Tech Talk - Coal prospects

Last week was the annual Society of Mining Engineers annual meeting, this year in Salt Lake City, with the title “Leadership in Uncertain Times.” To illustrate the point it had some 6,000 members or more in attendance, as I hear and was quite successful from that point of view. However, through the grapevine I also heard that some of the mining companies are less optimistic of the future, with job offers made for this summer being withdrawn in several cases.

There is a considerable question as to the future of coal, as the title reflects, and this has as much to do with concerns over the construction or not of additional coal-fired powered stations around the world and the changing market as older plants are withdrawn from service. Some of the reason for uncertainty can be seen in the predictions from the EIA for the domestic coal market over the next year or two.

Figure 1. The decline in coal production in the United States over the past two years. (EIA)

The EIA note that last year was the first that production had fallen below 1 billion tons in the past 20 years. It does however forecast that production will increase this year by 3.9% before falling 1.5% in 2015. In both years however it will remain above that billion ton mark. I have written recently about the recent report “Warning Faulty Reporting of US Coal Reserves,” (in which the conclusion is drawn: “Rather than having a “200 year” supply of coal, there is now abundant evidence that the US is rapidly approaching the end of economically recoverable coal.“)

The two stories are, to a significant degree, discussing different topics, although the beginning of the Clean Energy report also discusses the rising price of domestic coal, and why – as it rises – so the switch to other fuels can be anticipated to continue. However, in that regard it is worth noting this other graph from the EIA.

Figure 2. Spot price of coal by basin over the past three years (EIA )

For those who forget 1 MMBtu (million Btu) is roughly equivalent to 1,000 cu ft of natural gas. The EIA also record natural gas prices and, in comparison to the coal price, that of natural gas – for equivalent energy – is considerably higher.

Figure 3. Natural gas prices (Henry Hub) (EIA )

Why then does the Clean Energy Report suggest that coal costs are going up, when as the plot above shows the spot price has been remarkably stable?

Figure 4. Cost of delivered coal in the US from 2004 – 2012. (Clean Energy)

Notice however, in this case, that the cost is for delivered coal, and the cost of that delivery is what has been going up over the past few years. (And you wonder why Warren Buffet invested in railways?

Figure 5. Changes in Railroad freight costs since 1981. (Association of American Railroads)

If you look at the plot you will see that the cost per ton-mile has increased fairly steadily over the past four years from just above 3 cents to 4 cents a ton-mile, which explains a significant part of the increased fuel costs. Railroad income has risen, since 1981, from just under $3 billion to $12 billion.

So what is the future likely to be? Well there is an additional source of income to the industry, outside of the US power plants, and that is through exports. Yet here the story is not really that different. Since 2005 the value of coal exports from the United States have tripled. This is not just a volumetric increase (which has happened with steam coal) but includes an increase from higher prices for metallurgical coal. (Powder River steam coal at 8,800 Btu sells for around $12.35, while the 13,000 Btu Northern Appalachian coal goes for $68.65 a ton. (This is one of the discriminating factors within the coal market that the Clean Energy Report fails to fully discern). Exported coal saw a steadily rising price from 2007, when it averaged $70 a ton through 2011, when it was priced at $148 a ton before falling to $118 in 2012 and to $96 in 2013. Roughly 46 million tons went to Europe in 2013, down from 51 million tons in 2012, while roughly 22 million tons went to Asia (down from almost 26 million tons). Of this about half the European and a third of the Asian coal was steam coal needed to feed coal-fired power plants.

The problem that the industry faces is that this downturn in both domestic and export demand that became evident last year is likely to continue into the next few years. In the case of Europe pressure to close coal-fired power plants continues, despite increasing concerns that the existing base is approaching a point where supply will no longer be able to meet demand. The Sunday Times carried a story this Sunday about Npower and their owner RWE, which produces 10% of the electricity in the UK, but which is writing off hundreds of millions of dollars as it devalues its current power stations, which are being closed by regulation, even as it fails to build replacements, which it is reported to find unattractive in the current political climate. Last December the NPower CEO noted that over the past year the spare capacity in the UK had fallen from 15% to 5% and if that continued this year (and there are more scheduled closures) then by next winter the reserve may be gone and the country may see the start of blackouts that will continue for some years.

In the same vein the United States is also cutting coal-fired production. An article in Motley Fool points to the trend over the next few years.

Figure 6. Projected coal fired power plant closure effects (EIA via The Motley Fool)

However this projection is possibly a little disceptive, since it does not foretell what might happen if “clean coal” can get a grip on the industry. As TMF points out:

But EIA's retirement projections may be too high. While air emissions standards will result in heavy fines, utilities may still foot the bill because of coal's relatively cheap production costs.

With natural gas prices up 50% this year to a four-year high, energy companies are scrambling to find cheaper energy. According to data compiled by Bloomber, an average natural gas plant makes $3.04 a megawatt-hour off its fuel, compared to a whopping $31.58 for coal-fired plants.

While coal might seem like a no-brainer bet, "clean coal" is far from a sure thing. Southern Company has been working hard to bring its 582 MW Kemper County, Miss., clean-coal plant online, but the $5 billion project is currently 65% over budget.

A Department of Energy report estimates that clean coal costs are roughly double that of coal, but companies like Southern Company are hoping to reinvent coal's future.

Unfortunately building new coal demand, when set against the destruction of current plant in both the US and Europe, will take some years and thus, while the future for coal might, in the long term be strong, in the shorter term one can understand why coal companies might be hesitant to hire new engineers. The reduced demand will, inter alia, lengthen to time that current supplies last, though I perhaps need to address that issue in a subsequent post.

Tech Talk - Employment Opportunities

In 1961 I started my career as a Student Apprentice in the National Coal Board in England, going on a year later, under a National Coal Board Scholarship, to the University of Leeds, where I studied for both my bachelor and doctoral degrees. As I recall the NCB had authorization for 100 scholarships a year, but rarely awarded more than a few (I was the only one at Leeds in my year). By the time that I received my second degree, in 1968, the writing was on the wall for the British Coal industry – folk I knew with 1st class degrees were finding work as face deputies, with continual reduction in pit numbers making promotion beyond that point hard to anticipate. When I mentioned an offer from America the folk in the Personnel Office suggested that I would be wise to take it.

When I came to the USA the coal industry was also in a bad way. Coal prices were low, and the market very competitive. As a consequence there was little interest in mining research, and student enrolment in Mining totaled around 40, for the four-to-five year course that we offered for undergraduates at the time. Numbers in fact were so low that I was asked to teach in another department, since we did not have the numbers to justify the classes in Mining. And then along came the first Oil Crisis.

