session iii policy perspective and options for clean coal industry development
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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
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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
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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
Source: BP Statistical Review 2008
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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
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Coking Coal Value Chain EconomicsRepresentative costs of coking coal value chain
(2006/2007), cif ARA
$0
$20
$40
$60
$80
$100
$120
$140
Q d , O
Q d , U
N S W
, U
N S W
, O B C
, O
C . A p p
. , U
Costs free mine, USD/t Transport domestic, USD/t Port handling, USD/t Sea freight, 2006, USD/t
Source: World Market for Hard Coal , 2007, RWE
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Coal trade
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Coal trade to increase
• Coal meets 28% of world’s energy needs, but
• Relative to oil & gas, coal trade has been small – Only 16% of coal as compared to 29% of natural
gas and 60% of oil are traded
– About 75% of traded coal is steam coal• But, global coal trade has doubled between
1995 and 2005 (mostly after 1999) and is
projected to increase further• More than 90% is maritime trade and that’s
where expansion is expected
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Source: EIA 2004
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Coal Pricing
Coal Prices - Spot vs. Contract ($/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
Source: BP Statistical Review 2008
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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
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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)
Source: World Market for Hard Coal , 2007, RWE
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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
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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
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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
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Increasing freight rates
Source: World Market for Hard Coal , 2007, RWE
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• 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
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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
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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”
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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
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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
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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)
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Capture Technologies
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CCS projects pipeline
Total world CO2 emissions in 2005 – 28.1 billion t
Source: PESD Carbon Storage Project Database, Stanford, June 2008
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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
- A E P
2
S C P C
/ P R B
- O t t e
r T a i l
S C P C
/ P R B
- A E P
1 W i n d
S C P C
/ B i t - D
u k e E
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a m p a
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C C G T
- G a s
I G C C
/ l i g - S o u t h
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u k e 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).
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Relative stability of coal prices ($/MMBtu)
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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
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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
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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)
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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
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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
Source: World Market for Hard Coal , 2007, RWE
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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)
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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
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