Peak Coal In China ?

I've got a post at Peak Energy on a new report from Citibank predicting peak coal demand in China by 2020 - Peak Coal In China - with obvious implications for Australian coal mines and exports.

Solid Energy and the declining price of coal; neither unforeseen or dramatic or a crash

On Monday Don Elder the Chief Executive of New Zealand's Solid Energy confirmed that a major restructuring of the NZ coal miner would require closure of the Spring Creek underground mine and the loss of 460 jobs over the company.

This move had been signaled in advance, but it is still making most news broadcasts today. Elder attributes the need to downsize to trends in international coal prices. For example Elder told Radio New Zealand;

an unforeseen, and dramatic, global price crash had rocked the industry.
"In the second week of July the markets tanked, demand fell through the floor," he said. In up to six weeks the price plummeted 40 to 50 percent and did not show any sign of bouncing back anytime soon."

The new chair of the board of directors, Mark Ford, said in a press release;

“The price for Spring Creek’s semi-soft coking coal would need to be somewhere from NZ$180-200 a tonne for the operation to deliver a profit and pay off the investment made in it,” Mr Ford said. “International semi-soft contracts are now being made at around NZ$120 a tonne.”

New Zealand PM John Key seems to have accepted the Elder view that prices are to blame.

"The issue isn't that we're not on their side, the issue is that international coal prices aren't on their side."

"In the case of Solid Energy it's a victim of falling commodity prices."

The NZ media seem to have uncritically accepted the price explanation. In one story, Fairfax reported the reason for the mine closure and job losses as being due to a severe downturn in global coal prices

Not so, "Chalkie", of the Fairfax NZ business section. "Chalkie" took Solid Energy to task for blaming their troubles entirely on the international coal price. Chalkie also satirised Elder's cornucopian Think Big-style lignite and coal-gas proposals.

Chalkie says he doesn't believe Elder has credibility when he says current coal prices in NZ$ are 20% lower than at the bottom of the 2008 global financial crisis. Chalkie points out that Elder's quoting of a coal price of $330 USD per tonne, as the top of the price mountain that the price has now fallen off, is just unrealistic.

In June 2011, a record price of $US330 a tonne for Australian hard coking coal, was reached because of supply shortages following the January 2011 Queensland floods which drowned most of Queensland's coal mines.

Chalkie also notes that a coking coal price of $USD126 a tonne is still well above the norm before the GFC. I have complied some prices for Australian hard coking coal. Data at Google Docs. Coking or metallurgical coal is used in steel making, and usually trades at a premium price above 'thermal' coal supplied to power stations. I prepared a chart of prices per tonne in $USD from 2006 to 2012. Spring Creek Mine coal is 'semi-soft' coking coal, which I think means its price is not quite the same as coking coal, but still more than thermal coal.

The post Queensland flood price of $USD330 a tonne sticks out as a spike or outlier as does the 2008 high of $USD250 tonne, which also followed a La Nina mine flooding event. Coal producers might not want to know about global warming, but global warming certainly knows about Queensland's coal mines.

And here is a chart of 2012 monthly hard coking prices in $USD. The data.

The price for Aussie had coking coal has fallen consistently in 2012. However,there is no cliff the price has fallen off in July 2012. The hard coking coal price did not plummet 40 to 50 percent in 6 weeks as Dr Elder says. The price trend is neither "unforeseen" nor "dramatic" and nor is it a "crash".

It's not hard to find reasons for the decline in the price. of coal. Reuters reports a number of reasons. Demand for coal is down in China. While the floods stopped the Aussie supply, steel makers looked to substitute other suppliers. Mongolia is increasingly eating into Australia's share of coal exports to China.

Chalkie also notes that the Huntly East underground mine has had some safety issues. Work to install a $NZ40 million ventilation tunnel, the sort of thing Dr Elder criticised Pike River Coal for not having, stopped in August 2012. Could it be that Solid Energy is using the international coal price as an excuse to avoid spending the money needed to make its underground mines as safe as the public now expect in a post-Pike River Coal disaster world?