Suddenly we did not have enough room, with individual classes rising to enrolments of up to 50 students. Colleagues were teaching three separate lab classes for the same subject to meet the demand. As an anecdote of the times I remember going to a Mining Conference in Pittsburg and, at the dinner, being asked what I wanted to drink, when I asked for Scotch I got a bottle – of a quite expensive brand. This continued through the beginning of the 1980’s and we were learning to accommodate the larger numbers and adjust to having some financial security in our funding. The only problem was that we were finding it hard to attract students for graduate school, since job offers were multiple and lucrative. The market was good both for coal mining and in the metals side of the house (gold, lead and other minerals). (It was in this interval that I was named the second Curators’ Professor of the campus, following, inter alia, our development of a novel mining machine).

And then Saudi Arabia re-opened the taps, and the price of oil fell, and suddenly there was a glut of coal on the market. Suddenly we were faced with highly qualified graduates calling back to see if they could get into graduate school, enrolment began to shrink rapidly as word got back to the high schools about the poor employment prospects. Those of us seeking research funding were driven to look beyond the discipline of Mining into other applications of the technology, if we were to be able to find funding. We got a new Dean early in that time, and I rather suspect that there was not a year over his decade or so of tenure that he was not faced with cutting the school budget. One year the Mining class was down to an enrolment of one student for his year, and talks of mergers and dissolution were in the air.

But then the price of oil began to rise again, coal markets began to grow, both nationally and abroad, and metals prices also began to rise. And we slowly grew back up to, and currently beyond our previous records for enrolment at the beginning of the 80’s. Salaries and opportunities have grown and, since we now recruit more actively abroad, even with a strong domestic demand for graduate students, our graduate program has also surged. Faculty work-loads have also grown, and with the odd retirement or move elsewhere there has been a shortage of qualified faculty, and only limited time available to develop new research programs, despite new levels of funding.

And yet, just as the schools become complacent with their new prosperity, there are signs that we have perhaps passed the current peak, and may well be heading into the next cycle of down and then up. The writing is now yet that deeply inscribed into the walls, but there are some worrisome trends that today’s Department Chairs are, no doubt, already well aware of.

In the United States the TVA has just announced that it is moving away from the use of coal in its power plants. The goal is to reduce the share that coal provides to electricity production from 38% to 20%, while raising the amount generated by renewables from 15.7% to 20%. It is intended, over time, that a third 20% will come from natural gas, and nuclear power will make up the total to 100%.

The impact of this, and similar decisions being made at power plants around the country, is already evident. The EIA, in their November Short-Term Energy Outlook, has noted that employment in the Kentucky coal industry has fallen 24% this year. And while the fall in production is, as yet, not that great, with exports currently failing to pick up the decline, the future is, yet again, not that promising.

Figure 1. Trends in US Coal Consumption (EIA)

At the same time there has been a little wobble in the gold market. Barrick Gold Corp. the largest gold mining company, has seen its stock stumble over the past year.

Figure 2. Price of Barrick Gold stock over the past year (Forbes )

Currently traders are anticipating that the price of gold will have to fall below $1,200 an ounce before demand will rekindle.

These are, perhaps as yet small straws in the wind, yet even as the global economy continues to struggle upwards I suspect that the lot of the Mining Engineer may soon be a little more complicated than it has been for a while. This last surge in employment and opportunities saw the end of my generation to a large extent, so that we have been replaced with a much younger crop, since the intervening management layer was not formed, since there was neither the demand nor the supply available in those lean years to create such a layer.

And yet it is unlikely that the future will be as bleak as we saw in the 60’s and 80’s. The predictions of vast resources from shale gas to help many countries meet their energy needs have not yet proved to be real. In the meanwhile, as the Polish experience indicates governments have to ensure that their constituents have adequate fuel supplies at a reasonable cost – and for many countries that means a coal future – even if, as in Poland’s case, they have to start importing it to keep up with demand.

OGPSS - Coal power and air pollution

Fifty years ago I began my undergraduate studies at the University of Leeds in the UK. It is not something I particularly dwell on, but the stories out of Beijing this week, describing the air pollution in the Chinese capital, brought back a memory. The story on CNN notes that visibility in Beijing has been cut to under 200 yards. Back in Leeds in December of 1962 the air quality had registered the highest levels of sulfur dioxide in the air that had ever been recorded, as air conditions generated smogs that covered large parts of the country. What made it personal for me was that I lived about a mile from the University and had to walk there through the smog that covered the city. Despite it being daylight there came a point where I could not see (and I still remember doing this) my hand when held at the full stretch of my arm. Crossing the Park to the University there were cries in the mist, as folk fell over some of the, now invisible, decorative iron edging along the walkways. From that time on the air quality regulations took increasing effect, and before long the black buildings that I had walked past on my way through town were being cleaned and brought back to their original white condition, which they have retained in the years since.

Immediately after the Second World War Britain needed the coal to power the reconstruction of the country, but in the time that I was in college it was already clear that the days of unrestricted mining were over, and the transition to other fuels had already begun. It was not, however, the air pollution in Leeds that was the driving force for the regulations, but more likely the presence of similar smogs in London and the South, where those who governed the country lived. The major legislation began after the Great Smog of 1952. In a four-day period at the beginning of December the combination of a fog, an inversion in the immediate atmosphere, and the increased use of coal fires to provide additional warmth generated a smog that is blamed for the immediate death of around 4,000 people and a strong influence on the consequent death of some 8,000 others.

I bring this up because the air pollution in both Beijing, and in New Delhi is reaching levels where the government is beginning to move to help abate the immediate problem. In both capitals it is a combination of vehicle exhaust and power generation that is generating the problem, whereas back in the UK, fifty and sixty years ago, vehicular exhaust was not nearly as much of a problem as burning coal. Yet, I suspect that those problems in Asia are not yet at the levels that they reached in the UK, they may be less tractable of solution.

Burning coal to generate power remains a relatively simple process, as does mining of the coal, for which a realistic estimate would suggest that there remains, for now, a plentiful sufficiency. (That latter point is, however, disputed by some). The EIA has recently pointed out, that we are at a point where China is about to consume about half of the global supply of coal each year.

Figure 1. Chinese coal consumption relative to that of the rest of the world. (EIA)

At the rate of increase reported, it is likely that the two lines will cross before the end of this year. However it should also be noted that India has been importing more thermal coal than China (a projected 118 million tons for 2012, in contrast with the 102 million tons imported by China). And as Mongolian coal becomes more available, so India may take over parts of the international supply that now flows to China from Australia, Indonesia and Africa.

The need for increasing levels of power to sustain the growth rates of India and China are most often discussed in terms of the oil and natural gas that these two countries are consuming, but it has been estimated that India has a shortage of around 10% between the level of demand and actual supply, leading to crippling blackouts, such as that of last July.

It should be noted that the levels of air pollution from power generation can be controlled. The United States uses most of the roughly billion tons of coal a year that it produces for power consumption, but air quality has been successively cleaned to higher standards over the decades, so that smogs are now only a historic curiosity.

