Tech Talk - Thatcher, Putin, Coal and Gas

Back some forty years odd years ago when Edward Heath was Prime Minister of the United Kingdom, and the coal industry was still nationalized, the miner’s union went on strike, just after the Christmas Season. This followed an overtime ban that had started the previous November. The strike began on January 9, 1972 and lasted 7 weeks. Tellingly, just after it began some 17 schools had to close, as they had no heat in their buildings, without coal. Within a month the Government had to declare a state of emergency, and factories began to close due to a lack of power. Sensibly the Government of the day gave in to miners’ demands and they went back to work at the end of February.

Two years later there was a relatively similar series of events, with an overtime ban, followed by a three-day workweek as power cuts and blackouts developed, but this time Edward Heath also called a General Election, assuming he had the national sympathy. He was wrong, he lost.

These lessons were not lost on Margaret Thatcher, who had noted that it was not smart to offend the miners when the nation still relied on coal for much of its power, and when, in the winter, there was not a lot of coal in reserve at the power stations (because of the preceding overtime bans leading into winter). Thus, in 1984 when she, in turn, had to face the wrath of the National Union of Mineworkers (NUM), she had made sure that the situation was much different. Prior to the strike she had arranged for coal stockpiles to be built up over a period of three years. In addition the strike began on March 5th. It started because of the Coal Board decision to close 20 mines (since the earlier strike the number of miners had already fallen from 250,000 to 187,000 and the closures would cut another 20,000 from that number). It crumbled a year later, with a vote to return to work on March 3, 1985. The mining industry never recovered, and by the turn of the century the NUM was down to around 5,000 members.

I was reminded of those days by the latest clash between Gazprom and the Ukrainian government. In the past, when the Russians demanded that Ukraine pay its gas bill, the timing usually took place at the beginning or in the heart of winter. The problem that this gave the Russians was that they were supplying Western Europe through Ukraine, and any shut-off in the supply of natural gas to Ukraine had immediate consequences in Europe, which has become increasingly dependant on that gas. The result of the timing of the disputes was, therefore, generation of considerable diplomatic pressure leading to a relatively rapid resolution, without Russia getting all the deals that it wanted.

This time, however, it may be that Russia has learned, as Margaret Thatcher did, that timing is critical in this type of situation. Instead of waiting to November to call in the bill, Gazprom has presented it in June, when European demand for natural gas is lower. In addition the Nord-Stream gas pipeline is in place. This carries roughly 2 trillion cu. ft. a year of natural gas 760 miles into Germany, without passing through Ukraine. The twin pipes were completed and on line by October 2012.

Figure 1. Nord-Stream (Baltic Sea pipeline) bypassing Ukraine with 55 billion cu m of natural gas a year, (Daily Mail), out of a total sale of 262 billion cu m.(Spiegel)Note a second major pipeline from Yamal goes through Poland.

And while there has been talk about bringing in natural gas through Nabucco, that has slowly faded in the face of reality. Gazprom (as Brenda Shaffer has noted) has done remarkably well in gaining control of the different feeds and pipelines that come out of the East and head west into Europe. For example:

Moscow has taken steps to block the entrance of Iran into European gas markets; in 2006, the Russian company Gazprom bought a pipeline from Iran to Armenia and limited its size to ensure that it could be not be used to carry Iranian gas into Europe.

Consistently supplies have been confined to pipes that are under Russian control. It has a percentage of the Interconnector that carries natural gas into the UK and there has been little regard paid as it stepped in and took interests in other national pipeline companies across Europe.

So Gazprom can now wait while Ukraine exhausts its own reserves. It is reported to have some 13.5 billion cu m on hand, but it needs to have 18-20 billion at the start of the winter, if it is to get through. By stopping the flow now, Russia is having Ukraine burn those reserves between now and winter, while keeping the nations further west supplied. This means that the pressure will become that much more intense on Ukraine as winter starts to approach, and there is no alternate source of supply.

Gazprom has not hesitated to profit from this in the past, and is already in a position to demand whatever price it sees fit.

