The future of NSW Coal - future directions in both domestic and international energy production

It is a pleasure to be invited here today to contribute to CEDA's Energy Series.

Meeting together here in Sydney’s CBD, we might forget that NSW is in fact a significant mining state with substantial coal resources.

Coal was first discovered in NSW at the Hunter River in 1797 and quickly led to the development of the town of Newcastle. Today, the Hunter Valley Coal Chain is the largest coal export operation in the world and Newcastle is the largest coal exporting harbour, and of course the Balmain Colliery operated in the inner west of Sydney from 1897 to 1931. In addition, in the Illawarra, NSW has a second coal port from which we export some of the world’s best quality metallurgical coal.

The NSW coal industry directly employs around 20,000 people and supports a further 90,000 related jobs. It also injects many billions annually into the state economy in direct purchases from local businesses, in wages and salaries and in community contributions. As the largest NSW mining activity, coal contributes around 95% of the State’s mining royalties valued at $1.3 billion in 2013-14.

In addition to being the State’s largest export industry coal provides 84% of NSW’s electricity generation. This coal-fired power has helped to underpin the competitiveness of the state’s energy intensive industry, a very significant employer of its citizens.

My company, Centennial Coal, is an Australian coal mining business supplying both the domestic and export markets. Our coal fuels around 40% of NSW’s coal-fired electricity generating capacity, while we also manage a successful export business. With the backing of Banpu, Pan-Asia’s leading independent energy company, we continue to deliver a superior service to both our domestic and export customers.

Now, given all that background, you might be surprised to learn that Australia’s coal exports meet only around 4.2% of the world’s needs. This is because most coal is not traded internationally it is used domestically by the country that mines it. There are more than 60 countries mining it for their own needs.

As the globe’s most prevalent and widely distributed fossil fuel, coal provides energy security across many nations. Affordability and price-stability are also key reasons why nations rely heavily on coal-based electricity generation. This makes coal an attractive fuel for baseload generation and it is often the first source to be dispatched on electricity grids around the world.

As illustrated in this slide, because of its scale and affordability, coal is playing a major role in supplying electricity to meet the world’s substantial and growing energy needs. In fact, many developed and developing countries are turning to coal to produce the power, steel and cement necessary to sustain, and improve, their citizens’ quality of life and the industrial competitiveness of their economies. The future use of increasing quantities of coal worldwide to feed this insatiable appetite for energy is inevitable if the world is to avoid a damaging energy crunch and support the needs of these developing nations.

NSW will continue to be a preferred supplier of quality coal particularly to Asian markets for the foreseeable future. If we, in NSW and Australia generally, did not export this coal for some reason, other countries would quickly replace our exports.

In the ten years to 2012 (the latest available data), China’s annual black coal production increased by 153%, India’s by 65%, Colombia’s by 125% and Indonesia’s by 329%. By comparison, Australia’s production increased by 32%. 

China has announced it will cap its coal production at 4.2 billion tonnes of coal equivalent, approximately 5 billion tonnes of coal by 2020 and apply restrictions on imports to ensure only better quality coals are imported. This consumption level is above China’s current rate and will favour growth in quality coal imports from countries like Australia at the expense of other countries. This is because Australia’s coal is highly sort after as it is low in sulphur, ash and other impurities and has a high calorific value – that is, it burns very efficiently.

So, what are the issues associated with “securing the future of NSW’s energy mix”?

I would like to suggest there are five issues that should be considered when considering this topic:

a) First, we need to ensure our state’s energy security. That means we need to maintain a balance in the generation mix to ensure the availability of electricity on a daily basis – that is without disruptions such as brownouts or, worse, blackouts across the state. The provision of relatively affordable and safe electricity based on NSW’s abundant coal resources has served the state well for over a hundred years. It has been – and remains – the foundation for our competitive, energy intensive industries.
There is no other fuel – fossil or renewable – that can perform the vital baseload, competitive role in the NSW power generation mix. While federal government modelling points to a gradual decline in the share of coal in domestic electricity generation, it is projected to remain the largest single source of Australia’s and NSW’s power in 2034-35.

b) Second, energy security in key customer countries is also important: NSW exports to many countries including Japan, China, South Korea and Taiwan. Future directions, particularly in these Asian energy markets, demonstrate that coal will be used as a major source of electricity for the foreseeable future.

c) Third, we should have regard to our state’s resource availability – we have coal, gas and renewable resources. These resources should be responsibly developed and we need to ensure there is no bias against any fuel option for domestic electricity production.

d) Fourth, partly because electricity is an invisible and intangible commodity, and partly because we have become accustomed to its reliable supply, there is limited understanding of where electricity comes from and the complementary roles that fossil fuels and renewables can and do play.

e) Finally, the roadmap to a low emissions coal future is increasingly clear – increase the efficiency of generators and capture the carbon emissions.

This means:

1 High efficiency, low emissions (or HELE) coal-fired generation technologies should be deployed where technically and economically feasible. They can achieve CO2 emission reductions of 20% to 25% compared with the average of the existing world coal fleet and up to 40% reductions compared to the oldest technology in place.