Figure 2. Coal consumption in the United States by end use. (EIA )

The efforts of the EPA, among others, have had a considerable impact on American Air Quality. This, for example, is the median air quality index for the District of Columbia over the past 30 years. (I am not sure where to get earlier data).

Figure 3. Median Air Quality Index for Washington D.C. (EPA )

It is thus, demonstrably possible for China and India to clean up their air, even as they increase their demand for coal. It should also be noted that over those past 30 years the miles that Americans drive has also increased, as I recently commented, and so, based on the above, the argument applies also to vehicular exhaust.

It is true that part of the imposed solution to date, in terms of the American coal used, has transferred demand to the lower sulfur coals of Wyoming, rather than the higher calorific value, but also higher sulfur contents of more Eastern states, but as regulations have changed the power plant requirements, so some of that earlier loss to Wyoming is being recovered.

Figure 4. The top coal shipping and receiving states in the third quarter of 2012 (EIA )

Based on American experience it is thus demonstrable that both China and India could clean up their air to American standards, while still generating the power that they need through burning coal. Unfortunately, however, as the experience with mine accidents in China has shown, there are still too many operations too far from Beijing for central regulation to be, as yet, fully enforced and complied with.

Addendum The Air Quality Index should be described. As the EPA Airnow site explains:

EPA calculates the AQI for five major air pollutants regulated by the Clean Air Act: ground-level ozone, particle pollution (also known as particulate matter), carbon monoxide, sulfur dioxide, and nitrogen dioxide. For each of these pollutants, EPA has established national air quality standards to protect public health .Ground-level ozone and airborne particles are the two pollutants that pose the greatest threat to human health in this country.

Figure 5. The gradation of the Air Quality Index. (EPA)

The BP Energy Outlook to 2030 - a review

There is a significant reliance, among those who write on fossil fuels, on the statistics that BP annually compile on global energy production. For example it provides underlying information for Energy Export Databrowser, as well as many of the posts at The Oil Drum. And so when BP just released their forecast for Energy for the next 20 years (Energy Outlook 2030) it is worth having a look at to see what they predict. Bear in mind that this is only one company prediction, yet nevertheless it is an influential one.

The report is very briefly summarized in the introductory speech by Bob Dudley, the Chief Executive, who chose the following highlights:
• Global energy growth will average 1.7%, but will be generated by non-OECD nations, while demand from OECD will remain relatively stable.
• Oil supply will grow at around 1% per year, with major increases in supply coming from OPEC, particularly Saudi Arabia and Iraq.
• Coal use will grow at an average of 1.2% per year, largely through demand for power from non-OECD nations.
• Natural gas will be increasingly used as a power source, with demand growing at 2.1% per year.
• Renewable energy sources will continue to be favored, with growth being at around 8% per year, and with demand for biofuel tripling over the two decades.
• Deeepwater production of oil will rise from 7% of the global demand to 9% by 2020.

Those were the initial highlights, and there is slightly more detailed summary at the BP website. Since the booklet that summarizes the data is some 30 pages long, but uses a considerable number of graphics to show the projections, let me borrow some of these to summarize what I see as some of the critical points (and I will add a few editorial comments as I go).

The review (which is the first of its type that BP has released) recognizes that the face of energy consumption is changing. As the world population continues to grow, the shift in energy intensive industries to the developing countries has shifted the locations where demand will grow. Since industrialization also increases the energy use by their populations, there is a compounding rise in their energy use.

Projections of population and Energy Growth (BP Energy Outlook)

What is more interesting to me is how they see how this energy will be supplied. The overall projection is shown in this chart:

Projected future source of Energy Supplies (BP Energy Outlook)

The fastest growing of these segments is that of renewables (which includes biofuels). This can be seen more explicitly in this graph from the report:

Sources of Future Energy Supply (BP Energy Outlook)

The growing impact of renewable energy production will affect both electricity generation, and transportation (the latter mainly through biofuel growth).

Looking specifically at the different fuel sources, the report anticipates that oil growth, will be some 16.5 mbd over 20 years, but that this will have to also compensate for about 4.5 mbd of declines in non-OPEC producers. Non-OPEC will, however, see an increase in overall production, the gains coming from about 2 mbd of increased production from oil sands (with the assumption that this is Canadian, since it is not credited to OPEC, of which Venezuela is a member), from the FSU, and from a significant increase in biofuels, only some of which is anticipated to come from the sugar-based ethanol of Brazil.

Sources of future liquid fuel supply (BP Energy Outlook)

In looking at the above chart it is important to recognize the distinction between the FSU and Russia itself, since that country may well start into a decline in production within the year. The increased production will come from places such as Azerbaijan and Kazakhstan.

The second point is that relating to biofuels, where BP note that renewables currently provide 3% of liquid fuel for transport, but that this is expected to rise to 9%. (Within the next 20 years increased rail, electric, hybrid and CNG are not expected to make a material contribution, though CNG use is expected to be about 2%). The concern with biofuel production is that it is virtually all anticipated to come from ethanol. And, as we have just seen with the closure of the Range Fuels plant in Georgia this week, the commercial viability of cellulosic ethanol has yet to be established, challenging not only the BP view of the future, but also that of others. The practicality of further increase in corn ethanol production in the United States is doubtful, giving the rising cost of the raw feed stock (corn). However this is the projection, and increasingly BP expects that biofuels will meet increases in liquid fuel demand (rising to meeting 60% of the growth by 2030). There is, however, an allocation of 1 mbd for increases in refinery gains (which I have discussed earlier) and from natural gas and coal, which perhaps gives some indication of their opinion of this latter effort.

Anticipated size and source of Biofuel production (BP Energy Outlook)

It is the dramatic increase in transport demand, particularly in Asia, that will drive the increased demand for liquids, China alone is expected to pass the United States in oil consumption within this time frame. To further supply that growth, NGL increases of more than 4 mbd from OPEC, and crude oil production growth mainly from Saudi Arabia and Iraq is projected. (In this regard it should be noted that a year ago BP were anticipating that Iraq might be producing 10 mbd by 2020 – the current more realistic target is 5.5 mbd by 2030. And while Iraq has stated it may be able to reach 12.5 mbd by 2017, the condition of the infrastructure in the country, among other issues, would suggest that BP are now more likely correct). Whether Saudi Arabia will rise to the challenge of producing (and likely more critically exporting) at the levels BP projects, given the current age and production history of its main fields is a question, since recent pronouncements from that country suggest a more conservative production capacity of 12 mbd and a disinclination, perhaps, to produce at even that level. (BP assume that both Russia and Saudi Arabia will retain their market share of 12% over the two decades, which, with an assumed total of over 102 mbd would give them each an assumed production of over 12 mbd). To reach the Saudi target BP expect them to expand production capability after 2020.