Ukrainian and Russian officials have been fighting about gas pricing since Yanukovych was ousted. After Russia annexed the Crimean Peninsula, it hiked gas prices for Ukraine 81 percent, from $269 per 1,000 cubic meters of gas to $485. That price was the highest in Europe, and Ukrainian officials refused to pay, calling it politically-motivated retaliation.

Gazprom has since lowered its price demand to $385, broadly in line with prices for other European countries. Ukrainian officials have sought to pay less and have said the way Russia was structuring the deal meant they would remain vulnerable to price hikes if they did anything to displease the Kremlin.

“Any price they offer is in the form of a discount that can be undone at any time,” said Pierre Noel, an energy security expert at the International Institute for Strategic Studies.

Don’t hold your breath waiting for this to be resolved.

Tech Talk - Coal begins to fight back

As the President moves further into his second term, he appears to be growing more willing to tackle the concerns that his supporters have over projected Climate Change over the next century. Given the makeup of the Congress it is likely that this will be through additional regulation and Executive orders. There have been a number of reports that have documented the projected costs of climate change. Some of these have been relatively modest in statement. The Copenhagen Consensus Center, for example, noted:

Climate change is real and man-made. It will come as a big surprise that climate change from 1900 to 2025 has mostly been a net benefit, rising to increase welfare about 1.5% of GDP per year. Why? Because global warming has mixed effects and for moderate warming, the benefits prevail. The increased level of CO₂ has boosted agriculture because it works as a fertilizer and makes up the biggest positive impact at 0.8% of GDP. Likewise, moderate warming avoids more cold deaths than it incurs extra heat deaths. It also reduces the demand for heating more than increases the costs of cooling, totaling about 0.4%. On the other hand, warming increases water stress at about 0.2% and negatively impact ecosystems like wetlands at about 0.1%. Storm impacts are very small, as the total storm damages (including naturally caused storms) are about 0.2%.

As temperatures rise, the costs will rise and the benefits decline, leading to a dramatic reduction in net benefits. After year 2070, global warming will become a net cost to the world, justifying cost-effective climate action.

This, of course,led The Guardian to stress the post-2070 part of the comment. On the other hand there are the projections of the latest IPCC report (available here) that suggest that costs are already present in the global economy and that they see impacts ranging from a possible fall of 2% in global economic growth, as well as impacts on health and agriculture.

The projections, of which there are many, have focused on the need to cut greenhouse gas emissions and have moved governments around the world to take steps to reduce gas emissions, without a lot of comment from the industries most effected by the proposed regulatory changes. It appears that this relatively low key approach is going to change as a new report prepared for the American Coalition for Clean Coal Electricity (ACCCE) provides some strong factual discussion points that argue rather for the benefits of carbon use, and contrast these with the costs.

It has become politically popular in recent years to increasingly demonize the fossil fuel industries, and particularly the coal industry. And I have suggested, in the past, that this was an over-reaction. However it is of value to rational discussion of the issue to recognize the points that Management Information Services have put forward in this report.

Much is made of the increased fuel use that continues to power the Industrial Revolution as it continues to spread into under-developed countries and brings their standards of living up to those enjoyed by many in North America, Europe and the more well developed countries. The transition to the better standards of life is considered to need an energy consumption, per capita, of 4,000 kWh per year.

Figure 1. The UN Human Development Index and per Capita Electricity Use (America's Power )

When one considers the relative benefits of the use of power it sometimes help to recognize the mind-set of those making the comparison. The view of someone just gaining access to electric power, and who built a windmill to provide that power, reflects a greater recognition of the benefits of electricity than sometimes seems to be currently politically correct.

The benefits brought by the available power that is now in individual hands as a result of the Industrial Revolution are manifest in virtually every aspect of our daily lives. To maintain and spread that wealth of benefits through the expanded use of electricity to an increasing global user market the IEA projects that there will be an increase in virtually all power sources for electricity over the next twenty-five years.

Figure 2. Projected Electric Power Generation by Energy Source (America's Power )

However one of the impacts of increasing regulation, and the drive to switch to alternate, renewable power sources in Europe has already been an increase in the cost of that power. This is already leading the European Union to review their policies since increasing power costs lower the competitive position of European industries relative to those of countries (such as the USA) with lower power costs.

