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VK2AAB > FUEL 18.05.10 08:03l 399 Lines 23959 Bytes #999 (0) @ WW
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Subj: CHINA's Coal Demand & Peak Coal
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Hello All,
There is much talk of China's expotential growth but the upshot is the world
does not have enough resourses to enable that to happen. This means
ultimately that most of China's population will always be poor.
This article by Richard Heinberg shows why coal must get expensive and
prevent the sequestration of CO2 fom power stations.
73 Barry VK2AAB
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China's coal bubble...and how it will deflate U.S. efforts to develop "clean
coal"
Posted by Gail the Actuary on May 11, 2010 - 10:37am
Topic: Supply/Production
Tags: chinese coal consumption, coal, coal production [list all tags]
This is a guest post by Richard Heinberg. The post was originally published by
the Post Carbon Institute.
The conventional wisdom in energy-and-environment circles is that China's
economy, which is growing at a rate of eight percent or more per year, is
mostly coal powered today and will continue to be so for decades to come. Coal
is cheap and abundant, and China uses far more of it than any other nation.
The country is trying to develop other energy sources fastincluding nuclear,
solar, and windbut these won't be sufficient to reduce its reliance on coal.
That's one of the reasons it is important for the U.S. to develop "clean coal"
technology, which China can then begin to adopt so as to reduce the horrific
climate impacts of its coal-heavy energy mix.
Most of this conventional wisdom is correct, but some of it is plain wrongso
wrong, in fact, that environment-, economic-, and energy-policy wonks are
constructing scenarios for the future of U.S. and world energy, and for the
global economy, that bear little or no resemblance to the reality that is
unfolding.
Let's see if we can sort what's right from what's not, and see also if doing
so can help us paint a more accurate picture of where China, and the rest of
the world, are actually headed.
Runaway Train
It is true of course that China's coal consumption is enormous and growing,
and that coal is the basis of the Chinese economy, fueling over 80 percent of
electricity generation. China's coal output grew an astonishing 28.1 percent
from first quarter 2009 to first quarter 2010, to over 750 million metric tons
consumed in just the past three months. But this is a situation that is
patently unsustainablenot just because of the carbon emissions it entails, but
because China simply doesn't have enough coal to continue growing its
consumption much longer.
Start with the stats and do some simple math. China is now mining and burning
over three billion tons of coal per year. If the nation's coal consumption
grows at, say, seven percent per year, that means consumption will double in
ten years (its annual growth rate was actually over nine percent in one or two
of the last several years, implying a doubling every eight yearsbut let's be
conservative and assume seven percent growth). In that case, by 2020 China
would be using about six billion tons per annum.
It takes some reflection to come to terms with the enormity of these figures.
In 2000, China's coal consumption was only marginally higher than that of the
U.S. Today, a decade later, it is three times U.S. consumption. (It is worth
noting that the U.S. has double China's coal reserves.)
Combine unprecedented consumption levels with furious growth rates and you
quickly arrive at absurdities and impossibilities. As in, it won't happen. The
wheels will fall off the wagon first.
There Are Limits
It takes infrastructure to mine and use coal. Rails and rail wagons, plus
trucks and roads, are needed to move coal from mines to power plants. Then
there are the mines themselves, as well as the boilers and turbines that
actually produce electricity. (In this essay we will not further consider the
vital importance of coal to China's steel industry, and the necessity of steel
for manufacturing and economic growth in general.)
China is building all of these at a frenetic pacebut the relentless math of
exponential growth is starting to hit home. Doubling small levels of
production and consumption is relatively easy in practical terms, but, as
quantities expand, the task balloons. China accomplished an amazing feat by
adding almost two billion tons per year of coal production and consumption
capacity and transport infrastructure during the past decade. Adding another
three billion tons per year of capacity during the next decade would bewell,
nearly twice as big a feat. Imagine building mining and transport
infrastructure three times the size of the entire U.S. coal and rail
industries in just ten years. That's what it will take for China to maintain
seven percent growth rates.
It takes other resources to consume coal; crucially, water is needed to run
coal power plants. A typical 500-megawatt coal-fired power plant uses about
2.2 billion gallons of water each year to create steam for turning its
turbinesenough water to support a city of 250,000 people. In recent months
droughts have wracked huge sections of China, idling hydroelectric dams and
stoking demand for coal. If the droughts recur and worsen (as climate-change
scenarios suggest), at some point nuclear and coal power plants will be forced
to shut down as well, leading to the kinds of electricity supply problems that
are already plaguing Pakistan and dozens of other nations, where the lights
are off for hours each day even in the largest cities.