The major change in fuel use over the next two decades is expected to come in the increasing move from coal to natural gas as the primary source for electricity generation. Because of overall increases in power demand absolute demand for both fuels will increase, but increasingly the demand will shift to NG.

Thus, for example, Chinese growth in demand will rise at 7.6% pa to 43 bcf/day, though this will still only be 9% of their total energy consumption. It is the BRIC countries, which include Brazil, Russia, India and China (and now South Africa) (H/t KLR) whose overall growth in demand, with that in the Middle East, will likely prove greatest over the next two decades.

Expected growth in NG demand in the next 20 years (BP Energy Outlook)

By 2030 BP project that most use of oil for power generation has been displaced, with coal and NG being the primary fossil sources. NG use will increase to about 40% of the market, outside of Europe, where it rises to 65%, given the European concern over climate change. However, in terms of the absolute market, Europe will see a much greater impact from renewable resources generating power, so that the percentage that NG provides will only rise to 24%. Over half the NG supply in North America will come from shale gas and coal bed methane (CBM), elsewhere the impact from those resources will, within this time frame, be much less. Whether or not these unconventional resources reach the 57% market supply by 2030 will likely depend on the development of at least one new technological breakthrough that lowers cost while increasing long-term yield from the wells, but that is a quite feasible assumption.

Electric Power generation by source (BP Energy Outlook)

The market for LNG is anticipated to grow significantly (4.4% pa), particularly in Europe and Asia. Supply is initially seen as coming from the Middle East, but this will be followed by production from Australia which will overtake Qatar by 2020, and then African deposits will come on line providing 41% of the supply by 2030. It is interesting to note the caveat that BP introduce into this projection.

We assume that policy supports the continued rapid growth of non- fossil power generation – especially renewables, which attain a global share of 10% by 2030. Where gas is available at a competitive price, it continues to displace coal.

Regional demand growth for LNG (BP Energy Outlook)

It is the response that China makes in changing their primary source of power as they continue to expand production, and thus energy demand, that will decide how far, and how fast the transition from coal will occur. BP anticipate that the market overall will continue to rise until just before 2030, at which time it will flatten. But whether that happens will likely depend on availability and price, of both coal, and its potential replacements. (Hence the caveat).

BP recognize that this is only a base case projection, and that there are many different factors that will likely change the final results. That is likely to be particularly true if there is an upsurge in interest in climate change legislation and regulation. I have made some comments on how accurately I think that the models have been developed, but that should not detract from the value of this particular document which, being freely downloadable, is well worth getting and saving.

Conventional Coal Production is rising

Gregor MacDonald had a couple of interesting charts on coal demand that should get greater attention. The first was the relative pace at which coal demand is growing relative to oil.



While the second shows how much of the increased demand is coming from Asia, and Africa, rather than from the OECD. As he puts it, you could almost define the OECD as the oil users, and the non-OECD as the coal users.



Note that the great growth in demand has been since mid-2001.

The difference between the two (OECD and non) is likely to grow greater in the years ahead., since the EIA is projecting virtually stagnant demand in the OECD nations.



(Note that 1 Quad is about 44 million tons of coal, so that 100 quads would be about 4.4 billion tons)

At the moment Peabody, for example – who provide about 250 million tons of coal a year to the market, is seeing an 18% decline in demand y-o-y (Note that the above curves only go through mid-2008. ) but expect to see some recovery and increase in price in the second quarter of this year. The railroads who ship the coal, much of it from the Powder River Basin in Wyoming to power stations around the country, have also seen a 12 – 21% drop in income, but their December figures are showing the signs of recovery (or a colder winter) with movement up 4% in a demand return that is expected to continue. The situation is such that coal stocks are no longer a popular item in the market. Although Powder River Basin coal is currently at $10.40 per ton, up from $8.40 just over a month ago, a rise not seen in other coal prices. Production numbers have yet to reflect this, though the final 2009 points in the graph below are just estimates).

Coal production figures for the United States (source EIA )

This on the day that the BBC announced that the British Recession was over. Not, of course that this helps those currently out of work, since the return to full recovery is still some time away. But it does provide some support for the idea that coal demand in Europe may begin to grow.

One argument against that is the relative availability of natural gas, and the lower environmental footprint that that brings with it. And it is going to be in the relatively longer-term assurance of availability that decisions may be made on whether or not to switch from one boiler to another (although many can handle both). But for countries in Asia coal may be the chosen alternative. And even in the United States natural gas and electricity costs seem to be rising in parallel, as Frank Clemente just pointed out.

Source Energy Facts February 18, 2010.

It is interesting to note how estimates for that increase in demand have changed. Back in 2005 Forbes was predicting that China’s demand would be 2.5 billion tons this year. By mid 2008, the Head of the Chinese Coal Industry Association was predicting demand at 3 billion tons.

Data show that China's coal production rose from 1.415 billion tons in 2002 to 2.536 billion tons in 2007, an average annual increase of 12.38 percent. At present, coal accounts for 76 percent of the country's total production of primary energy sources, and 69 percent of the whole society’s consumption.

Demand is continuing to increase, which is taken as an indication of the growth in the economy. It is antipated to grow by about 5% or more this year, and figures as high as 3.4 billion tons are being bruited. Unfortunately in the immediate short term since imports have to enter the country through harbors, prolonged cold can halt deliveries.

India is often not that readily recognized, but bear in mind the following statistics:

India ranks third in coal production
Coal is one of the primary sources of energy, accounting for about 67% of the total energy consumption in the country.
India has the fourth largest reserves of coal in the world (approx. 197 billion tonnes.).
Coal deposits in India occur mostly in thick seams and at shallow depths. Noncoking coal reserves aggregate 172.1 billion tonnes (85 per cent) while coking coal reserves are 29.8 billion tonnes (the remaining 15 per cent).

Yet even with those supplies not enough coal is being produced to meet the demands. With consumption at 604 million tons there is still a current shortfall estimate of some 70 million tons a year, that is met by imports. Imports also are not adequate and as a result there continue to be power shortages – in this case at 11 generating stations. However part of the problem may be that there is a difference between the cost of imported coal at $4 per million Btu and domestic coal at $1.76 per million Btu and domestic coal supplies cannot keep up.

The panel said that the country’s import requirement was 29 million tonne this fiscal, which would spiral to 50 million tonne in 2011-12 and is likely to be 120 million tonne by 2012-13. What is more, of the 203 captive coal blocks that have so far been allocated with combined reserves of 26 million tonne, only 92 blocks have commenced operations with a projected production of 49 million tonne by 2011-12/


And if you think India has problems, Pakistan’s are even worse, but then that is something that I have written about before.

The brief conclusion is that coal is going to around for a long time into the future, with demand continuing to outstrip supply for the non-OECD countries, and so one can expect the lines in the top charts above to continue rising.

