IS THERE AN IS THERE AN ENERGY CRISIS?ENERGY CRISIS?

David Brewer, BA., ACMADavid Brewer, BA., ACMA

Director GeneralDirector General

Confederation of UK Coal ProducersConfederation of UK Coal Producers

Presented to RICS Minerals and Waste ManagementPresented to RICS Minerals and Waste Management

Faculty's Annual ConferenceFaculty's Annual Conference

Hilton Hotel, York,19th March 2004Hilton Hotel, York,19th March 2004

ENERGY WHITE PAPERENERGY WHITE PAPEROUR ENERGY FUTURE – CREATING A OUR ENERGY FUTURE – CREATING A

LOW CARBON ECONOMYLOW CARBON ECONOMYFOUR POLICY GOALSFOUR POLICY GOALS

Path to cut CO2 emissions by 60% by 2050 Path to cut CO2 emissions by 60% by 2050 with real progress by 2020with real progress by 2020Maintain reliability of energy suppliesMaintain reliability of energy suppliesPromote competitive markets to raise rate of Promote competitive markets to raise rate of sustainable growth and improve productivitysustainable growth and improve productivityEnsure every home adequately and Ensure every home adequately and affordably heatedaffordably heated

ENERGY WHITE PAPERENERGY WHITE PAPEROUR ENERGY FUTURE – CREATING A OUR ENERGY FUTURE – CREATING A

LOW CARBON ECONOMYLOW CARBON ECONOMY

Primary goal, as the title suggests, is to Primary goal, as the title suggests, is to reduce COreduce CO2 2 emissionsemissionsHas this lead – or will it lead – to an Has this lead – or will it lead – to an energy crisis?energy crisis?Where have we come from, where are we Where have we come from, where are we now, and where might we be going to?now, and where might we be going to?

Share of Total Energy Consumption by Fuel

0

5

10

15

20

25

30

35

40

45

50

%

Coal Oil Natural Gas Nuclear Other

Fuel Used for Electricity Generation

0

10

20

30

40

50

60

70

80

%

Coal Oil Natural Gas Nuclear Other

Electricity Production by Fuel

0

10

20

30

40

50

60

1995 1996 1997 1998 1999 2000 2001 2002 2003

%

Coal Oil Natural Gas Nuclear Other

Coal Burn at Power Stations

0

10

20

30

40

50

60

1996 1997 1998 1999 2000 2001 2002 2003

mtp

a

The Energy Ratio

0

50

100

150

200

250

1970

1972

1974

1976

1978

1980

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1986

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1990

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1994

1996

1998

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2002

Ind

ex

GDP Energy Consumption Energy Ratio

Electricity Consumption

0

50

100

150

200

250

300

350

400

1970

1972

1974

1976

1978

1980

1982

1984

1986

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1990

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2002

TW

h

UK Oil & Gas PricesUK Oil & Gas Prices

0

5

10

15

20

25

30

35

'99 J '00 J '01 J '02 J '03 J

$/Barrel

0

5

10

15

20

25

30

35

p/Therm

OilGas

Source: International Petroleum Exchange

International Coal Prices CIF NW Europe

0

10

20

30

40

50

60

70

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

US

$/t

on

ne

InternationalInternational CoalCoal PricesPrices

International Coal Prices

0

10

20

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50

60

70

J F M A M J J A S O N D J

$/te

MCIS CIF NWE $/te FOB SA $/te

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70

J F M A M J J A S O N D J

$/te

MCIS CIF NWE $/te FOB SA $/te

InternationalInternational FreightFreight RatesRates

0

5

10

15

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25

30

35

J 03 F M A M J J A S O N D J 04

$/te

Freight Rates SA to ARA

EFFECT OF ENVIRONMENTAL EFFECT OF ENVIRONMENTAL MEASURES ON COAL-FIRED MEASURES ON COAL-FIRED

GENERATIONGENERATIONLarge Combustion Plants Directive – limits SOLarge Combustion Plants Directive – limits SO22, , NONOXX and Dust and Dust

Implementation by Emission Limits or National Implementation by Emission Limits or National Plan. National Plan discriminates against high Plan. National Plan discriminates against high sulphur indigenous coalsulphur indigenous coal

Non-FGD stations will start to close from 2008. Non-FGD stations will start to close from 2008. EU Emissions Trading Directive – limits COEU Emissions Trading Directive – limits CO22

EFFECT OF EUETS NATIONAL EFFECT OF EUETS NATIONAL ALLOCATION PLANALLOCATION PLAN

Carbon allocations to coal stations will permit Carbon allocations to coal stations will permit burn of about 38 mtpa for 2005 to 2008burn of about 38 mtpa for 2005 to 2008BUT BUT total NAP allocations not enough to keep total NAP allocations not enough to keep the lights on unless new entrant reserve usedthe lights on unless new entrant reserve usedMay be further switch from coal to gas through May be further switch from coal to gas through carbon trading, or purchase of allowances from carbon trading, or purchase of allowances from other sectors, or from Europeother sectors, or from EuropeDepends on relative coal/gas prices and market Depends on relative coal/gas prices and market price of carbonprice of carbonElectricity prices Electricity prices willwill increase – how much? increase – how much?Coal burn could fall furtherCoal burn could fall further

EFFECT OF ENVIRONMENTAL EFFECT OF ENVIRONMENTAL MEASURES ON COAL-FIRED MEASURES ON COAL-FIRED

GENERATIONGENERATION

Effect of EU Emissions Trading Scheme Effect of EU Emissions Trading Scheme will be to disincentivise further investmentwill be to disincentivise further investment

Coal-fired power stations might close by Coal-fired power stations might close by 2016 because of Large Combustion Plants 2016 because of Large Combustion Plants Directive NODirective NOX X requirementsrequirements

But there will remain significant coal-fired But there will remain significant coal-fired capacity well beyond 2010capacity well beyond 2010

THE END OF NUCLEAR THE END OF NUCLEAR POWER?POWER?

