councilor.org
| Source | Marvin Gandall |
| Date | 04/08/16/23:47 |
| Is coal the low-cost energy the world is looking for?
By Dan Roberts Financial Times August 17 2004 Five hundred kilometers east of Yellowstone National Park, under the big skies of the state of Wyoming, the global energy landscape is changing shape - 220 tonnes of rock at a time. With each swing of his house-sized bucket, the operator of a mechanical dragline is uncovering a 25m seam of coal and revealing an unlikely comeback for one of man's oldest and dirtiest forms of fuel. Coal's renaissance is a slow, quiet process. Despite the noise of that monstrous extraction equipment, the attention of the energy world has mostly focused on the rising prices of two more glamorous hydrocarbons: oil and natural gas. Others prefer to hope for solar, wind or nuclear alternatives that do not contribute to global warming or air pollution. Yet, to the horror of environmentalists, King Coal is back. The fuel already fires more than half the power stations in the US - and reliance on coal is increasing for the first time in decades as rising natural gas prices choke off the so-called ?dash for gas? among electricity generating companies. A sympathetic US government predicts that coal's contribution to global energy consumption will double to 50 per cent by 2015 as developing countries, particularly China and India, also seek a supply of low-cost energy more reliable than oil and gas. At home and abroad, White House support for coal is viewed with intense suspicion. Europeans fear that encouragement for coal-fired electricity plants kills any hope of reaching international consensus on carbon dioxide emissions. George W Bush's domestic opponents assume that, at best, his interest reflects the opportunistic pursuit of mining votes in swing election states. At worst, large donations from the coal industry to Republican groups demonstrate another powerful reason for campaign finance reform. Whatever their motives, politicians on both sides of the presidential race are increasingly talking about coal for a simpler reason: geology. In a country where oil derricks and hydroelectric dams are the iconic images of energy wealth, it is often overlooked that the US has more coal than any other nation. Not only does the US possess a greater share of the world's coal than Saudi Arabia does of oil. But its energy content - measured in British thermal units - is five times that of Saudi Arabian crude and slightly greater than that of all the oil and gas in the Middle East put together. Of course, oil's great versatility has historically made it a much more valuable commodity. Despite abundant domestic resources, US dependency on imported hydrocarbons has continued to grow because of rising demand from the transport sector. But as last year's electricity blackouts demonstrated to 50m people in the north east, energy scarcity can manifest itself in ways other than the sports utility vehicle running dry. Policymakers find it comforting that, at a time of increased political instability among many oil and gas exporters, almost all the electricity generated in the US is derived from domestic fuel sources. In theory, Mr Bush's investment in hydrogen technology even promises future substitution of oil in vehicles powered by fuel cells - perhaps one day with hydrogen produced directly from coal itself (see below). What has really prompted the renaissance of coal, though, is growing disillusionment with America's previous wonder-fuel: natural gas. Throughout much of the 1990s, low prices and seemingly abundant domestic supply encouraged electricity generators to move away from traditional coal-fired steam plants to more-efficient gas turbines. This 175,000MW of new gas capacity came on line just as gas production began to peak - causing dramatic price spikes and growing demand for imported gas. So, now, for the first time in a generation, power companies are turning back to coal. The US Department of Energy estimates that 92 new plants are proposed across the country, representing 59,000MW of potential electricity and $69bn of investment. With so much environmental controversy surrounding each plant, it can take up to a decade for planning permission to be granted, if at all. Nevertheless, six plants are under construction and due to come online in 2006 or 2007. The government predicts that 148 new coal plants will have to be built by 2025 to keep pace with demand. Elsewhere, the potential growth in demand for coal is even more striking. In, Asia utility companies are planning around 1,000 new coal-fired plants with far less environmental scrutiny than in the US. One hundred are already under construction, mostly in China, which has the world's third-largest coal reserves and a huge demand for power. Nowhere is this trend clearer than in the financial markets. The benchmark price of coal in the US has doubled since May 2003 to around $60 per short ton. Commodity prices of other kinds have risen too, not least for oil, as growing demand from China coincides with a global economic recovery. But coal prices used to move at glacial pace, regardless of the cycle. Another sign that investors are beginning to wake up to coal's growth potential is the sudden interest in the handful of quoted coal producers in the US. For much of this year, shares in coal