Sometimes my predictions turn out to be wrong

Last Thursday I posted the first half of a letter that I wrote to OMNI magazine back in 1979, and in it I made some cost estimates for the potential for a satellite in space beaming energy back to the Earth. I then made some additional cost estimates for solar energy.

On a day when there is growing concern that energy prices are again heading upwards, and with OPEC maintaining control by discussing an increase in production I am going to perhaps weaken your faith in me as a prophet (I consider that OPEC can only continue to maintain this control for another year or so before they too run out of enough oil to satisfy demand – providing the price remains reasonable). I am going to do this by adding the second half of the letter that I sent to OMNI. This is where I became less of a prophet than I had expected, and I will discuss some of those inaccuracies in a follow-on post. But first back to that 30-year old letter:

The next alternative is the biomass option. Firstly have seen figures that it takes 80 gal of gasoline equivalent to raise an acre of corn (including fertilizer) and that 4 gal of gas input to biomass gives 2.5 gal of alcohol out not an equitable exchange. Mr. Pohl's argument that "burning biomass does not (add to atmospheric CO2) ." is specious. Not only does accelerating the decay time increase the rate of change and the volume involved, but it also disregards that portion of the material which turns into humus. I'm sorry but biomass is not a significant option either. Hydro electric and wind power are very site selective and, as a practical but mundane point, can a TV oriented society realistically be expected to tolerate that much TV interference (from windmills). No, while every little counts I'm afraid that this is all this will amount to.

And thus we come to the big four; oil, gas, nuclear, and coal (I'd like to leave geothermal until later).

There is no question that our petroleum based oil and gas is very rapidly diminishing. Price decontrol will have very little long term effect on this situation and recent studies have shown that reserves are often even lower that predicted . It hardly bears repeating that the reason this is not too evident at the pumps is that we now import almost half of what is used. The fuel component is significant in almost all manufacturing and if our suppliers abroad put up their prices (as they will continue to do), then the result of course, is that inflation is virtually guaranteed for as long as this continues.

The Iranian oil stoppage, and the declining levels of the international oil pool all urge that something must be done, in the short term as well as the long.

In this regard we need all the domestic fuel supplies we can develop, for at least the remainder of this century until the time in the next that the SPS or fusion becomes practical. I stress domestic, because the need for supplies is critical and must be guaranteed, and from abroad this is not a sure thing.

This, in turn, casts grave doubts on the economic installation of more nuclear reactors. Figures for economically recoverable domestic uranium seem to center about 380,000 tons, while demand projections for the reactors in and currently planned appear to vary up to 1,500,000 tons, depending on whose figures you believe.

In 1974, when the price of uranium was $7.90, spokesmen for the power companies were quoted as saying that nuclear power stations would become uneconomic if the price doubled . The price is currently $15 and this supply will run out in the near future, putting the price up further . To those who start waving the breeder flag, I would rejoin that it takes 20 years to double the fuel supply, that it will take 10 to 15 years to get one built and that already moves us into the next century.

To be honest I don't know who to believe on gas. In 1977 we had a shortage of gas and thousands of businesses closed. I have heard that this caused a lot of companies to switch out of gas and this resulted in the current surplus, not the fact that we found that much more. In either case it is currently a popular fuel again, yet available data would indicate our supply is even worse than that of oil, a point I will return to later.

So far I have been very negative, not through malice but because energy costs are going up and we need to understand the realistic options that face us in the remainder of this century.

It is common these days to hear cries from Washington at something must be done and conservation is the cry. But after adding insulation to my house, turning the thermostat down to 60 and cutting out pleasure driving I don't see that I can do much more in that regard. The population continues to grow and energy demand per capita will grow with it. To give just one reason, the ore required to produce metals gets thinner every year and more must be mined to give us the same volume of material.

There is also a direct correlation between energy levels and jobs, to prove which, I attach a graph from a paper by Congressman McCormick.

To make this point another way, after that well known actor made his walk along the canyon for the TV cameras in the campaign which stopped Kaiparowits we did not see him in Watts explaining to the young unemployed that his actions helped ensure there would still be no jobs in the 1980's.

I say this not meaning to be facetious, but to point out that those whose major concern is with the environment must accept the social burden which is implied. Those who delay the construction of a power station must accept some of the blame for the resultant rate increase when the plant is built, or the unemployment which will result from the ultimate lack of power if it is not.

What I also am seeking to establish is that we are in a mess and while we need the long term solutions which will perhaps be brought about by fusion or the SPS system we are also in desperate need for some short term solutions as well.

In this regard I would like to take exception to the remarks by Mr. Pohl who writes off coal mining in a short paragraph. I regret this because it is a very common occurrence when one reads reports on the current energy situation by a wide variety of people and unfortunately the attitude it conveys is pervasive. If one might first of all point out the fact that soil is dirty does not stop farmers from growing crops, and the thousands of fatalities a year do not stop Americans from driving cars. The dirty characteristic which is attached to the industry is, regrettable and based on history; more than current fact. It is not true, for example, that strip mining ruins everything it touches and there are areas in Texas and Wyoming, among others which would show that the 1,000 plus dollars put into each acre of reclaimed land have left the land in much better condition than it was before strip mining occurred. This does not make strip mine coal ruinously expensive and once a recognized set of regulations can be established and operated under I would expect that coal mining prices will stabilize. I would point out in this regard the experience of the National Coal Board in Britain would indicate that land can be restored to at least as good a condition after strip mining as it was beforehand.

One must accept that people are killed in coal mines and that much of the coal contains sulfur but surely these should pose challenges to science (as does developing "cheap" solar cells) rather than be shrugged off as absolute disqualifiers. Surely if we can develop robots to operate on Mars we can develop robots to operate within a thousand feet of the ground surface in coal seams and thereby make mining operations safe so that miners aren't killed.

This is perhaps a challenge for the future, however, in the short term while coal mining will produce as much energy as is required of it surveys indicate that, since its major use will be in power generation that to the turn of the century the supply will be demand limited rather than supply limited. Coal mines also take somewhere between 5 and 10 years to develop as do the power plants which must supply them.

Where then can we turn for more answers to the energy problem in the short term and what other techniques can possibly be used in the medium term. I would like to put forward two suggestions. Firstly, there is within the United States somewhere in the region of 4 trillion tons of coal of which proven reserves down to 3,000 ft run at levels of approximately 1,700 billion tons. This coal contains anything from 140 to 700 cu ft of methane per ton, and therefore gives a readily available additional volume of perhaps 500 trillion cu ft of gas. We currently use approximately 20 trillion cu ft of gas a year with conventional resources estimated at 220 trillion cu ft. (Hence my earlier comment about gas supplies.) One therefore would triple the amount of natural gas available if this resource were adequately developed. Since this supply occurs in deposits less than 3,000 ft from the surface it can very easily be accessed for utilization. It is, however, a reserve which is currently not being exploited mainly because of legal entanglements as to who exactly owns it.