Chalkie also notes a "field of dreams" approach to the Taupo wood pellet plant, (later written down in value by $NZ30 million) and delays in the Mataura lignite briquette plant. Given the execution of these smaller projects, Chalkie questions Solid Energy's ability to deliver on the grander lignite conversion plans.

I will leave the last word to Chalkie.

Every day at 8.30am sharp, management at Solid Energy would gather for morning prayers at the company shrine.
The small room was dominated by a huge gleaming slab of coking coal, etched with phrases from an early foreign exchange hedge contract. The dozens of executives stood facing it, arms by their sides, palms turned towards the slab in unison.
It was always a brief, uplifting affair. The CEO would begin with a chant: "Every day in every way, we expect coal prices to rise."
The executives would respond: "And rise they shall."
CEO: "With wood pellets and lignite we will rule."
Response: "Nothing bad will happen."
CEO: "Our big ideas are worth squillions."
Response: "Yes, probably more."
CEO: "Gentlemen, make it so."
And with that they would shuffle out shiny-cheeked into the morn.

“If we don’t change direction soon, we’ll end up where we’re heading”

That is the prominent quote headlining the English language executive summary of the World Energy Outlook Report of the International Energy Agency released Wednesday.

The following are selected passages from the projections made by the IEA. Bolding is as in the original, underlining and [text ] added.

There are few signs that the urgently needed change in direction in global energy trends is underway. Although the recovery in the world economy since 2009 has been uneven, and future economic prospects remain uncertain, global primary energy demand rebounded by a remarkable 5% in 2010, pushing CO2 emissions to a new high. Subsidies that encourage wasteful consumption of fossil fuels jumped to over $400 billion.
…
Despite the priority in many countries to increase energy efficiency, global energy intensity worsened for the second straight year. Against this unpromising background, events such as those at the Fukushima Daiichi nuclear power plant and the turmoil in parts of the Middle East and North Africa (MENA) have cast doubts on the reliability of energy supply, while concerns about sovereign financial integrity have shifted the focus of government attention away from energy policy and limited their means of policy intervention, boding ill for agreed global climate change objectives.

The assumptions of a global population that increases by 1.7 billion people and 3.5% annual average growth in the global economy generate ever-higher demand for energy
services and mobility. A lower rate of global GDP growth in the short-term than assumed in this Outlook would make only a marginal difference to longer-term trends.

The age of fossil fuels is far from over, but their dominance declines. Demand for all fuels rises, but the share of fossil fuels in global primary energy consumption falls slightly from 81% in 2010 to 75% in 2035; natural gas is the only fossil fuel to increase its share in the global mix over the period to 2035. In the power sector, renewable energy technoogies, led by hydro-power and wind, account for half of the new capacity installed to meet growing demand.

We cannot afford to delay further action to tackle climate change if the long-term target of limiting the global average temperature increase to 2°C, as analysed in the 450 Scenario, is to be achieved at reasonable cost. In the New Policies Scenario, the world is on a trajectory that results in a level of emissions consistent with a long-term average temperature increase of more than 3.5°C. Without these new policies, we are on an even more dangerous track, for a temperature increase of 6°C or more.

Four-fifths of the total energy-related CO2 emissions permissible by 2035 in the 450 Scenario are already “locked-in” by our existing capital stock (power plants,  buildings, factories, etc.). If stringent new action is not forthcoming by 2017, the energy-related infrastructure then in place will generate all the CO2 emissions allowed in the 450 Scenario up to 2035, leaving no room for additional power plants, factories and other infrastructure unless they are zero-carbon…  Delaying action is a false economy: for every $1 of investment avoided in the power sector before 2020 an additional $4.3 would need to be spent after 2020 to compensate for the increased emissions.

In the 450 Scenario, we need to achieve an even higher pace of change, with efficiency improvements accounting for half of the additional reduction in emissions. The most important contribution to reaching energy security and climate goals comes from the energy that we do not consume.

Rising transport demand and upstream costs reconfirm the end of cheap oil. All of the net increase in oil demand comes from the transport sector in emerging economies, as economic growth pushes up demand for personal mobility and freight.