And so, partly due to these factors, but primarily because most of the
highways, shopping malls, and appliances that the Chinese people are likely to
need for a while have by now already been built, China is entering a period
characterized by what are called "saturation effects," which will result in
significant slowdowns in key industrial energy consuming sectors of the
economy. China's infrastructure boom that has driven so much of energy demand
growth in the past decade has probably peaked, so that growth in cement and
steel demand will soon taper off. While the nation's stimulus package,
representing 40 percent of GDP, has extended the party, it will play out over
the next year or so and probably can't be repeated.
But that still leaves a smoldering question: can China's coal industry
continue to supply domestic demand with even modest rates of growth going
forward, declining perhaps to something more on the order of two percent per
year?
If It's Not There, You Can't Burn It
According to the World Coal Institute, China has reserves totaling a little
over 110 billion tons. That's almost 37 years' worth of coal at current rates
of consumption (i.e., three billion tons per year). But to assume that China
won't have coal supply problems until 37 years have passed is also to assume
two absurdities: that Chinese demand, production, and consumption of coal will
remain constant; and that after maintaining this steady rate of extraction and
consumption for 37 years, China will one day suddenly discover that its coal
has run out.
In the real world, China's demand for coal is expected to grow. Adding ten
percent annual consumption growth to the forecast would yield a reserves
lifetime of only 16 years. While a sustained rate of growth this high is
extremely unlikely, the principle is worth keeping in mind.
Also in the real world, production profiles plotted over time assume the shape
of a distorted bell curve that starts at zero and ends at zero, with a peak
somewhere in between. We know this is true for coal extraction because several
regions in the world have already seen a peak and substantial decline of
extraction rates, while no region has so far managed to maintain a high,
steady rate of production (or a growing rate of production) until reserves
suddenly reached exhaustion. This means that China's coal production will peak
and begin to decline significantly sooner than reserves-to-production ratios
(37 at steady rates, or 16 with ten percent annual growth) would suggest.
Could China increase its coal reserves? In principle, yes. Reserves are
defined as the portion of the total coal resource base that geologists believe
can be mined economically. New mining technology and higher coal prices could
impact those estimates. However, the overwhelming trend globally is for
reserves to be downgraded to mere resources as geologists take into account
more restrictions on the amount of coal that is practically
recoverablerestrictions like location, depth, seam thickness, and coal
quality. It is this general trend that causes some analysts to doubt China's
official reserves figure of 187 billion tons (which is notably higher than
estimates published by World Energy Council, World Coal Institute, and
others): the coal is certainly there, butlike the great majority of coal
elsewhere in the worldmost of it is probably destined to stay right where it
is.
In my 2009 book Blackout: Coal, Climate and the Last Energy Crisis, I surveyed
four studies forecasting the timing of the peak of China's coal production. At
one extreme, a 2006 study by Energy Watch Group of Germany used a reserves
figure of 62.2 billion tons to forecast a peak of production for 2015, with a
rapid production decline commencing in 2020. At the other extreme was a 2007
study by Chinese academics Tao and Li published in Energy Policy, which used
the Chinese government's official coal reserves figure of 187 billion tons to
arrive at a peaking date between 2025 and 2032.
None of these forecasts envisioned the rapid growth in Chinese coal production
that has actually occurred over the past few years. This predictive failure
could be interpreted in one of two ways: it suggests either that China's coal
reserves are larger than previously estimated, thus permitting a higher
sustained rate of extraction; or that Chinese officials have forced extraction
rates to the absolute maximum level sooner rather than later in order to
support economic growth, thus hastening the production peakwhich could
therefore possibly occur even before the earliest forecast date (2015).
No Alternatives
Economic growth requires energy, and China needs economic growth to maintain
domestic political stability and international competitiveness. If there's not
enough coal to support the nation's energy growth, then other options must be
considered.
China is developing alternative energy sources; can these be brought on line
fast enough to make a difference? Let's do some numbers. China aims to have
100 gigawatts (GW) of wind power capacity by 2020, and the nation's leaders
plan to expand installed solar capacity to 20 GW during the same period. These
are truly astonishing goals, and, if China even comes close to accomplishing
them, it will become the world's renewable energy leader. But there is a
problem: total Chinese electricity generation capacity is 900 GW currently;
with seven percent growth, that means the nation's electricity demand in 2020
will be something like 1800 GW. Wind and solar together would supply less than
seven percent of that. The only thing likely to boost that percentage much
would be a dramatic reduction in growth of energy demand to, say, two percent
annually.
The situation with nuclear power is similar: China has 11 atomic power plants
now and is in the process of building 20 more, with a target of 60 GW of
generating capacity, or possibly more, by 2020. But this will supply only
between three and five percent of total electricity demand, depending on
energy demand growth rates.