Within the United States the report concludes that there is a negative correlation between electricity prices and the economy with a suggestion that a 10% increase in electricity prices will cause a 1 % drop in GSP. (This is an awkward argument to make given that the economies of places such as Massachusetts are significantly better with an energy cost of over $0.14/kWh that those of West Virginia where the cost is about $0.08 per kWh – though the argument is about relative change).

But the increases in power costs do not just impact the competitive advantage of industry. As prices rise, so the poorer segment of the community find it harder to meet all their living needs. There is a graph that shows their choices:

Source: National Energy Assistance Directors’ Association. Figure 3. Potential Health Impacts of Increased Energy Costs on Low Income Persons (America's Power )

It is the broad use of coal that keeps the prices of power in many countries low, and the ability of many to utilize a domestic resource allows developing countries the opportunity to climb the ladder faster than the rates that they would be able to achieve without this resource. It should be remembered that over the course of the changes brought by industrialization since 1750 (as the report notes):

From 1750 to 2009, global life expectancy more than doubled, from 26 years to 69 years; global population increased 8-fold, from 760 million to 6.8 billion; and incomes increased 11-fold, from $640 to $7,300. . . . . . . in the U.S. from 1900 to 2009 population quadrupled, U.S. life expectancy increased from 47 years to 78 years, and incomes (denoted “affluence”) grew 7.5-fold while carbon dioxide emissions increased 8.5-fold.

The reality of the next decades is that coal and the other fossil fuels will, over the next twenty-five years, remain the basis for electricity generation for a significant portion of the global economy. This is likely to be particularly true for those nations that will grow the most in population and GDP over that interval.

By discounting the benefits that these improvements in life will bring to those countries, and focusing more on the hypothetical costs of anticipated problems the Administration has made a case for changing the energy mix. It is interesting to see that the industry that it likely to be most changed by their policies is now beginning to publically and with facts, shown willing to rebut some of those arguments.

OGPSS - The quiet steps of a Geothermal movement

The election is now less than a week away, with two entirely different paths possible for our future as we move past the election into next year. The two approaches to energy are particularly different, but it is pointless to do any further comparison, since the airwaves have (on the rare occasion that these differences are explored) discussed these from all points on the spectrum. But nevertheless it gives an occasion to step aside from Iran, for a week, and to draw your attention to something you may have missed in all this debate, and yet is starting to happen on University campuses that are scrambling to meet that ever rising fuel bill.

In the current debate both sides seem to anticipate that the energy future is rosy. As an illustration, I was struck by a comment just this last week:

"Peak oilers have become almost extinct, destroyed by the arrival of new technologies with the U.S. leading the oil supply change," said David Hufton of oil brokerage PVM.

And yet, in the same week I received another newsletter from Go Haynesville Shale predicting (from Seeking Alpha) that 2013 will see the decline in Hanesville production.

Figure 1. Production from the Haynesville Shale in Louisiana (Go Haynesville Shale )

Now there are a variety of reasons for the decline, a significant one being that the number of wells being drilled has fallen dramatically, as the article recognizes. But that is itself, in part, a recognition of the current economics of the business. I had a discussion, just this past week, with the daughter of an investor who had “lost his shirt” over a natural gas well investment. The difference between the hype and the reality is disturbing, and does not bode well for a stable future. Which poses the question as to what the reality of that future might be?

I live in Missouri, and a number of years ago colleagues of mine evaluated the potential benefits of renewable energy and were left severely unimpressed with the potential for wind and solar in this state. At the time I was not sure what the answer for our state was.

The campus where I worked until I retired, (Missouri University of Science and Technology – the new UMR) had been quite revolutionary some decades ago in starting to burn wood with coal, both as a way of controlling emissions and costs. Now those benefits were disappearing and the campus faced the prospect of finding about $25 million for a new boiler, at a time when state funds are not likely to be available, and which philanthropist wants to fund a boiler? So the campus had to be creative. And it was!

Figure 2. Old Campus Power Plant - the question of what to do with the stacks is unresolved.

Starting in the summer of 2010 the campus proposed the use of a ground-source heat pump system as a method of using the Geothermal potential under the campus to lower the overall operating costs of generating power, while at the same time addressing issues regarding the generation of carbon dioxide, and the use of large volumes of water that are one of the costs of conventional coal-fired boiler use.