It is frequently said that Congress cannot legislate technology however, in the situation which faces us, as we move towards a solution to an energy crisis, this is one instance where a move by Congress in regard to deciding on the exact ownership of this gas would free up a major resource rapidly as a means of supply. It would also, serendipitously, make later mining of the coal a much safer operation. In regard to the CO2 build up, one must accept that there is a problem which must be addressed. But, while we are responsible to future generations we are equally responsible to the current and past generation. Those people now returned have as much if not more right to power in their lifetimes and must also be factored into any solution.

The second option I would propose in relation to more proper use of underground space. This last winter a house built relatively close to mine with approximately the same sq footage was left unoccupied and unheated. The temperature inside never fell below 56 degrees.

As I have mentioned earlier it cost me up to 5,500 kilowatts/month to maintain the temperature inside my house at only 6 degrees higher. There would thus be great savings if a move were made to put at least part of future construction underground. To those who say it is expensive, traumatic, and unsafe, I would add three further facts, firstly, that the underground house cost $32/sq ft to build and this $32 is the same price as current super surface house construction in the Rolla area. Secondly, studies in Texas have shown that school children are if anything less anxious when taught in an underground school than they were on the surface. Thirdly, caves in Missouri survived, with no evident damage the worst earthquake in U.S. history. These structures are of course safer and much better able to withstand tornado, wind storms, ice storms, and other hazards of the weather which are prevalent in these times. The development of this technology is really already with us. It of course can only be applied to novel construction but nevertheless the savings which it would lead to in the long term would be not only in energy but quite frequently also in aesthetics and also in other potential areas since one can for example grow vegetables on one's roof. (Something one could not do underneath the solar collector which would cover my backyard.)

Well that is my response to the energy articles in your last issue. You must forgive me for being a little long winded but the matter is a little complex.

Thank you for your kind attention.

Respectfully I remain,

Yours sincerely,

Well that was the letter - we'll talk about how it really turned out next time.

Richard Heinberg’s “Blackout - Coal, Climate and the Last Energy Crisis”

When this new book was about to be published the editors at The Oil Drum were offered a review copy, and I was offered the chance to provide that review. Yet in a way providing that review gives me a bit of a puzzle, because the underlying premise on which the book is based is that, as David Rutledge has propounded, the world will run out of realistic coal reserves much faster than most folk anticipate. It is a point of view that I don’t completely accept, and I have posted on my disagreements with Dr. Rutledge over some of his assumptions and conclusions in the past. So I could fill this review with another regurgitation of my points of disagreement, but were I to do so I don’t think it would be a fair review.

The book sets out to collect together in sequential order a compilation of those views that state that the world will run out of coal faster than expected (including one source that disagrees); then looks at the coal remaining in the major consumers the United States; China; Russia and India; and then looks at potential exporters Australia, South Africa, Europe, South America, Indonesia and Canada, as it rounds out the major global patterns of coal trade of the world. The interplay with coal and climate is then reviewed and three different paths forward are then offered, with some closing remarks. It thus provides a relatively concise, yet comprehensive review of the coal supply future from one perspective. That is a very useful thing to have, and (perhaps I shouldn’t admit this) had I not been given a copy for review I would have bought one. Would I have got my money’s worth? Well it depends on what you are looking for. And to explain that remark let me discuss, very briefly what is in the Chapters and what I would argue about.

The fundamental questions come down to the difference between reserves and resources, and the rate at which reserves are used up. However because use changes as production declines and product cost rises, there needs to be some model of declining production. The references that the book cites rely on Hubbert Linearization, and this forms the basis then for the estimates. The text explains how it works and notes that it has often, historically, been applied to estimating how long oilfields will last. This model is then used to predict how long the current reserves of the different countries will last, based on current reserves. The resulting numbers are quite dramatic. China is shown, for example, to see a peak in production around 2020. Given that China produces, and consumes, around 40% of world production – twice that of the United States – the impact on overall world use is likely to be significant. For while, for example, Russia is quoted as having the second largest reserves, the book estimates that “Russia could well cease being an exporter within only a few years.” (Part of the problem rises because some of the eastern resources have yet to be tapped, and even when they are the coal has to be moved to the west where the demand is. Russian transportation services are considered currently inadequate to the task.)

In looking at India the author did give me my one mention, when looking at the potential increases in production that might be achieved by Coal India. But he points out (as I have) that India has a serious current fuels crisis and that increasing coal use is one way to solve it, at least transiently. I did think it a little odd that Pakistan, which also has serious supply problems, and is right next door, only got the courtesy of a passing reference “While the situation in India is not yet as bad as that in neighboring Pakistan, . .” The situation in India is not getting better – as an aside - and remembering that Bangalore is where a lot of India’s IT is located:

The situation is going to be grim across rural Karnataka. People in the rural areas will get electricity just for 10 hours, of which the three phase supply will be available for only five hours. It will be 14 hours of darkness in rural parts over the next 12 months. That is only if the authorities do not take recourse to unscheduled load-shedding as they have often has done in the past.



Energy Minister K S Eshwarappa on Thursday announced that Bangalore would have to bear with two hours of regulated load-shedding –– an hour in the morning (anytime between 6 am and 10 am) and another hour in the evening (anytime between 6 and 10 pm).

The situation for both India and Pakistan is that they are therefore going to be increasingly reliant on coal, and as the author points out, India is not yet set up to produce enough for its own needs, which as the above quote from this week shows, are becoming more critical.

And so these nations must turn to imports, and thus Chapter 5 deals with those countries that are most likely to provide that coal (Australia, South Africa, Europe, South America, Indonesia and Canada). Sadly it is this chapter that is the most disappointing, since the question as to whether the world will continue to have enough coal, is going to depend on the ability of the global production units to supply it. The book only recognizes South Africa (the country) as being capable of coal production in Southern Africa (the region) and being the only country there with significant reserves. However when South Africa started defaulting on power to neighboring countries at the beginning of 2008 those countries had to look to what they can do with their own resources, and in Botswana, and Zimbabwe, among others, this will mean coal. Chinese engineers have already been engaged to increase production, and there is talk of the country matching or exceeding its diamond income with the income from coal, based on a 200 billion ton reserve. (In the book South Africa is quoted as having 48 billion tons of reserves. The Botswana reserve was only a resource until S. Africa cut off supplies). Admittedly there are currently some problems getting that program going, since initial plans for electricity production exceed local needs for power.

Europe gets similar short shrift, with UK reserves and production being written off in just less than a page. And so we come to the chapter on climate impacts, that begins

Recent reports on global coal reserves, surveyed in the previous chapter, generally point to the likelihood of supply limits appearing relatively soon – within the next two decades (a contrary view is represented solely by the BGR report). According to this near-consensus, coal output in China, the world’s foremost producer, could begin to decline within just a few years.”

