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Unconventional Energy Resources: 2013 Review 2013, the company announced it will deactivate the plant at the end of 2013 because it is too expensive to operate.’’ (John Dean, JD Energy). What happened? There are lessons in this extraordinarily compressed turn of events and scores of similar decisions which JD Energy explored by examining local economic factors at some 70 GW of coal capacity. A large fraction of this capacity is sla- ted for retirement according to company announce- ments. Dean points out that the consensus view of $4– 6/mmBtu gas prices over the next decade ‘‘is not very helpful. Scores of coal plants will be competitive after retrofitting controls at $6, but will have no hope of recapturing this hefty investment if the price is $4.’’ He finds that the magnitude of the capital investment in a coal retrofit (FGD, selective catalytic reduction, activated carbon injection for mercury control, and a baghouse/fabric filters) is often equal to the cost of an entirely new natural gas unit. When coupled with risk of even a ‘‘moderate’’ carbon price of $7–15 per ton in the 2020–2025 period, he found that a plantÕs dispatch (i.e., capacity utiliza- tion) would fall from 65–75 to 45–60%. This destroys the economics, raising the specter that a unit will not ‘‘outlive its investment’’ and forcing companies to adopt ever more stringent criteria, such as 10-year paybacks rather than the 15–25-year norm. These considerations would tend to tilt toward plant retire- ment/natural gas options, but many executives remember the late 1990s gas-fired capacity building frenzy predicated on low gas price expectations, which ‘‘led to construction of 270 MW of combined cycle (CC) and peaking units. The CCs were intended to operate at 65–70% but rarely exceeded 30% when higher prices emerged in the 2000–2007 period. This has created a Ôonce burned, twice shy mentalityÕ.’’ Dean concludes that a power companyÕs per- ceptions of what lies ahead plays a much larger role in this kind of decision making than can be sup- ported by any ‘‘hard data.’’ Asian Markets Define CoalÕs Growth Prospects Just as Asia provides the ‘‘lure’’ for LNG ex- port projects, it is where the action is in the global coal trade. Typical of many international energy assessments, Peabody Energy captures this phe- nomenon in Figure 37. The 2013–2017 period is anticipated to see a 1.1 billion metric tonne (1.2 billion short tons) expansion in coal use driven principally by ChinaÕs 760 million metric tonne increase (838 million short tons), by which time ChinaÕs use will have increased from about 5.2 to 6.2 times U.S. levels. The Matter of Pacific Northwest Coal Exports. It is too early to speculate on any hard timelines or the scale or routing of coal exports out of existing (three terminals in British Columbia) or new terminals/ expansions. CoalÕs losses in domestic markets to regulations and to cheap natural gas heighten interest in ways to expand business overseas. Gate- way Pacific Terminal is located on Puget Sound between Bellingham and the Canadian border and could handle large, Capesize-class bulk vessels. It is owned by SSA Marine Terminals, with a commit- ment from Peabody Energy for a major share of its capacity. A second, similarly sized proposed termi- nal, also in the permitting stage, is Millenium Bulk Terminals-Longview (MBTL) on the Columbia River in Longview, Washington.20 It is being ad- vanced by Ambre Energy (62%) and Arch Coal (38%). These terminals are important to monitor due to their size and, therefore, their market im- pacts. Each faces strong environmental opposition. Their effects potentially reach far beyond the direct stakeholders via mechanisms of ‘‘netback pricing.’’ At some threshold of large tonnages, the value of Powder River Basin coal could become linked to the value of coal in Asian markets, even after account- ing for costs of rail transportation, transloading, and ocean shipment. An October 2012 economic analysis (McCalis- ter 2012) calculated a $55/short ton cost advantage for PRB coal compared to major mines in Austra- lian serving Chinese markets. Should such differen- tials persist, the question is how much of this advantage, after taking into account different heat- ing values, can be captured by the final consumer as savings and by other entities in the chain (e.g., rail- roads and PRB producers) as enhanced profits. There are no hard and fast analytical guidelines to such calculations. A doubling of the value of PRB coal can be envisioned, theoretically, which would have tremendous impacts in energy markets and in economies. Historical price swings in international coal and shipping markets have shown that netbacks are not stable. Further instability would come from 20The state of WashingtonÕs Department of Ecology is a useful resource for tracking the permitting process. MBTL is entering a scoping process in 2013 to determine what to include in the coming Environmental Impact Statement. PGT has completed this phase and started to draft a preliminary EIS.PDF Image | Unconventional Energy Resources
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