The conclusion is unsettling but inescapable: China's reliance on coal cannot
be significantly reduced as long as its demand for electrical power continues
to grow at anything like current rates. And even if energy demand growth
tapers off and alternative energy sources come on line quickly, the country's
ability to supply enough coal domestically will still be challenged.
Imports Can't Make Up the Difference
China has been self-sufficient in coal until recently (importing some coal but
exporting just as much or more), but supply problems over the last couple of
years have led to burgeoning imports and shrinking exports. If Chinese coal
mines can no longer cover the nation's demand, why not just expand imports
still further to make up the difference?
China will import 150 million tons (Mt) of coal this year, twice what it
imported last year. That's not much, if we think of it as a percentage of the
nation's total coal consumption. But that 150 Mt represents over 60 percent of
the total exports of Australia, the world's top coal exporter. This means if
Chinese imports double again next yearnot an unrealistic scenarioChina will
need to import more coal than Australia can currently provide. One more
doubling of import demand and China will be wanting to import 600 million tons
per year, about the total amount of coal exported by all exporting nations
last year.
Can Australia expand its coal production? Yes, it can and no doubt will.
Likewise Indonesia and South Africa. But will any or all of these countries be
able to grow exports fast enough to keep up with Chinese demand? Again,
expansion will be limited by infrastructure requirementsships, ports, trains,
and rails. It takes time to build all of these. By the latter decades of the
21st century, Australia could be the world's biggest coal producer, even
though that nation's coal reserves are smaller than those of the U.S., China,
or India. (How can this be? It would simply occur as a result of the latter
high-consuming nations gobbling up their own reserves so quickly and so soon;
Australia has been a fairly minor producer up to this point.) But that will do
China little good over the next decade or so, if its domestic coal production
peaks and goes into steep decline.
China's increasing reliance on coal imports is not good news for India,
Europe, and other coal importers. India burns 500 Mt of coal per year and is
facing growing problems with its domestic mining industry. The solution
appears to be, unsurprisingly, to import more coal. India wants to grow its
economy at seven percent annually, just as the Chinese are doing, and India's
economy is just as coal-dependent as China's.
Until recently, coal has been a resource used mostly in the country of origin.
Internationally traded coal was a fairly small percentage of the total amount
consumed globallya situation quite different from that with oil, over half of
which is exported from the country of origin. However, there is an increasing
trend toward the development of an integrated global coal marketand it appears
that trend is about to go into overdrive.
This means that if Chinese and Indian demand for coal imports pushes up the
price for export coal (as it almost certainly will, and probably quite
dramatically), the result will be higher coal prices everywhereeven within
nations that are self-sufficient in the resource. After all, if a coal mining
company in the U.S. can get twice the price for its product by selling it
abroad as opposed to selling it domestically, won't it opt to export? Unless
governments implement export curbs or domestic price caps, the international
export price of coal will end up being the domestic price for countries
everywhere.
Yet if coal prices go too high, that will cause demand to fall, as potential
coal buyers choose other energy sources or simply do without. The result will
be the same kind of volatility in coal prices as we have seen in oil prices
over the past few years. That price volatility will undermine energy markets
in general, and poorer nations that use coal will consistently be outbid.
Implication for the U.S.: Forget "Clean Coal"
Now: what does any of this have to do with "clean coal" technology?
Also known as Carbon Capture and Sequestration (CCS), "clean coal" is touted
as the solution to one of the biggest conundrums facing industrial
civilization in the 21st century: how to reduce greenhouse gas emissions and
thus prevent catastrophic climate change, while maintaining growth in energy
supplies and therefore in economic activity. Since nobody in a position of
authority can seemingly figure out how to maintain economic growth while
cutting coal out of the energy equation globally, and since nearly everyone
assumes coal will remain cheap and abundant far into the foreseeable future,
the obvious answer to the dilemma is to find a way to continue burning
increasing amounts of coal while keeping the resulting CO2 from going into the
atmosphere.
We know this can be doneon a small scale. All of the elements of the
technology are already working in various pilot projects. Oil companies
already inject carbon dioxide into oil wells to increase production.
Pipelines, compressors, pumpsnone of these requires quantum physics.
There are two hitches: the difficulty of scaling up such an enterprise, and
its impact on electricity prices. As many analysts have pointed out, the sheer
size of the proposed operationif deployed nationally in the U.S. alone, let
alone the entire worldwill be mind-boggling. And the costs of all those
pipelines, pumps, compressors, and new coal gasification power plants (these
are needed because it's really difficult and expensive to add CCS onto
existing pulverized coal burning power plants) add up quickly and steeply.
Every energy analyst agrees that this will boost the cost of electricity.
Still, the scheme might just barely workas long as coal prices remain
constant.
However, add much higher coal prices to the equation and the result is
electricity costs that will significantly dampen economic growth, make other
energy sources comparatively more economically viableor both. Conclusion:
"clean coal" is an idea whose time will never come.
