Energy shortages in Texas, and China

Load shedding is one of the issues that I annually brought before my mining students, in discussing electric power within the mines that they will work at, and in time run. Load shedding means dealing with interruptible power through voluntary reduction in demand at the supplying power companies request. Because it is likely to be a feature of a future mine superintendent’s life I spent a little time on some of the things that need to be planned for before the phone rings and a voice at the other end says “your power is being cut 20% in 15 minutes, good luck!” At one time in that class about a third of those in it had already worked at a mine where it had happened.

And in Texas, it happened again this week.

The Electric Reliability Council of Texas, Inc. (ERCOT), system operator for the state’s bulk transmission grid, initiated Energy Emergency Alert Level 2 at 2:26 p.m. today (August 4th) due to responsive reserves below 1,750 megawatts (MW).

“Interruptible loads – large customers paid to be dropped in a level 2 emergency have been deployed,” said Kent Saathoff, vice president of system planning and operations.

“Capacity is expected to be very tight over the peak today – particularly between 4 and 5 p.m. We are asking consumers and businesses to reduce their electricity use as much as they are able during peak electricity hours from 3 to 7 p.m.,” Saathoff said.
Consumers can help by shutting off unnecessary lights and electrical appliances, minimizing the use of air conditioning and delaying laundry and other activities requiring electricity-consuming appliances until later in the evening.

It has since been noted that the state was one power station outage away from rolling blackouts (a Level 3 emergency). The last of those occurred last February, when severe cold caused power plant failures.

The emergency conditions have continued through today (Friday) where a level 1 emergency was declared at 3:10 pm.

At Level 1, ERCOT asks all available power plants to come online, begins drawing on power from neighboring grids, including Mexico, and asks consumers to cut back usage through 7 p.m.

Two major users were dropped from the network, releasing 1,500 MW of power, but demand still exceeded that anticipated, with the projection at 4 pm exceeding the levels on Thursday.

Texas power demand, relative to estimates at 4 pm (The situation returned to a more normal condition later in the evening, but I was out to dinner at the time).

It is difficult, given unanticipated failures (the ice storms in February, two coal-fired plants totaling 4,800 MW are currently offline for unplanned maintenance) for power suppliers to balance available supply against actual demand. In this case Texas is buying power from Mexico, and has requested that all producers come on line (and those at the margin are the most expensive). Unfortunately hot days are not that windy, and less than a quarter of the wind turbine potential is currently available. (1,400 MW out of 9,000 MW).

And this inevitably also raises the question as to how much additional power should be built into the network to provide insurance in times such as this. Part of the problem lies in the lead time that it takes to permit and then construct a power plant, and more recently in trying to decide the politics of choosing between the different fuels available. Much has been made of the decision by the power industry to cancel or change fuels away from coal at over 100 planned plants over the past few years. At present the alternative fuel of choice, as I have noted in earlier posts, has been to move towards natural gas. Certainly if demand rises sufficiently for this then the increased price will help balance the books for a number of companies who currently see the price that they sell the gas at being below the price of production. (See Art Berman’s piece on shale gas on TOD today.) But there is a catch in that if prices remain as low as the EIA project, then the supply may fall at critical times such as this week, and may not be restocked in time to keep the generators at full power. At least with coal, nuclear and oil the fuel can be stockpiled at the plant for use as needed.

Yet having said that, China is currently seeking one of the worst power shortages in their recent history. Up to 30% of demand cannot be met by the Guangxi power plants, with a shortage of some 3.5 to 4 gigawatts. That for the entire country is estimated to be around 30 to 40 gigawatts. The problem is that the coal supply has not kept up with demand, and some stations have already exhausted supplies and shut down. Over a thousand factories have been affected. Whle there are, in other parts of the country a surplus of power, distribution remains an intractable problem.

As the crisis spreads around the country it seems likely that more factories will close, and more workers laid off. That in turn leads to significant popular unrest, with consequent political impacts. As a consequence it is unlikely that China will do anything other than continue to aggressively purchase coal on the world market that it can ship back and provide the power sources that the country demonstrably needs.

Power reduction and its consequence are easy to theorize over, but when those harsh realities of what it truly means become evident, and the crisis does not have a short term resolution then as we are seeing in Pakistan things can start to get ugly.