mining companies outperformed every other sector of the economy. They have also attracted speculative money from hedge funds, eager to learn more about the changing energy landscape. Peabody Energy, the world's largest coal producer, saw 180 research analysts and fund managers dial into the conference call for its latest quarterly earnings. Yet despite its recent profit growth, Peabody, based in the medium-sized Midwest city of St Louis, Missouri, remains a tiny player in world energy markets. It provides the coal for more than 10 per cent of US electricity needs and boasts btu-equivalent energy reserves equal to 30.5bn barrels of oil, but it made profits in the second quarter of less than $50m and has a market capitalisation of just $3.3bn. By comparison, ExxonMobil, the world's largest oil company, boasts smaller oil and gas reserves of 28bn barrels of oil equivalent, but made $5.8bn in the second quarter and has a market capitalisation of $292bn. The reason for the valuation discrepancy is clear at Peabody's largest coal mine, North Antelope Rochelle. Located near the town of Gillette, in eastern Wyoming, it is one of dozens of similar facilities dotted up and down the basin of the nearby Powder River. One glance at its 25m high cliffs of coal, stretching as far as the eye can see, reveals the true economics of the industry: coal is literally dirt cheap. Giant open cast mines in western states like Wyoming have been the source of almost all the recent growth in US coal production as well as dramatic reductions in its cost. In contrast, the older underground or mountain-top mines in the eastern Appalachian states face steady decline. Larger reserves of coal in Illinois are also deemed uneconomic as environmental standards tighten because they contain much higher concentrations of polluting sulphur. Viewed as a resource, rather than a threat to the global climate, the deposits of the Powder River Basin seem like one of those generous flukes of nature almost unlikely enough to convince sceptics of a divine presence. Compared with the difficulty of mining narrow seams of coal hundreds of feet below the surface - common in much of Europe or the Appalachians - Wyoming coal production is more like collecting a pre-arranged stockpile. In common with most coal, seams in the basin were formed some 320m years ago in the swampy river deltas of the Carboniferous period. A unique combination of geological subsidence and prolific plant growth is required to produce consistent layers of dead vegetation that are sufficiently covered in stagnant water not to rot or dry out. Such conditions persisted in Wyoming for as long as 60m years and produced the thickest deepest seams of coal ever found - up to 60m thick in places - with an unusually low sulphur content. North Antelope Rochelle, the world's largest coal mine is eerily quiet. Just 700 employees gather enough coal to provide electricity for 6m American homes. The extra-terrestrial atmosphere is compounded by an inhuman scale, with vehicle wheels twice the height of a man and freight trains a mile and a half long. Yet somehow enough miners make a living from the Powder River Basin to give the nearby town of Gillette a bustling, frontier feel, and the proud civic boast of ?America's energy capital?. If America is the Saudi Arabia of coal, then the Powder River Basin is equivalent to the Gulf Kingdom's legendary Ghawar field, which at one point produced one in every 12 barrels of crude consumed worldwide. Somewhat less similarity exists between the men running each industry. Compared with the oil sheikhs of the Organisation of Petroleum Exporting Countries, America's new coal barons wield their political power quietly. Irl Engelhardt, Peabody's chief executive, is proud of his humble roots. Colleagues tell of his upbringing on a farm in Illinois, where he remembers his mother crying at the kitchen table over unpaid energy bills. Apocryphal or not, the story explains a passion Mr Engelhardt has for arguing that any extra costs imposed on the energy industry by environmentalists will hit those on low incomes the hardest. One of the many lobby groups sponsored by the industry has calculated that America's poorest households spend nearly a third of their household budget on energy costs. ?If we talk only about climate change as a narrow issue then we will only be talking to the environmental community,? says Mr Engelhardt. ?If we narrowly focus on climate change and we increase the cost of energy in this country, people on fixed incomes will lose all of their disposable incomes.? The revival of the coal industry has nevertheless proved lucrative for those who stuck by it during the wilderness years. Mr Engelhardt, who has been at the helm of Peabody since it was spun off from Hanson, the Anglo-US conglomerate, in 1997, plans to cash in up to 40 per cent of his shares and options by December 2005 - a windfall potentially worth up to $10m. Despite its opposition to much of the environmental rhetoric used by some Democrats, Peabody and other mining companies like it are also anxious to downplay the assumption of automatic support for the Republicans. As John Kerry, the Democratic party's presidential candidate, courts the mining vote in swing states like West Virginia, both political parties are claiming coal credentials by calling for increased