Four-fifths of oil consumed in non-OECD Asia comes from imports in 2035, compared with just over half in 2010. Globally, reliance grows on a relatively small number of producers, mainly in the MENA region, with oil shipped along vulnerable supply

Coal has met almost half of the increase in global energy demand over the last decade. Whether this trend alters and how quickly is among the most important questions for the future of the global energy economy. Maintaining current policies would see coal use rise by a further 65% by 2035, overtaking oil as the largest fuel in the global energy mix.

China’s consumption of coal is almost half of global demand and its Five-Year Plan for 2011 to 2015, which aims to reduce the energy and carbon intensity of the economy, will be a determining factor for world coal markets. China’s emergence as a net coal importer in 2009 led to rising prices and new investment in exporting countries, including Australia, Indonesia, Russia and Mongolia.

India’s coal use doubles in the New Policies Scenario, so that India displaces the United States as the world’s second-largest coal consumer and becomes the largest coal importer in the 2020s.

If the average efficiency of all coal-fired power plants were to be five percentage points higher than in the New Policies Scenario in 2035 … CO2 emissions from the power sector [would be lower] by 8%

…CCS plays a role only towards the end of the projection period…

…If CCS is not [or can not be] widely deployed in the 2020s, an extraordinary burden would rest on other low-carbon technologies…

 For further detail go to the website. There is a 6 page factsheet

Coincidentally the following job ad appeared in my inbox:

A Singapore-based leading Energy Broking firm with world-wide market coverage is looking for an Energy Broker with qualifications as follows:
Requirements:

• Excellent command of English (both speaking and writing), Bahasa Indonesia and ability to speak and understand Mandarin (Chinese language ability is not crucial but will be an advantage)
• Preferably experienced in Coal industry.

Garnauts Gambit

In late February Ross Garnaut began to release his update papers. At the time The Age reviewed the history of his previous gig under Kevin Rudds leadership. The contentious issue was (and remains) the level of compensation paid to fossil fuel generators. Garnaut's favoured position was… none. First the history.

Regional Roundup

A quick partial regional roundup for the start of the new year – my emphasis added. The Sydney Morning Herald leads off with,

Asian hunger drives coal, oil price rise
SMH, December 31, 2010
Strong demand from energy hungry Asian economies will drive the price of thermal coal even higher in 2011, as wet weather continues to shrink supplies of major global coal producing regions.
Oil prices are also expected to rise in 2011, while analysts have broadly slashed their outlook for natural gas due to an oversupply arising from American coal-seam and shale-gas projects.
Despite concerns about global warming, coal is still the fastest-growing energy source globally, with demand rising three per cent in 2010.
The economies of India and China are behind the surge, offsetting weak economic growth in Western economies that could otherwise have led to a slump on world energy markets.
"On the supply side, Indonesia is playing catch up," UBS commodities analyst Tom Price said.
"They have had very high, unusually high rainfall, well beyond their wet season.
"By the end of the year when the Chinese started restocking heavily on Indonesian coal, the coal just wasn't there."
In December, a severe coal shortage in China forced power cuts in the nation that relies on coal for 70 per cent of its energy needs.
Indian demand for thermal coal imports is expected to grow at nine per cent a year for the next five years as domestic supplies run out.
In Australia, uncertainty surrounding government policy on carbon pricing continues to hang over the energy sector, delaying investment decisions and projects.

Perhaps Lovelock is right and Gaia is striking back with some disruptive possibly climate change induced rain.

The News on coal

In light of the recent news about the sell off of NexGen and the curtailing of funding for 'Carbon Capture and Sequestration' (CCS) News Limited continues to pump out coal stories. From the business section...

Coal to remain backbone of power generation
Geoff Hiscock, Dec 22nd.

Despite rapid growth in renewable power sources such as hydro, wind and solar, coal will remain the backbone of electricity generation for the next 25 years, according to the International Energy Agency (IEA).

A drop in coal-fired power generation in the advanced economies of the OECD between now and 2035 will be offset by big increases elsewhere, especially in China, where 600 gigawatts (GW) of new coal-fired capacity will be added. That figure exceeds the current capacity of the United States, Europe and Japan, the IEA says in its latest World Energy Outlook.