2 In parallel, develop carbon capture and storage (or CCS) technologies so they can subsequently be integrated into HELE power and other industrial plants thereby achieving a 90% reduction in emissions from fossil fuel use. CCS involves capturing CO2 at the power station or at another industrial facility, such as a steel, LNG or cement plants. The captured CO2 can then be stored safely and permanently in deep underground geological structures, which offers the best prospects for CO2 storage given the quantities of gas involved. There are various other options for CO2 storage including biological means that are also being explored.

HELE power plants are now operating in many countries. In Japan, for example, the Isogo power station – shown in this slide – is demonstrating the way forward for coal. It burns coal as cleanly as gas in terms of nitrous oxide, sulphur dioxide and particulate emissions. The plant uses "ultra super critical" generation technology that operates at temperatures of 600-620 degrees Celsius and boasts thermal efficiency of 45%, the world's highest. It also emits 25 per cent less carbon dioxide than the average global coal plant. This, the International Energy Agency emphasises, is the way to proceed – and I suggest with a bold vision that could happen here in NSW too.

The Global CCS Institute reports there are 13 large-scale CCS projects in operation around the world, with nine more under construction. These 22 projects in operation or under construction represent an increase of 50% since 2011. The total CO2 capture capacity of the projects is around 40 million tonnes a year.

A crucial milestone for CCS was reached in October last year, when Canada’s SaskPower launched Boundary Dam, the world’s first commercial scale, coal-fired power plant with CCS. The Executive Director of the International Energy Agency said that the launch represents ‘a momentous point’ in the history of the development of CCS. She added: ‘The experience from this project will be critically important. I wish the plant operator every success in showing the world that large-scale capture of CO2 from a power station is indeed not science fiction, but today’s reality.’5

To build on this progress, significantly more international effort is required to demonstrate CCS technology and provide a line of sight to commercial availability. Technology-neutral policies, government support, incentives, and continued robust research to reduce costs are all needed to attract investment for additional large-scale CCS projects and enable sustainable deployment of the technology.

The Australian coal industry set up the COAL21 Fund in 2006 – the first voluntary initiative of its type in the world.

In partnership with government and other industries, the industry so far has committed over $300 million under the Fund to a portfolio of major demonstration projects and supporting R&D.

While there is still a lot to do, so far:

• We have successfully captured CO2 at Queensland’s Callide coal-fired power plant and demonstrated the technology can be applied to existing and new power stations

• We have successfully sequestering 65,000 tonnes of CO2 in a depleted gas field in Victoria’s Otway Basin; and

• We are intensifying the search for storage sites with exploration work underway or planned in Queensland, NSW, Victoria and WA.

Unfortunately, as I have previously stated there is limited understanding of where electricity comes from and the roles that coal, gas and renewables can and do play. And, I should add, the role that consumers can play, as illustrated in this slide.

The world’s energy needs are substantial. Moreover, as developing nations emerge to enjoy the lifestyle benefits Australians take for granted, world energy use is expected to grow 50% by 2050.

More than 85% of the current energy supply worldwide comes from oil, gas and coal – and annual carbon emissions from burning these fuels has doubled since 1980.

There is general agreement that reducing carbon dioxide emissions is necessary. Clearly, achieving such reductions and meeting the growing demand for energy requires a major transformation of the global energy supply system to meet its needs. 6

In contemplating the scale of the challenge, I suggest we need a reality check: all low emissions technology options – whether they apply to fossil fuels or renewables, or a combination of both – are going to cost a lot more than current electricity generation options, at least at the outset. A genuine energy policy debate must openly acknowledge this point.

Moreover, a more informed debate about Australia’s energy future will follow if there is better understanding of the options available for electricity generation, the merits of particular technology alternatives and their relative costs and benefits. This needs to be supported by sound scientific advice from respected institutions such as CSIRO. That should also include better communication of the importance of coal in the Australian economy and its role, both anticipated and potential in the energy mix (with the application of low emissions technologies).

Such an open and informed debate should address any misapprehension that mitigating emissions is incompatible with a strong and lasting coal industry. HELE and CCS are proven technologies. Both HELE and capture technologies are commercially available, and geological storage of CO2 is not a new or emerging technology – it is happening now. In fact the oil and gas industry has been doing this for decades for enhanced oil recovery.

Given the importance of coal over the long term, it is important to acknowledge that coal has an important role in a secure and sustainable energy future. However, it will ultimately need to be a low carbon future.

Without CCS the cost of reducing global emissions more than doubles – about 140% higher according to the International Panel on Climate Change. This explains why the International Energy Agency considers CCS is a critical component in a portfolio of low-carbon energy technologies aimed at reducing emissions.

Accordingly, the recent NSW Public Accounts Committee report on The Economics of Energy Generation “recognises the particular importance of carbon capture and storage technology in NSW, which has a competitive advantage in the production and use of black coal for electricity generation”.

As illustrated by the public inquiry process through which that report was developed, public debates about energy policy are best served by a careful examination of the issues rather than allowing them to be superficial and driven by ideology and political expediency.

I therefore commend CEDA for organising this public function and again, thank you for the opportunity to address you.
 

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