment that has the consistency of cobwebs, without disturbing it?  There’s probably an answer out there waiting to be discovered — but nobody knows how to do it today.  And there’s no sign that the Japanese project has succeeded in doing so.

2).  Economics: Most methane hydrate deposits exist underneath dozens or hundreds of feet of mud and gravel.  Where the mud stops and the methane starts is a very blurry line.  Thus the fluid that’s brought to the surface will include an enormous amount of extraneous material.  That problem can be solved relatively easily, but not cheaply.

Separating the methane from everything else will be an enormously expensive task that far exceeds the separation requirements of other “tight” natural gas resources (such as coal-seam methane and shale gas).  There’s no simple way around that cost, which means the extraction costs of seabed methane will always be higher than any other gas deposits.  At the current natural gas prices of $3.64 per million metric BTU, there’s no economic rationale for investing in methane hydrate projects.

3).  Infrastructure: There is no industrial infrastructure currently built to mine, process and deliver methane from seabed deposits.  Unlike traditional underground formations that are highly concentrated, seabed methane beds spread over vast areas.

To eventually extract that methane will probably require specialized floating infrastructure that can follow the resource.  The creation of an entirely new infrastructure to gather the hydrates and turn them into usable fuel, will require tens of billions of dollars worth of all-new, untested equipment.

While some of the breathless reports about the Japanese “discovery” claim that a brand new fossil fuel resource has been stumbled upon, the facts are a little less sensational.

The grounding of Shell’s Kulluk rig on New Year’s Day was an ill-timed event for a company that has invested 6 years and $5 billion to access vast undersea reserves of oil and natural gas in the Arctic Ocean.  Also, it may presage a reversal in the Obama Administration’s initial support of offshore drilling in the region.  Writing in Bloomberg View, Carol Browner, the former director  of the White House Office of Energy and Climate Change Policy, and John Podesta of the Center for American Progress recently cautioned that, “Following a series of mishaps and errors, as well as overwhelming weather conditions, it has become clear that there is no safe and responsible way to drill for oil and gas in the Arctic ocean.”

The Kulluk mishap came on the heels of a number of reports in 2012 of an oil and gas renaissance in the Western Hemisphere.  Earlier this month, BP released a forecast that the United States will surpass Russia and Saudi Arabia in 2013 as the world’s largest producer of crude oil and biofuels.  Russia, meanwhile, will likely pass Saudi Arabia for the second place in 2013 and hold this position until 2023, according to the U.K.-based oil major.

As widely noted, these developments challenge long-held assumptions that the energy geopolitical landscape is squarely centered on the Middle East.  One place where this shift is playing out is in the frozen Arctic, a political no-man’s land where a maelstrom of nationalism, environmental fragility, and logistical challenges is beginning to brew.

The Arctic Ocean is estimated to hold a quarter of the world’s undiscovered oil and gas reserves, beneath a body of water less than 4 times larger than the Mediterranean Sea.  The region is a global commons, meaning that jurisdiction over most of the Arctic Ocean remains up for grabs.

Hydrocarbons on Ice

Estimating exactly how much oil and gas is locked up in the region is an inexact science, but an analysis led by USGS in 2008 shows that there is a 95% likelihood that 44 billion barrels (BBO) of oil and 770 trillion cubic feet (TCF) of gas are buried under the Arctic Ocean.

If estimates hold, these resources would prove significant on the world stage.  The United States currently consumes around 7 BBO of oil and 25 TCF of gas per year.  The Arctic alone could provide enough oil to last the United States around 6 to 7 years and enough gas to last 30 years.

Onshore areas in the region are mostly explored, with some 40 billion barrels of oil (BBO), 1,136 trillion cubic feet (TCF) of natural gas, and 8 billion barrels of natural gas liquids already developed.  As recent events have shown, moving offshore presents logistical challenges and will prove to be far more expensive than oil and gas fields currently under development today, so it will likely be some time before significant resources are brought to market.

Staking Claims

While in theory, the Arctic is held for the benefit of the “common heritage of mankind,” the potential for an oil and gas bounty is luring “the Arctic Five” – Russia, the United States, Canada, Denmark (via Greenland), and Norway – northward to assess claims.

In 2007, Russia laid claim to the North Pole – and much of the oil and gas buried beneath it – by planting a flag on the sea bed 2.5 miles undersea using two mini-submarines.  Although merely symbolic in gesture, the claim raises difficult questions about sovereignty, climate change, and the future energy landscape.

