Articles from 2013
The beginning of the end of coal?
- Written by Nick Grealy
- Published: 23 September 2013
Even the most optimistic observers of shale gas never thought it would come to this. Or in my case perhaps, come to this happy event so soon:
In a report published earlier this month Citibank analysts suggested that “one of the most unassailable assumptions in global energy markets” — that coal demand would continue to rise in China for the foreseeable future — may be flawed.
China has a vested interest in reducing coal consumption. The only deliverable path available is to replicate the US experience in producing gas first and reducing gas second. The result is described in post by Steve Levine entitled Death Knell?
At last, the US and China—the world’s biggest carbon emitters—move to cut coal
The two biggest carbon emitters—the US and China—are now both acting to sharply reduce coal smoke. Two days after Beijing announced large cuts in coal consumption, the Obama Administration today will propose a 40% reduction in average emissions from advanced coal-fired power plants.
This is only the first strike of the bell, but it will get louder:
China will reduce its consumption of coal and gradually increase the use of natural gas during the next few years, according to the Airborne Pollution Prevention and Control Action Plan (2013-17), which was released by the State Council on Thursday.
Total energy consumption is measured in tons of coal, irrespective of the method of generation. In 2011, China's total energy consumption was 3.48 billion metric tons of coal, out of which coal consumption contributed 68.4 percent, while natural gas contributed just 5 percent, according to the National Bureau of Statistics.
In 2012, the country consumed nearly 2.5 billion tons of coal, more than all other countries combined, according to the Ministry of Environmental Protection.
The central government has decided to reduce the amount of coal being burned to less than 65 percent of total energy consumption by 2017, while consumption of natural gas will rise to 7.5 percent of the total by 2015.
The country will employ a number of measures to achieve the reduction in coal use, including increasing the use of non-fossil energy. Coal consumption is expected to decline in areas such as the Beijing-Tianjin-Hebei cluster, the Yangtze River Delta region and the Pearl River Delta region, often known as the "three key districts".
What happens in China is vital in understanding European energy policy. The “unassailable assumption” from the Kyoto Treaty through the UK Stern Review was how CO2 from Chinese Coal affected the global Climate. This 4C fear provided the scientific underpinning for legal regulations the UK Climate Change Act and the German Energiewende among others.
Let me be clear. Whatever China does or does not do doesn’t give us an excuse to do nothing. But first, a reality check on both the size of the China issue and essential insignificance or European actions:
This first image shows the size not only of the Chinese (and US) coal problem, but the reality behind how small an impact even the most drastic decarbonisation of European energy would be overall. This breaks the issue down into the actual impact of coal and shows UK coal doesn't even make it onto the chart. Both charts use 2009 figures, but China would be much further ahead by now, the UK and Germany virtually the same, and the only country who would have met Kyoto targets, the US, would be slighly below. But a reduction in Chinese coal use, combined with an increase in gas use could still result in a net impact to world CO2 levels far greater than a European low/no carbon future alone would produce.
Both images via Knoema.com on US Energy Information Administration information
Stern provided the intellectual foundation for almost any aspect of UK and EU energy policy.The connection from China coal to climate change to public policy provides the fabled “regulatory certainty” that investors (or hyper cautious ones at least) allegedly crave.
So why isn’t the imminent beginning of the end for coal welcomed? Firstly, no one underestimated how unexpected, and thus disruptive, the idea that there is an alternative to coal would be to public discourse and political policy.
What should be unassailable is not how the change is happening, but how opposition is due to how it is happening. The alternative to coal, especially in a European context, was seen as one where a combination of renewables or efficiency or nuclear or coal CCS provided a replacement to coal. They still do, but mostly it appears, in the theoretical, not the actual. All of the processes are essentially niche technologies that provide tiny wedges. Even the smallest of wedges add up to be sure, but it often takes a lot of work -and money - to make them do so. Green and efficiency measures especially make people feel as is they are doing something important locally - despite being globally pointless.
It’s noteworthy that David MacKay’s influential analysis Sustainable Energy: Without the Hot Air barely mentioned natural gas. Back then it seems to me we were constantly hearing about the low carbon future. What has happened is that the present day low carbon reality of natural gas has gotten a lot of push back from every other energy player.The number one impact of shale gas has been to frighten some as they see business models evaporating faster than any carbon. A noisy part of the community has been the myriad green PR machines, who have spun the Borg story that resistance is futile: there is no alternative. But now, almost magically, there is. Unfortunately those who purvey the most catastrophic scenarios often believe in almost magical solutions This explains why many look in the mirror and think abundant natural gas looks like them: another fairy tale.
I don’t think anyone, except coal, should feel threatened by natural gas, but the reality is many people do. Certainty seeking investors and the advisor circles around them, have a vested interest in defending their status quos. Negative reaction comes not only loudly from renewables but more subtly from existing natural gas players also invested in the scarce gas price model.BG Group, a key player in LNG production and trading, has recently been mimicking the Gazprom line.They insist shale is subject to any number of factors that will prevent not so much a replication of the US experience, but more a negative impact on their huge sunk costs in LNG terminals worldwide. It’s remarkably short sighted how some LNG companies pay consultants to push the line that decline curves will make US production uneconomic for only one example. (For a detailed analysis of why that isn’t so, read this excellent series over at RBN Energy.) That’s a tactic drawn directly from the Art Berman/ Peak Oil school so often brandished as science fact by green opponents. BG will be spinning this line, along with the self creating prophesy of “public environmental concerns” slowing down development to customers this week at the London Global LNG Congress, yet we already see multiple examples of Asian buyers waking up.
“The LNG prices in Asia are substantially higher than those of other major consuming regions such as Europe and North America,” Toshimitsu Motegi, Japan’s Minister of Economy, Trade and Industry, Japan and M. Veerappa Moily, India’s Minister for Petroleum and Natural Gas, said in a joint statement on September 9 after a meeting in Tokyo.
“Even as the position of natural gas as an alternative fuel for oil is fading and the rationality for such price formation is less clear compared to past, the majority of LNG contracts in the Asia Pacific market are long term with a pricing formula that is linked to the oil price,” the statement said.
BG is similar to Gazprom in seeking to defend the oil link in Asian gas as Russia does, to declining effect, in European markets.
From today an example of what happens when a buyer went on autopilot and woke up too late:
According to the Board of Audit and Inspection on the 16th, Korea Gas Corp. took a loss of at least 10.5 trillion won by signing long-term supply contracts (about 1.5 to 2.0 million tons a year) with Qatar without taking into account the cheaper shale gas alternative based on a faulty gas demand forecast. When it made the forecast in February last year, the Audit Board said, the Ministry of Knowledge Economy at the time approved the proposal without probe.
Here in the UK, we now see the end of the beginning of the shale debate. The government’s clear policy, with no mixed political feelings from any side except the Green and BNP fringe, points towards a commercialization of UK resources sooner than some may think. The next year is vital, but with the Igas drill near Salford imminent, and three more drills from another operator this quarter on the cards but yet to be announced, the log jam is starting to break. In short, we can start moving on to reality. Action instead of words. Good advice for energy sectors everywhere.