The initial proposal was approved in remarkable time and over the past summer drilling crews moved in for the initial drilling of the wells. Unfortunately (but realistically) the greatest amount of open space around campus that can be used are the parking lots. And so s number of drilling rigs appeared as the students left for the summer, and proceeded to drill a series of roughly 600 wells, each around 400 ft deep. The last was completed last month, and the wells were then lined with piping and are currently being connected into a triad of networks.

Figure 3. Simplified illustration of the geothermal circuit.

Basically the system works on the idea that the ground, in depth, is at a relatively constant temperature. (For those of us who have mined in depth the old rule of thumb in the Northern UK was 60 deg at 60 ft and 1 degree rise per 60 ft thereafter – but the geothermal gradient varies around the world). Given this relatively consistent temperature, in winter the cool water (the blue line) can be pumped underground, heated and returned through the red line, from which it passes through a heat exchanger system that provides heat to the campus, while then being returned via the blue line to repeat the process.

In the summer the flow is reversed. The hot water from the heat exchanger/chiller is returned to the wells through the red lines, releasing the heat into the ground and cooling before it returns back to the surface through the blue line, and into the chiller/heat exchanger to provide a cooling source for the campus.

Current estimates are that the initial costs (paid for with a bond issue) will be no more than the cost of that boiler (which wasn’t going to be funded, yet was needed), but that the campus will save, in the beginning, some $1 million in energy costs (the remaining energy will be supplied with natural gas and the boilers will be retired in 2014) and this will service the bond. The funds only allow some 60% of the campus to be initially served, through three separate plants that are set around the campus. In time, as savings mount, it is likely that other buildings will be brought into the loop (though some have sufficiently antiquated heating and cooling systems that the entire building will need renovation first.

Over the lifetime of the system (and there is not a lot of fragile equipment in the loop, so this may be more than 50-years) energy savings are likely to rise to more than $3 million a year, as the energy crisis that we are currently pretending isn’t coming finally comes to pass.

Given the benefits that the system will develop it is not surprising that MS&T are not alone in this approach. In fact they learned of the concept at the time that Ball State was beginning their project. That project has just been dedicated and anticipates, being larger than ours, that it will save that campus around $2 million a year. It also includes some 3,600 wells by the time that the second phase of the program is completed.

The idea is beginning to catch on, and there are a small but growing number of campuses now that are in the throes of the same type of effort, though in each case tailored to the individual needs of the different campuses. Hampton University in Virginia is heating their Multi-Purpose Building, Indiana Tech has restored and powered a Civil War era building, Montana Tech will use the heat from mine waters underneath the campus. In Boise, ID the ground water temperature is a little higher (around 170 degrees) and the city has used geothermal energy since 1983, and now Boise State is joining in with its own plant. As with the Montana project, so the program at New Mexico Tech has also been funded as part of the Recovery Act. Some of the potential benefits of that program have been described by the Department of Energy. However that presentation also illustrates the transience of the funding opportunity.

Figure 4. The budget for the Geothermal Technologies Program (DOE)

Given that drop in funding, it is yet still possible, given the savings projected not only here but elsewhere, that this technology may still catch on and become more widely adopted. I’ll keep you posted (among other things with more technical details).

Wind Energy Makes Progress, but will it be enough?

Over the last few days there have been several stories of wind energy, none in themselves remarkable, but which, put together show the progress that the technology is making. Consider, for example, the small community of Tocco Da Casauria in Central Italy. It is a small town of around 2,700 inhabitants that, because of its remote, mountainous location, has had to face expensive power costs in the past (about 3-times that of the average US household). However it has recently installed four wind turbines, and now not only has enough power for the community, but also exports a sufficient amount that last year it earned about $200,000, enough to significantly help with municipal expenses. (Though the turbines are privately owned the town gets a lease on the land, and a percentage profit from the power sale). Similarly, but on a smaller scale, the town has a solar array that lights the cemetery, raising about $2,000 which helps pay for the upkeep of the place. There have been six turbines in the farm which is one of 249 sites in Italy for which data is easily available, the first two turbines (which generated around 400 kW) were not successful, but the new set averages 2,500 operating hours/year and produces 3.6 MW.