The IEA’s projections underpin the growing push by China and India to secure long-term coal supplies from around the world. As part of that drive, Chinese and Indian private and state-owned corporations are seeking to invest in Australian coal projects.

The world’s largest coal producer, Coal India Ltd, is also on the hunt for Australian mines, with Peabody Energy’s Wilkie Creek mine in Queensland a possible investment. CIL is held 90 per cent by the Indian government.

Late last year, China’s Yanzhou Coal Mining agreed to pay $3.5 billion for Felix Resources, which produces thermal and coking coal from four sites in New South Wales and Queensland.

Yes, that IEA... does that mean if the IEA made a lower projection then China and India wouldn't 'push'?

Given that Felix means 'happy', it might be a good strategy for smaller miners to rename themselves to something including the words 'dragon', 'lucky' or the number 8.
Meanwhile, over at the Courier Mail we have;

Anna Bligh culls coal to fund solar
Patrick Lion, Dec 25th.
ANNA Bligh has secretly stripped $100 million from her highly touted clean-coal fund to bankroll a new solar push while publicly claiming she was still committed to cleaning up the state's coal industry.

The Sunday Mail has learnt the Premier recently redirected one-third of the clean coal allocation in the Queensland Future Growth Fund towards the development of two new commercial-scale solar power projects.

The move, a significant shift in Labor's energy policy, emerged one week after revelations the Government would walk away from state-owned clean coal company ZeroGen and scrap its planned $4.3 billion power plant in central Queensland.

In a statement, Ms Bligh yesterday confirmed the re-direction from the clean coal fund to the Solar Flagships Projects, saying it would help develop two new solar plants that power over 50,000 homes.

Defending the ZeroGen decision last weekend, Ms Bligh said she was still committed to clean coal and would "keep $50 million" in the clean coal fund.

But The Australian, in an 'exclusive' no less, paints Anna Bligh as a nuclear advocate;

Anna Bligh opens door to nuclear power
EXCLUSIVE: Jamie Walker and Imre Salusinszky

ANNA Bligh has backed calls for the Labor Party to review its policy on nuclear power.

The Queensland Premier has warned that renewable sources cannot meet the surging demand for baseload electricity.

Ms Bligh and ALP national president said development of the only other viable alternative energy, hydro-electricity, had been hamstrung by resistance to new dams.

Ms Bligh said pointedly that "parts of the environment movement" had shifted on the nuclear option, and now supported it as an abatement measure for climate change.

Ms Bligh said other renewable energy sources, such as wind and solar, could not produce sufficient baseload power. "I think it is perfectly understandable why nuclear comes on to the agenda . . . as people are genuinely looking for what is a cleaner alternative," she told The Australian.

"And I think it is quite interesting that's now coming as much from some parts -- not all, but some parts -- of the environmental movement, as it is from other parts of the energy sector..

However, Ms Bligh cautioned that any discussion about nuclear power for Australia remained theoretical, and not just because the cost was "prohibitive".

"I think there are still very genuinely held concerns about safety, and in an environment . . . where we have other alternatives then I think the prospect of one (a nuclear power plant) in an Australian context in the near future is very slim."

"It's not something on my agenda for the next election . . . it's the sort of thing, frankly, I don't have any intention of revisiting."

Jamie and Imre must use a different dictionary to me, they (or their editor) seem to have interpreted Ms Blighs peek through the door in a very exclusive manner. However, notice that peoples concerns are not genuine, just genuinely held.

Coldry - Comfortable Coal?

From the title of the following article you would assume that there was some ground breaking news to follow... but then the headline doesn't say what this technology would be cheaper than.  Interesting that this article appeared so soon after the bad news from Queensland (Carbonuncle - below).

Cleaner brown coal said to be cheaper emissions reducer
Mathew Murhpy, SMH, Dec 22.
A MELBOURNE-BASED company has claimed that a cleaner version of brown coal could cut Victoria's greenhouse gas emissions at less cost than a combination of wind energy and fossil fuels. Environmental Clean Technologies uses a patented process that alters the chemical composition of brown coal - a high emitter of greenhouse gases when burnt - into a pellet form of black coal, a cleaner alternative. Chief executive Kos Galtos said the Coldry technology could meet Victoria's 20 per cent emissions reduction target, or 13 million tonnes of greenhouse gas, at lower cost than hybrid generation such as wind and gas or wind and brown coal.