Magnox Stations close by 2011Magnox Stations close by 2011

AGR Stations close by 2020AGR Stations close by 2020

Only Sizewell B (PWR) remains open after Only Sizewell B (PWR) remains open after 2020 2020

Generating Capacity

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30

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50

60

70

80

GW

Generating Capacity Maximum Load

Installed Capacity

0

5000

10000

15000

20000

25000

30000

35000

35.9

Coa

l

36.3

Gas

15.1

Nuc

lear

2.1

Oil

5.3

Hydro

1.9

Renew

able

s

3.3

Inte

rcon

nect

ors

MW

Oil Reserves

0

500

1000

1500

2000

2500

3000

3500

4000

4500

1980

1981

1982

1983

1984

1985

1986

1987

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1989

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M T

on

ne

s

Cumulative Production Remaining Reserves

Oil Production as Proportion of Reserves

0

1

2

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7

8

9

10

1980

1981

1982

1983

1984

1985

1986

1987

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1989

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1991

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1995

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1997

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2001

%

Gas Reserves

0

500

1000

1500

2000

2500

3000

3500

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

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1995

1996

1997

1998

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2000

2001

Bil

lio

n C

u M

Cumulative Production Remaining Reserves

Gas Production as Proportion of Reserves

0

1

2

3

4

5

6

7

8

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

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1993

1994

1995

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%

FUTURE ENERGY PRICESFUTURE ENERGY PRICES

A double whammyA double whammy

The price of carbon - £8/MWh – twice the The price of carbon - £8/MWh – twice the price of Germanyprice of Germany

Increased demand for gas means higher Increased demand for gas means higher gas pricesgas prices

Carbon price and higher gas prices will Carbon price and higher gas prices will BOTH increase electricity pricesBOTH increase electricity prices

Both gas and electricity prices higherBoth gas and electricity prices higher

IS THERE A MARKET FOR IS THERE A MARKET FOR INDIGENOUS COAL? INDIGENOUS COAL?

Depends on implementation of Large Depends on implementation of Large Combustion Plants Directive by ELV Combustion Plants Directive by ELV optionoption

Gas prices will be highGas prices will be high

Significant coal-fired generating capacity Significant coal-fired generating capacity will remain until at least 2015will remain until at least 2015

There will be a market well beyond 2010There will be a market well beyond 2010

International coal prices may stay highInternational coal prices may stay high

CAN WE PRODUCE IT?CAN WE PRODUCE IT?

A Forecast of UK Production to 2010A Forecast of UK Production to 2010 mtmt mtmtEnglandEngland deepdeep 1313

surfacesurface 3 3 1616ScotlandScotland surfacesurface 7 7WalesWales deepdeep 1 1

surfacesurface 1 1 2 2

TotalTotal 2525

England - Surface Mine Reserves

0

5

10

15

20

25

30

1997 1998 1999 2000 2001 2002 2003

m t

on

ne

s

Output Consented Reserves

ENGLISH SURFACE MINE ENGLISH SURFACE MINE RESERVESRESERVES

Over 500 m tonnes of potential surface Over 500 m tonnes of potential surface mine reservesmine reservesOnly 5.7 m tonnes of consented reserves Only 5.7 m tonnes of consented reserves remaining – less than 18 monthsremaining – less than 18 monthsA viable, profitable industry is being A viable, profitable industry is being destroyeddestroyedWe are importing coal we could be We are importing coal we could be producing – and exporting jobsproducing – and exporting jobsWe are exporting environmental impactsWe are exporting environmental impacts

GAS WON’T GET US THEREGAS WON’T GET US THERE

Gas is a carbon-rich fuelGas is a carbon-rich fuel20 – 30% renewables the maximum for 20 – 30% renewables the maximum for electricity generation? Intermittentelectricity generation? IntermittentWhat about domestic and transport energy What about domestic and transport energy demand?demand?Renewables and 70 – 80% gas for Renewables and 70 – 80% gas for electricity won’t achieve a 60% carbon cutelectricity won’t achieve a 60% carbon cutAre we going down the wrong route if the Are we going down the wrong route if the coal and nuclear options are lost?coal and nuclear options are lost?

IS THERE AN ALTERNATIVE?IS THERE AN ALTERNATIVE?

New nuclear? – Very expensive, but New nuclear? – Very expensive, but cheaper than some renewablescheaper than some renewables

Clean coal technology with carbon capture Clean coal technology with carbon capture and sequestration? – Expensive but and sequestration? – Expensive but cheaper than nuclear and many cheaper than nuclear and many renewablesrenewables

Capturing COCapturing CO22 produces hydrogen produces hydrogen

THE HYDROGEN ECONOMYTHE HYDROGEN ECONOMY

Mix of fuels for electricity generation – gas, Mix of fuels for electricity generation – gas, renewables, nuclear and clean coalrenewables, nuclear and clean coal

Carbon capture and sequestration from Carbon capture and sequestration from fossil fuelsfossil fuels

Hydrogen for transportHydrogen for transport

Expensive but cheaper than relying on Expensive but cheaper than relying on renewables and gasrenewables and gas

The cheapest way to a low carbon future?The cheapest way to a low carbon future?