However wind is not yet a major player in the Italian energy mix, and though Italy has a target of 17% renewable energy by 2020, it is still only at 7%, and is not reaching target goals. On the other hand, at the other corner of the European Union, consider the case of Scotland. Although the target is now to have 80% of that nation’s power come from renewable sources by 2020, recent successes have led the First Minister there to predict that 100% of the national power will come from renewable sources by 2025. The target of 80% by 2020 has only just been announced (last week) , up from the previous 50%, based in part on the perceived ability to reach an interim target of 31% by next year. Much of the increase will come from offshore wind farms, though the onshore Whitelee farm (which is expanding) already produces enough electricity to power Glasgow. Another onshore farm is planned for Shetland, but following protests from the local community, Viking Energy has just announced that the farm will be reduced by 23 turbines from the original 150. In addition the farm cannot be justified without a cable to carry the power to the mainland. Permission for that cable has not yet been given. Part of the problem has been the impact of the turbine installation on the deep peat bogs on the islands.

The level of local resistance to the farms, and its potential impact on overall rates for installation of the farms, and thus their contribution to future energy supply may have been underestimated in government. Which could be embarrassing in the future, since the provision of affordable, and sustained power is considered one of their responsibilities.

Whether the potential problems in Scotland presage similar problems for the overall power mix for the entire United Kingdom is similarly a question. The UK has just seen the opening of the Thanet Wind Farm, in the estuary of the River Thames.

London, September 29, 2010 — Vattenfall officially opened the Thanet Offshore Wind Farm, off England’s southeast coast. The wind farm has 100 turbines and will generate electricity equivalent to the annual consumption of over 200,000 British households.

The construction of the 300 MW Thanet Offshore Wind Farm has taken just over two years and the wind farm is expected to operate for at least 25 years. Between 2009 and 2011, Vattenfall plans to double its wind power electricity generation, constructing nine wind farms in six countries to supply electricity equivalent to the demand of 800,000 households annually.

Thanet is so far the company’s largest offshore wind farm . .

This moves the UK into the lead in regard to power from offshore wind farms. The islands have sufficient wind potential that it could provide a greater slice of the energy supply in the future.

The Offshore Valuation Group, made up of government and industry organizations, estimates if Britain were to develop just 29 percent of its potential offshore resource, this could deliver 169 gigawatts of capacity by 2050 and turn Britain into a net exporter of electricity.

This would involve installing 7.2 GW a year -- roughly equivalent to 1,000 7.5 Megawatt turbines -- with fixed offshore wind accounting for 5.4 GW of the average annual build rate needed.

The supply chain needed for this would have annual revenues of 62 billion pounds in 2050 and employ around 145,000 people directly, according to the Offshore Valuation report.

The other side of the story, however, comes from the costs involved. With the increase in the price of steel, and maintenance costs going up current projections may also be low.

However the UKERC have calculated that the cost per unit of energy – known as a Megawatt hour – over the 25 year lifespan of the farm is expected to be £149. That compares with £80 for coal and gas, and £97 for nuclear power.

(An) Onshore wind farm – at £88 per megawatt hour – is almost as efficient of fossil fuels but is hampered by complaints they ruin the landscape.

Current government plans are to have as many as 6,000 turbines located onshore, and some 4,000 offshore. However, as the scale of operations grow, so it can be anticipated that the size of the opposition may also increase. This has been, for example, the case in the United States where Senators such as Kennedy on the East Coast, and Feinstein on the West have objected to farm installations. Though the Cape Wind project is now approved. As sites move closer to construction it may be that more of this opposition may arise.

There is also, as the Scottish experience is indicating, the need to install the power cables that will carry the power from where it is generated, to where it is needed. And those cables themselves are sometimes controversial. It seems much easier to install the smaller systems, for local use, as in Italy, where the benefits are more visible.