I am tempted to quote the shortest sentence in the Bible. Of course, if you pick your sources, you can get a consensus on anything. For the record I objected to David Rutledge’s point of view, not only at ASPO, but later in The Oil Drum. (I wrote both about the National Academy report on coal, and the known coal reserves in the UK (determined by measurement and observation) not theoretically, and as defined in Trueman’s Coalfields of Great Britain. I listed the tonnages available from that text (though putting Scotland inexplicably in England for the table). That coal has not gone away, and some of it was being mined up to the time that North Sea Oil and Gas came ashore and turned it all (and this is key) temporarily from a reserve into only a resource.

This is not the place to get into more debate on the causes and status of climate change – or of the arguments that Richard Heinberg makes – if you believe they will reinforce that belief, if you don’t you can nit-pick over those he got wrong. But that isn’t the purpose of the chapter, rather it is to look at how the impact of an early peak in coal production will affect carbon dioxide levels. Recognizing that there is going to be a peak in the production (and use) of all three of the major fossil fuels (oil, natural gas and coal) that may be very imminent means, as the author points out, that most of the IPCC models overstate the levels of carbon dioxide that we face in the next century. And thus, initially, the news is good in that the limits of concern will not be reached.

However the author questions the consequences of further warming, being concerned over, for example, the thawing of the permafrost and the release of methane as an additional forcing to the climate, and foreseeing additional problems beyond those currently anticipated. Thus he concludes that the peaking of the fuels won’t solve the problem. On the other hand he notes that climate change concerns are reducing the number of coal-fired power plants being considered in Europe and the United States. Thus perhaps climate change will influence Peak Coal?

One way of solving both problems relies on the introduction of new technology. So in the penultimate chapter there are short reviews of IGCC; CTL; UCG; and CCS though without any projection of hope that they will do much good in resolving the problem of carbon dioxide emissions. And so, in the final chapter three scenarios for the future – one which sees no coordinated plan for the future sees the global economy in ruins by 2040; one that sees a massive investment in CCS and IGCC but yet again, despite that effort the world energy demands are not met and global ruin again arrives; and then there is a third scenario where, through strong central government action (and a declining world population) the world is saved. (I will let you buy the book to see how that happens).

Yes, I am going to keep the book around, not on my desk, but somewhere so that, in five years or so I can pull it back out and see how the world did move on. I have a number of books from the 70’s (including a couple by Daniel Yergin) that predicted the then future 20-years of growth, and how without following certain paths we would be doomed. They proved to be quite wrong, each in their own separate way, as this might prove to be. Natural gas, for example, at the moment may play a stronger role in the future than is currently projected.

But that is the fun of future projection – this book gives you some insight into the debate about the future of coal – I disagree with many of the assumptions and projections, but it does define the arguments of a given viewpoint that is receiving increasing levels of attention. So, yeah, I’m glad I read it.

Jevons Paradox - or a gentle cough concerning energy efficiency

There is a common thread to almost all recommendations that deal with the problems associated with our dependence on fossil fuels, whether that concern arises because of Energy Security issues, or because of concerns over Climate Change. That thread dictates that the obvious first step is to engage in a program of conservation and improving energy efficiency. This is the “low hanging fruit” referred to by Secretary of Energy Steven Chu, and over the past weeks it was repeated in speech after speech, at both the EIA Energy Meeting and the Missouri Energy Summit I have just described.

Improving energy efficiency is not a new mantra, it has been proposed, and programs implemented to encourage it over many years. There is, however, one often unrecognized problem. Over the years that problem has become known as Jevons Paradox, after the English economist who propounded it in 1866. Writing about concerns over the availability of coal for the British economy he said

“A further class of opponents feel the growing power of coal, but repose upon the notion that economy in its use will rescue us. If coal becomes twice as dear as it is, but our engines are made to produce twice as much result with the same coal, the cost of steam power will remain as before. These opponents, however, overlook two prime points on the subject. They forget that economy of fuel leads to a great increase in consumption, as shown in the chapter on the subject; and secondly, they forget that other nations can use improved engines as well as ourselves, so that our comparative position will not be much improved.”

It is the first of these points that has become known as Jevons Paradox. More simply put – It is wrong to assume that the more efficient use of fuel will lower its usage. In fact the very opposite happens.

Jevons was writing at a time when the benefits of coal, in moving the world into the Industrial Revolution, were evident. Developing markets for coal had led to the creation of canals, the invention of the railway and the steam locomotive and, at the time he wrote, the increased popularity of marriage. In his book “The Coal Question: An Inquiry Concerning the Progress of the Nation, and the Probable Exhaustion of Our Coalmines,” he devotes Chapter Seven to the consideration of the paradox cited above. Although he separates domestic considerations from his argument , subsequently they have been found to be equally vulnerable to the paradox.

Jevons began his case by noting that seamstresses who master the use of a sewing machine find increased demand for their services, and then commenting that the improved efficiency achieved, first by Smeaton and then by Watt, on Newcomen’s original atmospheric engine, dramatically increased their range of application.

Consider that the duty (number of pounds of water raised one foot by burning a bushel (84 lb) of coal went from 5.59 million lb in 1769 with the original engine, through 9.45 million lb with Smeaton’s enhancement in 1772, to 26.6 million lb with Watt’s improved engine in 1788, reaching 43.3 million pounds in 1830 with the Cornish engine. With each step in the progression more engines were sold, and the market grew. And as the market grew the machines became cheaper, and then more widely adopted. It transformed society.

The reduction of the consumption of coal, per ton of iron, to less than one-third of the former amount, has been followed, in Scotland, by a tenfold (increase in ) total consumption.

And he adds this caution

But no one must suppose that coal thus saved is spared – it is only saved from one use to be employed in others, and the profits gained soon lead to extended employment in many new forms.

Later economists have modified this statement into what is now referred to as the rebound effect “some efficiency gains are wiped out by a greater demand for the product.”

There appears to be considerable support for the proposition that the Paradox still holds true. Jeff Dardozzi reviews some of the history

In the 1980s, Jevons' observation was revisited by the economists Daniel Khazzoom and Leonard Brookes. In their analysis, they looked beyond the relationship between energy resources and the machines that convert them to useful work to consider the overall effect of technological improvements in resource efficiencies on the energy use of a society as a whole. They argued that increased efficiency paradoxically leads to increased overall energy consumption. In 1992, the economist Harry Saunders dubbed this hypothesis the Khazzoom-Brookes Postulate and showed that it was true under neo-classical growth theory over a wide range of assumptions. Since the appearance of the Khazzoom-Brookes Postulate, numerous studies have weighed in on the debate arguing a range of impacts of the rebound effect.