"Could" as in may be possible in the future. The ECT website is at least upfront about the environmental impact of coal.

Some may dismiss any attempt to label any form of fossil fuel as ‘Green’.
We agree! There is no such thing as clean coal.
However there is ‘cleaner’ coal. So what is the basis for understanding the ‘Green’ credentials of Coldry?  It comes down to two simple concepts:

• Net Energy Footprint
• Net Carbon Footprint

The net energy footprint of a lignite drying technology must be positive, while its net carbon footprint (including end use) must be negative. Coldry is not a zero emission solution. It is a transitional solution that mitigates emissions now. The reality is, even with best efforts, society will use coal for a while to come, until cleaner energy alternatives are developed to a level affordable to average citizens

The process has passed the pilot scale and the company plans to build larger scale units which according to the website will process:

• 167,000 TPA of Coldry from 60% moisture coals,
• 220,000 TPA of Coldry from 50% moisture coals,
• or 300,000 TPA of Coldry from 40% moisture coals.

If the units above (TPA) mean tonnes per annum then surely this is a long way from producing the stated reductions claimed above?

To put this in perspective the Loy Yang Power Station has an 18 hour reserve coal bunker of 70,000 tonnes and 30 million tonnes are extracted from the pit every year. So 300,000 tonnes (from 1 Coldry unit) is about 1% of the production from the Loy yang Pit.

The ECT Website claims that the process is;

Immediately deployable in existing brown coal boilers (10% to 20% of total energy mix), Decreasing coal requirements (7% to 14%), Reducing emissions (6% to 11%) and Reducing ash accumulation (2% to 4%)

Which I think means that ~20 of these units are needed for Loy Yang.

For more on Brown Coal try:
Advances in the Science of Victorian Brown Coal
The Science of Victorian brown coal: structure, properties, and consequences for utilization

Carbonuncle

"A carbuncle is an abscess larger than a boil, usually with one or more openings draining pus onto the skin."

A carbonuncle might be the future term used if injecting large quantities of CO₂ into the ground has an unfortunate end result.

The Carbon Capture and Storage (CCS) project in Australia took a significant step backwards as Queensland Premier Anna Bligh announced that Queensland would not be providing further funding for ZeroGen to build what was supposed to be a landmark demonstration power station and that the state owned ZeroGen is to be sold.

Bligh denies clean coal 'bungle'
Brisbane Time, Dec 19th.
Queensland Premier Anna Bligh has denied walking away from the development of clean coal technology, after abandoning plans to build a central Queensland plant by 2015. The Queensland government had ploughed $102 million into the ZeroGen research project, which also attracted $92 million from the federal government and the coal industry. It had aimed to have a $4.3 billion coal-fired power station utilising carbon capture and storage technology – which would prevent greenhouse gas emissions from entering the atmosphere – built by 2015.

But the state government today confirmed it would not pursue a proposal to fund the proposed power station “at this time” because of concerns about its viability. It also plans to offload the state government-owned ZeroGen company, turning it into an independent entity owned and run by the coal industry.

"Reports this morning that the Queensland Government has scrapped our clean coal project ZeroGen or that it has been a waste of money are utterly wrong in every respect,” Ms Bligh told reporters in Brisbane.

“What we know now from the early research is that a fully functional power station by 2015 using this technology is technically possible but it is not economically viable.”
Ms Bligh said the technology “would drive up the cost of electricity beyond the reach of normal people” if proceeded with now.

The proposed plant had been expected to cost $4.3 billion.

“The Queensland Government cannot have its cake and eat it to, profiting from exports while being unwilling to invest in the [research and development] necessary to reduce emissions”, [said Federal Resources and Energy Minister Martin Ferguson].

Mr Bligh said she had spoken to Mr Ferguson this morning to explain what was happening with the ZeroGen project.  “I think he understands like I do that the great discoveries of the world have had disappointments along the way,” she said.