Russia’s assertion that it owns much of the Arctic sea bed is based on its claims to two submerged ridges, which would secure exclusive access to extensive fossil fuel resources inside the Arctic commons and around the North Pole, under the UN Convention on the Law of the Sea (UNCLOS).

Under UNCLOS, a series of geographical zones delineate jurisdictional rights with respect to offshore resources, including oil and gas.  In the Arctic Ocean, these zones form a continuous ring around a commons area and are owned in varying proportion by the five Arctic powers mentioned earlier.  These areas are the target of development efforts thus far.  Recent gambits make it clear that momentum is squarely behind the commercial exploitation of oil and gas resources no matter the cost.

While UNCLOS represents an important development in international resource protection and cooperation, it may prove to be an enabler of a unilateral, take-all approach to deep offshore hydrocarbon resources.  The silver lining for renewables competing against oil and gas, however, is that deepwater drilling is only justified when the price of a barrel of oil is well above $100 and will face stiff opposition should environmental safety continue to be a concern.

For an international flashpoint, the Senkaku Islands in the East China Sea just southwest of Okinawa, are unprepossessing.  A group of small, uninhabited stony islands, they cover only 7 square kilometers total.  These isolated pinnacles “are apparently ready for disintegration by the first disturbing cause, either gales of wind or earthquake,” observed a British ship captain in 1845.

The Senkakus, though, are still there, and they’ve become the focus of an increasingly alarming row between China and Japan.  Traditionally a part of Okinawa, Japan’s southernmost prefecture, they’ve been claimed in recent decades by China, which terms them the Diaoyu Islands.  This dispute heated up at the end of 2012 after a Chinese marine surveillance aircraft, ostensibly civilian, flew through Japanese airspace over the Senkakus.  Japan scrambled eight F-15 fighter jets in response.  “Despite our warnings … it is extremely regrettable that an intrusion into our airspace has been committed in this way,” Japan’s top government spokesman, Osamu Fujimura, told reporters, according to the Global Post.

A Chinese foreign ministry spokesman responded in kind: “The Diaoyu and its affiliated islands have been China’s inherent territory since ancient times.  China requires the Japanese side stop illegal activities in the waters and airspace of the Diaoyu islands.”

As you might guess, what’s really at stake here is not the rocky Senkakus themselves, nor the feral goats that are among the few full-time residents, but what lies below them.  China estimates that one of the world’s largest natural gas deposits, containing some 250 trillion cubic feet (CF), lies untapped in the East China Sea.  (U.S. estimates are much lower, but still considerable.)  The threat of conflict between China and Japan over the waters around the Senkakus reflects a wider semicircle of energy-rich, and disputed, waters that stretch from Okinawa to Bangkok, and which could turn into a regional naval war as China jockeys with Japan, the Philippines, Thailand, Vietnam, and Indonesia in some of the busiest shipping lanes in the world.

Mind the Trough

“Energy is clearly what’s driving a lot of Chinese behavior,” Sheila Smith, a senior fellow at the Council on Foreign Relations, told National Geographic in December.

The disputes, which China has refused to submit to international mediation (presumably because the Chinese government knows that its claims to complete sovereignty over the South and East China seas are unlikely to hold up in international courts), present a delicate diplomatic tangle for the Obama administration, which has reaffirmed its support for Japanese territorial rights while attempting to avoid overt confrontation with China.

Complicating matters further is the fact that the richest petroleum deposits lie in the Okinawa Trough, an 8,200-foot (2.5 kilometer) gash in the seafloor that separates the Chinese continental shelf from the Western Pacific.  Only since the mid-2000s has the drilling technology to exploit such ultra-deepwater reserves existed, and it’s almost certain that neither China nor Japan has the deepwater capability to do so.  A foreign partner – most likely a Western oil giant – would be needed to tap the oil and gas fields.

China, which has embarked on a major naval arms buildup in recent years, appears to believe that it can bluff and bluster its way to supremacy in the surrounding seas, but its neighbors are not standing passively by.  Japan’s Coast Guard announced this week it plans to create a fleet of 12 cutters to patrol the waters around the Senkakus, and India, which is partnering with Vietnam to develop deep-sea oilfields in the South China Sea, has declared its readiness to dispatch warships to the area to protect its interests from Chinese incursions.  Most ominously, Japanese Prime Minister Shinzo Abe has publicly said he will void the country’s constitutional ban on armed self-defense, a legacy of World War II.  Abe may use an upcoming joint review with the United States of defense cooperation plans to eliminate that restriction.

A new energy war in the Pacific is the last thing the world needs, as governments face grave environmental challenges and the need to invest billions of dollars in clean and renewable energy sources, but the chances of that happening have increased in recent weeks.