federal spending on research into clean combustion technology. Lobby groups, such as the Coal Utilisation Research Council, Americans for Balanced Energy Choices and The Center for Energy and Economic Development, argue as if replacing imported gas with coal has become a homeland security issue which few red-blooded American politicians could possibly disagree with. The National Mining Association wears its political colours more freely, blasting a tax plan by Mr Kerry for ?killing Western economies?. Mr Engelhardt concedes life may be tougher initially under a President Kerry. ?There would be pressure on the new administration from the environmental community, which is a strong base of support for the Democrats,? he says, although he predicts that Mr Kerry would probably end up taking many of the same decisions as his predecessor. ?This country has no practical alternative (to coal),? he says. The theme is echoed by others in the industry like Arch Coal, the US's third-largest coal mining company, which also reveals the industry's ambivalence to scientific evidence of a link between carbon dioxide emissions and climate change. ?If, in fact, climate change is an issue, then the solution is technology,? says Deck Sloan, Arch Coal's spokesman. ?Coal is indispensable.? Campaigners against one of the new coal-fired plants under construction in Arizona see things differently. The sunshine states of America's south-west have among the fastest-growing populations in the country, with high electricity demands from air conditioning, but critics worry that Tucson Electric's plans for two new coal plants in Springerville will only turn up the heat. Local environmentalists claim the development will increase Arizona's carbon dioxide emissions by more than 10 per cent. One group called Western Resource Advocates estimates there are more than 35 proposed new or expanded coal-fired power plants in the region. If all the additional 23,500MW is developed, it would add about 168m tonnes per year of CO emissions - a 58 per cent increase from 2000 levels. Elsewhere a similar battle is being waged over mercury emissions. Coal producers worry that the Environmental Protection Agency's plans to regulate the amount of mercury permissable in power station exhausts may hamper the growth of coal. On the other hand, environmentalists are convinced that the EPA is already backing down in the face of strong political support for coal. The case is forcefully put by Robert F. Kennedy Jr, the nephew of President John F. Kennedy and environmental campaigner, who this month publishes a book - Crimes Against Nature - alleging that pro-industry officials have taken control of EPA policy. If he is right, it suggests the coal barons are wielding more power in Washington than their critics ever thought possible. If he and others are wrong, the environmental backlash risks depriving the US of its greatest natural resource at a time when energy security has never seemed more important. Fight for clean fuel enlists technology The need for clean coal technology has become one of the surprise battle cries of the US presidential campaign, with both Republicans and Democrats promising more government support for industry research but few shedding much light on what it means. At one level, cleaning up coal-fired power plants can mean doing little more than what the industry is already required to do. Emissions of pollutants such as sulphur dioxide and nitrogen dioxide have been falling since the 1970s because of tougher government standards. Though older plants can be fitted with scrubbers to clean chimney fumes, more progress can be made with new plants using so-called ?fluidised bed technology? - which attempts to remove unwanted pollutants before they head up the chimney. Coal, pulverised to the consistency of face powder, is burnt with limestone to remove sulphur and minimise nitrogen dioxide formation in the boiler. This approach is planned for a number of coal plants in development and could significantly improve air quality if widely used. The hunt for zero emissions has also gone one step further through power plants that use a technology called gassification. In these plants, which have not yet been built on a large scale, coal is first converted into a synthetic gas before being burnt in a manner more akin to the way turbines are used in natural gas power stations. This also allows the hot exhaust fumes to be reused to drive a second steam turbine. This ?combined cycle? approach is used in natural gas plants to improve efficiency, further reducing output of carbon dioxide. In perhaps 10-15 years this technology could theoretically be used to capture and store all carbon dioxide before its release into the atmosphere, as well as to generate hydrogen for vehicles powered by fuel cells. It should also help control emissions of mercury from power plants. Despite some scepticism about how affordable or reliable such integrated gassification combined cycle (IGCC) plants will be, the technology got a boost in June when General Electric, the largest gas turbine manufacturer, made a strategic acquisition of IGCC technology from ChevronTexaco. In Wisconsin, however, regulators demanded that Wisconsin Electric Power explore the option for its new plant only to reject it as not cost-effective. |
Copyright (c) 1998, Joongpil Cho