Now, there are other reasons for assuming that U.S. coal prices will be higher
in a decade or so than they are now. Official estimates of U.S. coal reserves
are probably inflated, and domestic supply problems could start to appear
sooner than most energy analysts are willing to admit. Moreover, America's
coal transport infrastructure could be hobbled by higher diesel prices if
world oil production goes into decline soon (as increasing numbers of analysts
foresee), since transport costs often account for the lion's share of the
delivered price of coal. But even if we ignore those looming systemic limits
and consider only the implications of China's growing demand for coal imports,
it's clear that U.S. coal prices can go nowhere but up. The only thing likely
to keep them from doing so would be a collapse of the Chineseand the
globaleconomy.
China: Leading the Global EconomyInto the Ditch
Some commentators are concerned about China's economy for reasons that have
nothing to do with coal. The prime example: it would appear that Beijing has a
problem with over-reliance on property development as an engine of domestic
economic growth. One of those sounding the alarm on this score is hedge fund
manager James Chanos, founder of Kynikos Associates Ltd.; he says China is "on
a treadmill to hell," and that the nation is "Dubai times a thousand." He has
also been quoted as saying, "They can't afford to get off this heroin of
property development. It is the only thing keeping the economic . . . numbers
growing."
A bursting of China's property bubble could collapse the nation's economy
quickly and soon. But it is essentially a problem of money, and money is a
creation of the human mind. Currencies can be reformed; banking systems can be
reorganized. Such things are painful and take time, but they are certainly
possibleand historic examples are numerous.
Energy is different. Without energy, nothing happens. Transport systems stall;
building construction and manufacturing cease. The lights go out. You can't
make energy out of nothing and you can't call it into existence with computer
keystrokes, as bankers can do with money. Generating electrical power requires
physical resources, infrastructure, and labor. And so there are natural limits
to how much energy we can summon for our human purposes at any given time.
China has become a great manufacturing powerhouse largely because it was able
to grow its energy supply quickly and cheaply. And so China's contribution to
the world economy is to this extent a function of China's contribution to
world energy. One significant gauge of this link is the fact that Chinese coal
production represents more than double the amount of energy contributed to the
world economy as compared to Saudi Arabia's oil production (1,100 million tons
of oil equivalent vs. 540 Mtoe.)
If China faces hard energy limits, that means its economy is living on
borrowed time. That also means the world as a whole confronts energy and
economic constraints that are harsher, and closer, than we are being told.
Forever Blowing Bubbles?
High coal prices and "clean coal" don't mix. China's insatiable hunger for
more coal will drive up coal prices everywhere. China can't keep up coal-
powered industrial expansion for much longer, nor can the global economy
accelerate without the engine of China. The evidence on these scores couldn't
be clearer: the numbers we have discussed are fairly uncontroversial, and the
math of compounded steady growth is easy. Still, none of these realities has
entered our public discourse. This fact in itself is really peculiar and
disturbing. We are participating in a slow-motion train wreck, yet all we can
manage to discuss is the quality of the food in the dining car.
Maybe this is because acknowledging the train wreck would require us to
confront a slew of contradictions at the core of the entire modern industrial
project. Without clean coal, there is no solution to the climate crisisunless
we are willing to contemplate giving up economic growth. But further growth
may be unattainable anyway, as the world approaches fundamental resource
limits. Nobody wants to think about these things, much less talk about them.
Not China's leaders, nor economists elsewhere, nor many environmentalists, nor
politicians, nor journalists.
But we can't wish these limits away. Impossible things (like unending economic
growth) won't happen just because people want them to. And awful things (like
the wreck of the China train) won't be averted just because acknowledging them
makes us uncomfortable.
There are of course steps that Chinese officialseveryone, in factcould take to
make the situation better. We should be developing and deploying renewable
energy as fast as possible, with a wartime mentality in terms of priority and
commitment. And we should be planning for the end of growth, indeed for
economic contraction. These things will be difficult, there's no getting
around it. Still, they are possible in principle. But we will fail for sure if
we remain sunk in denial and do not even make the effort.
China's economic bubble in some ways represents a microcosm of the entire
industrial perioditself a relatively brief era of urbanization, fossil-fueled
expansion, technological innovation, and unprecedented explosion of
consumption. China has taken only two or three decades to accomplish what some
other nations did over the course of a couple of centuries. This suggests
that, for that country, implosion may come just as quickly.
It is all a remarkable spectacle. Sit back, watch, and marvel if you wish.
But know one thing: unless we collectively wake up, engage the brakes on this
runaway train (and here I am speaking not just of China), and start discussing
how we will adjust to the end of economic growth as we have known and defined
it,
none of this will end well.
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