The UK winter starts - salt, coal, and natural gas supplies

The severe weather that is sweeping the United Kingdom is posing an early demand on the stored supplies of fuel, and on the grit supplies that are used to de-ice travel ways. Part of the problem causing train delays is that the snow and ice are blocking the connections needed to transfer electric power from the rails to the train engines. At the moment it appears that up to 500 gas stations mainly rural stations in north-east England and eastern Scotland may run out of fuel over the weekend. Not that driving is that easy at the moment. When bad weather hit the UK last winter, the shortage of grit (which is largely salt) was one of the difficulties encountered by local councils. The government formed a “Salt Cell” to provide information on salt supplies and needs since salt comes from only three mines, one at Boulby in Yorkshire, the Winsford mine in Cheshire and the Kilroot mine in Ireland. The Winsford mine, which provides 50% of the UK salt need, can lift 500 tons an hour from the underground deposit and has been working 7-day weeks since last December.

With some councils reporting that 20-30% of their winter stocks have already been consumed, the Cell may need to be reactivated this winter. Typically the country stockpiles around 275,000 tons of salt for the winter, however when the country is totally blanketed with snow, then it can use as much as 194,000 tons in a day. (UK DOT figures). After the hiatus last year the Senior Advisor to the Government for Highway Maintenance found that there were no easy answers, since the problem is bound up in limited mine production, limited local storage capacity, the reliance on local authority to deal with the problem, and a European shortage of salt. Yet at the beginning of this season 18% of the UK councils did not have enough salt to get them through the anticipated demand for the winter.

For those who think that this is purely a European problem, Park Forest in Illinois is already noting that it has almost depleted its supply, and there is a state shortage of salt already. Illinois has an average salt bid of 1.4 million tons and this year the prices was $61.60 a ton, down from the $100 of the 2008-2009 year. McHenry County, west of Chicago, orders around 60,000 tons a year. Of course individual cities have different circumstances, Avon Lake near Cleveland, Ohio, for example, has stockpiled more than enough for the year. But there are already shortages showing up in other parts of Ohio that are driving prices back up, with prices of $142 a ton being reported. Pre-planning apparently works.

The problems with UK fuel supplies changes with the fuel that is needed. Coal, for example, is largely maintained in stockpiles at the power stations. In September (the last month with data available) there was some 17.6 million tons in those piles set against a September consumption of 3.63 million tons. (It might be noted that this was roughly half-a-million tons more than the 3.11 million turns consumed in September 2009). With the UK now importing roughly two-thirds of its need, having that stockpile, particularly in a hard winter, might be a wise precaution. About 80% of the UK power stations rely on fossil fuels, though there has been a move to using natural gas over the past few years. This is increasingly supplied by imports, with overall demand rising at 9.6% over the equivalent period in 2009 (). A third of the imported gas comes in the form of LNG, at a level of around 2 billion cf/day, and is needed as natural gas supplies from the North Sea are falling at around 10% per year.

Natural gas supplies in the UK suffer from the lack of sufficient storage capacity, and the limited size of the supply pipes from Europe. A recent plan to use a depleted field in the North Sea won’t come on line until 2015, if it is implemented.

Pipeline gas from Europe to the United Kingdom flows through the Interconnector with the terminal at Bacton and with flow to and from Belgium. During September and October the pipeline recorded record flows going to the continent (16,000 GWh worth), however with the onset of the cold spell the flow reversed.

Flow of gas in MWh equivalents from Belgium to the UK through the Interconnector pipeline (the dates are the end of November and December 1 )

And at 6 am on Wednesday the flow stopped (h/t Luis) however supplies increased through the Langeled pipeline connecting to Norway. And while there were some problems with flow from the gas being stored in the depleted offshore gas field at Rough, it is reported that five LNG tankers are on their way to the UK at the moment.

It is worth noting, in passing, that with five nuclear power stations on maintenance, the French have been importing electric power from the UK.

Power demand in France, where one third of domestic users rely on electricity for heating, is expected to reach a new record high at peak hour on Thursday, according to grid operator RTE.
With demand also at record highs on Wednesday, France was importing power from Britain at the interconnector's full 2,000-MW capacity until around 1630 GMT, National Grid data showed.

And, also in passing it is worth noting that the claims of increased deaths from global warming are not being borne out by the statistics in the UK. A study, back in 2008, noted that there had been no increases in summer deaths from rising temperatures, but rather a fall in winter deaths by some 3% in the UK. However the return of harsher winters has already had an effect. Local councils have reported that with the colder weather last year deaths increased by some 25,000 and one may anticipate a similar impact this year. In a normal year the cold-related winter deaths would average about 20,000.

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.