P56. Pick Points

I see that Jerome is a little upset with the NYT story about coal and renewable energy costs. In the story the question is raised as to how much extra the average consumer is willing to pay to switch from coal to renewable fuels. There are several aspects to the story – the first is that the Administration can raise the relative cost of burning coal by imposing some additional cost for generating carbon dioxide (whether by tax directly or through cap and trade). The second is that, by regulation, it can make it so expensive to build a new coal powered station that the alternatives become more attractive. Or, by driving improved efficiency and conservation (especially in a time of recession) it can lower the need for additional power. However if costs are raised, then the utilities will pass these additional costs on to the consumer, and as I have noted before, running as the candidate who doubled electricity costs is not a sure election ticket. The article does, however, question the veracity of some of the estimates for coal-fired power

One big question is how much it currently costs companies to produce coal-fired energy, and the answers are often colored by ideology or self-interest. Companies that sell coal or rely on coal-fired electricity often pick a low number; environmentalists cite the indirect costs to society, like strip mining or spills of coal ash. And since the electricity industry became more competitive, the utilities, even municipal ones, have become more secretive about their costs.

Yet if the backup power to wind is natural gas (and most new power stations are planned to be fueled that way) and costs pick up around the end of they year, then the combined cost of new power generated that way will still argue for coal.


The debate between natural gas and coal continues in Mississippi where utilities with underutilized gas production are arguing against a new coal fired power station. At the same time there is a claim from Canada of a process that can burn any coal to generate electricity with a negative carbon dioxide balance. The Canadian Government is investing in ways to improve carbon capture

In the world of oil and gas pipelines there continues to be the sound of change, if not yet the certainty. The Nabucco pipeline (the one that will bring natural gas to Southern Europe without going through Russia) is getting some favorable publicity with the anticipation of an intergovernmental agreement in June to get the program running. However some of the gas is anticipated to come from Azerbaijan and the Shah Deniz field, and that production is being delayed. Stage 2 of the program is being delayed from 2013 to the 2014-15 time frame, though given the potential current glut in natural gas as more LNG tankers become available, this may be smart timing. It could also use another pipeline, the Turkey-Greece-Italy one, rather than Nabucco, since Azerbaijan is on the west side of the Caspian and thus does not have to go through Russia.

Nearer home there is a question as to whether the natural gas pipeline through the Mackenzie Valley might be built before the Alaskan natural gas version. ConocoPhilips thinks they are ahead. There is not, however, universal support for new pipelines north of the border. China, meanwhile has signed a deal, which gives it the natural gas production off-shore Burma, as well as a pipeline to deliver it.

It is a little hard to grow the feedstock for conventional corn ethanol in Alaska, but a more traditional fermentation near Governor Palin’s home has created “Permafrost” (which is a vodka). The Mt Redoubt volcano continues to rumble nearby, and snow was used to help Anchorage airport remove ash and get the place back running after the volcano had gone through a total of 18 eruptions (The snow helps hold the ash together, so that it can be moved by plow). There are some oil storage facilities in the area that might be threatened.

Kansas is coming out of a record year for oil and gas production with production valued at $6.58 billion. This was up 10% over 2007, with most of the gain coming from oil. Unfortunately thefts of power (electricity and natural gas) are also up. The story is unlikely to be repeated this year, as the national rig count drops below numbers last seen in 2003. The question becomes when this decline will be seen in a production drop, given the short lives of most wells these days. The article suggests before the end of the year. In Colorado, where much production drilling has occurred, the rules are being tightened to include the Colorado Division of Wildlife in those deciding on new oil and gas location assessments. At the same time two new gas-powered plants are moving forward in the region.

Looking at alternate energy New Jersey is moving ahead with solar generation that will develop 42 MW of solar power by 2012. Meanwhile India appears to be opening up as a market for the technology. This goes beyond just building PV cells in country, a new plant will increase one companies production from 12 – 42 MW, The new Solar Cities Initiative will ultimately affect 60 cities, but will soon start with 2, including Nagpur.

Wind Energy, however, to return to Jerome’s topic, is becoming more recognized as the renewable to beat. The report by the Royal Society for the Protection of Birds (RSPB) this week stated

The RSPB believes wind energy has an important role to play in tackling climate change. Consequently we only oppose those windfarms that pose a significant threat to wildlife.

The title “Positive Planning for Onshore Wind,” also suggests the bent of the report – available as a pdf of 57 pages.