In January 2008, Earthscan released Jevons Paradox: The Myth of Resource Efficiency Improvements as the latest and most comprehensive review of the paradox in economics literature. Prefaced by anthropologist Joseph Tainter (The Collapse of Complex Societies, 1988), the book reviews the history of the debate, current findings and includes the latest multi-disciplinary studies regarding the existence of the rebound effect. The book clearly supports the proposition that the rebound effect is present in the US, Europe and most other economies and that strategies to increase energy efficiency in themselves will do little to improve the energy or the ecological situation. In fact, they may well worsen it as the historical impact of resource efficiency improvements shows that increasing the efficiency in the use of a resource in turn increases the consumption of that resource.

There is an excellent video available on the subject (though it lasts 18 minutes) ( courtesy of San Francisco Bike Blog)

Treehugger illustrates the Paradox using the example of the Tata Nano car – that gets 47 mpg but, at $2,500, expands the car market to vast numbers of Indians.

Jevons work has been confirmed by economists such as Mark Mills and Vaclav Smil, “energy efficiency increases energy consumption.” It is becoming the topic of new books which support the concept,

As Huber and Mills make clear in The Bottomless Well: "Over the long term, societies that expand and improve their energy supplies overwhelm those that don't." Given the harsh realities of the Jevons Paradox, the U.S. (and the rest of the world) need to get busy expanding and improving those energy supplies.

It might make a topic for an interesting session at a future Energy Conference.

Of gasoline demand and automobile fuel production.

It being a Wednesday, there is a new TWIP report out, and so we try and interpret what they had said and what it suggests for the future. At the same time the Federal Highway Administration have released the January driving figures, and what optimism was left about the economy is reduced a little.

So what am I talking about? Let’s begin with the weekly graphical plot for gasoline demand (from This Week in Petroleum where along with the current numbers it is possible to do some analysis.

Source EIA .

Now we’re squinting at the line to ensure that the red continues to increase, and with our remaining optimism, the end of the curve does seem to be tending back upward still. If it will only continue. But when we plot, for the past five years motor miles driven per month at this time, The conclusions are not pretty. Looking first at the January figures for the amount of miles driven, one can see the drop in the past year, against the rise in all but the year precious.

Monthly mileage driven in the US for periods of 6-months for the last 5 years (source DOT). The current line is obviously still heading down, and though leveling off, is not quite an optimistic projection as I had expected at the time.

What is then interesting is to look at the total accumulative miles driven over the period and suddenly you see the trend is still down even if slightly less so.

When we do a monthly plot with a rolling 12 month average, then we get another curve, and this suggests that while we might have dug our way out of this a little we have a long way to go.

Source FHWA Mileage driven by month since 1984 (Source FHWA).

P53. Pick Points

Half-a-dozen or so stories that might be of interest:

There does appear to be a little recognition out there now that oil prices have hit a floor, and may perhaps be bounding up a little. I suppose if I was that kind of blogger I would point to the post where I said so, but let’s be a little cautious a week or so longer. Ecuador thinks that the price should really be $80 (per barrel) but would be happy with $60. Although Shell admitting they weren’t replacing their withdrawals from reserves, might also have helped. With some of the excess oil that has been held in tankers now coming onto the market perhaps others are seeing the sort of signal that says we may now see a crawl back up in price. It was only a month ago that something like 80 million barrels was being held in these vessels, given that a VLCC (Very Large Crude Carrier) can hold up to 2 million barrels, and with 45 tankers having been used that way, there was a lot to ease back into the market. Shell sold their first two tanker loads (some 1.2 mb) back at the end of January and it seems that others are now also finding a sale.

The lower supply price for natural gas is now reaching the point (as winter demand dies) that supply companies are starting to pass on their savings to the customer. For example up in Canada, Enbridge Gas Distribution has just go permission to drop their price from 30.4 cents per cu.m to 23.5 cents. For a household using 3,000 cu m per year, this will save some $230. (That price converts to a drop from $8.60 to $6.65 per kcf). Similar things are happening in New Hampshire with the utility there, Unitil Corp, is getting a new rate of 69 cents per therm, (or $6.90 per kcf), which is down 26% on recent prices, and 56% from last summer’s peak ($15.50 per kcf). There are some out there, however, that have picked up the message I have mentioned here earlier, that as rigs drop off, so availability will again become tight, and thus prices could double again by next year. Next January’s futures are up 49% on April. However, while I was looking at a 20% shortfall some time into early next year, with the current fall in production, some are seeing 5% drops by the fourth Quarter. And looking back in history (which I favor)

The last time drillers stopped rigs at this pace was seven years ago, when futures advanced 86 percent. The world's biggest hedge funds have already started to close bets on a drop in prices, government data show. Natural gas tumbled 30 percent this year, the worst start since 2006, as sales weakened with the recession.

I usually only just look at the weekly EIA numbers for crude, gasoline and natural gas, (and those comments may be a few hours delayed since I am working in Sweden) but it is worth having a quick peak at the coal forecasts, which come out on Monday’s. For reference here are the current spot prices for coal:

Source EIA

In case you were wondering why most utilities are buying Powder River Coal from Wyoming. The amount of coal being produced and used is remaining fairly stable.

Source EIA

The blue line for last year shows record production levels, that are, at this time, not anticipated to occur this year because of the economy. However, when one looks at the international market, where last year saw record prices of up to $300 a tonne, (sometime I will start correcting for the difference between short tons (US) and metric tonnes (most others)), the market is currently looking at prices of around $115. Of course that view came from New Zealand, where a new coal offering was fully subscribed. Australia is hoping to settle, for the moment, at around $70. But those who think that the global slowdown will seriously reduce consumption, might want to consider that China’s imports were at the highest level in 22 months in February, at 4.88 mill tons, and with prices being bruited of $62.10 per ton in Newcastle, Australia, they may not be the only ones that come calling. (But part of the demand relates to internal Chinese politics over the price utilities will have to pay the mines for coal). It might also be worth noting that in order to sustain their economies both China and India are pouring money into infrastructure, and that means steel, and steel means iron, and iron means coal. India is going into elections this year, in case you had forgotten. However the number of ships lined up to take coal at Newcastle has dropped from 70, eighteen months ago, to 15.

Well having just skimmed around the big three tonight, I thought I’d leave room for a couple of pictures. Back when we went to Cork for the ASPO Conference , Colin Campbell laid on a piper to lead us in to dinner. Well I was led to where I was ended up deciding to eat tonight by pipers* in the Stockholm Gamla Stan.


Pipers in Stockholm

And then when I wandered back to the hotel, I found that the Royal Palace had been surrounded by a belt of snow about a street wide, and some 20 cm (8 inches or more) thick of artificial snow. Maybe they thought I missed it, or was expecting it (it was snowing when I arrived). Anyway, not a good picture in the light, but just to show, these are normally the steps up to the Royal Palace.

Snow covering the stairs into the Royal Palace

(it’s artificial, and 20 cm plus deep)
* I actually dined on moose, and cloudberries, just around the corner.