CCS capital and operating economics uncertain

Reuter’s John Kemp has written an article looking at the economic viability of carbon capture and storage for coal-fired power generation. Starting with the recently inaugurated Boundary Dam Unit 3 as a reference, he estimates that the capital costs to upgrade the 45-year old, 110 MW unit and fit it with CCS (which came to around $CAN 1.3 billion/$US 1.16 billion/€900 million) were around three times what the upgrade would have cost without CCS. Though capital costs are expected to fall as lessons are learned with further deployment, the operating costs are a separate test of viability. Boundary Dam Unit 3’s energy penalty (the energy required to run the CCS system) is estimated at around 25% of CCS-less power output, which accords to theoretical estimates of between 11-40%. This energy penalty must be paid for, either with reduced electrical output, or by the use of more fuel, which has a corresponding effect on operating profit/loss. (Though not mentioned in the article, there would also be increased maintenance costs due to the increased amount of equipment). Much of the energy penalty comes in the capture of CO₂, and it is also expected that the efficiency of doing so will improve, as there is a lot of research currently underway. Nevertheless, CCS-enabled coal will have to compete with gas-fired power generation (which, if requiring CCS, would need less efficient CCS to meet the same CO₂ emissions per kWh as coal) as well as the falling cost of renewables. At the same time, the necessity of CCS to help meet global emissions reduction targets is clear, which makes the overall picture complex and rather fascinating.

China’s strong trade relations with Africa to continue to be unrivalled

The Financial Times has reported on China’s continuing dominance of international trade with Africa. The continent has the second highest regional GDP growth rate in the world, a fact that produces a gleam in the eye of many international businesses looking for opportunities, and the US, Japan and the EU have in the last few years attempted at a political level to increase economic ties. China, however, has for more than a decade been vigorously pursuing business in Africa, so much so that Chinese trade increased from $US 10 billion (€7.8 billion) in 2000 to $US 200 billion (€156 billion) in 2013. Much of that trade is in infrastructure projects, including transport and power, often awarded to Chinese construction companies after financing from Chinese banks has been granted (an approach known as the ‘cheque book’ policy). While there is some disquiet about the cheque book policy, the overall perception in Africa of Chinese involvement is a positive one. In the words of Vimal Shah, of Nairobi-based consumer group Bidco, “China is doing a fantastic job because they are coming with patient capital and [a] long-term vision. They are not trying to dictate to you how to run your country.” The Financial Times piece concludes that Chinese trade dominance will not wane, but grow.

UK to hold standby generation capacity auction

The UK government is to hold an electricity capacity auction aimed at compensating power generators that provide standby capacity to the grid. The auction, to be held in December, will include Drax, EDF and Centrica amongst the bidders, with the winner(s) to receive the price set during the auction for keeping generation capacity on standby starting from the winter of 2018-19. The scheme aims to keep the UK’s spare generating capacity at a comfortable level, in light of predictions that available supply will have fallen to only 2% higher than demand during the winter of 2015-16. Greenpeace have been critical of the scheme, arguing it subsidises fossil fuels; ScottishPower has decided not to enter its coal-fired Longannet plant into the auction, stating “The company cannot justify entering the plant into a process which will not come into force for four years and will then only offer 12 months of certainty,” and citing stiff transmissions charging penalties.

Indian plants running short of coal as domestic production slows

India’s coal-fired power plants are running short of fuel supplies, with 60 of the country’s 103 plants having less than one week’s supply stored on site, and power rationing having begun in some areas. The shortage has come about through a combination of lower domestic production than targeted and a slow response by utilities to import more coal, their reluctance driven by a price more than twice as high for imports. Around 60% of India’s coal is mined domestically, and Coal India provides 80% of that, but has failed to meet its April-September production target, falling 9 million tonnes short of its 220 million tonnes target. Imports have been rising, but congested ports have presented another hurdle to a timely response to the strained supply. The shortage is not attributed to the ruling of illegality of some coal mines earlier this year, as the judges suspended any action on the finding and have not yet ruled. Around 400 million of India’s population of 1.2 billion are still without electricity.

EC cancels plans to label Canadian tar sand oil ‘dirty’ in sign of effects of tension with Russia

The European Commission has aborted its plan to label oil from Canadian tar sands as ‘dirty’, in a move that is likely to continue to allow imports to the EU from Canada. While Canada has been pressuring the EC to abandon the plan for some time, it is supposed that the EC acted in the face of continued political tensions with its chief oil supplier, Russia. The EU Climate Commissioner, Connie Hedegaard, was disappointed by the move, which was championed by EU member state allies of Canada, chiefly the UK. “It is no secret that our initial proposal could not go through due to resistance faced in some member states,” she said. Imports from Canada to the EU are currently ‘minimal’, but Canada is eyeing increased exports after the Energy East pipeline, which will help deliver heavy crude from the state of Alberta (in the west of Canada) to Canadian ports on the Atlantic, is complete in 2018.

World Bank rules Venezuela must may Exxon $US 1.6 billion

An arbitration tribunal of the World Bank’s International Centre for Settlement of Investment Disputes (ICSID ) has ordered the government of Venezuela to pay $US 1.6 billion (€1.24 billion) to Exxon as compensation for the 2007 nationalisation of the oil projects Exxon had in the country. However, despite the large bill, the ruling has been seen as something of a victory for Venezuela, as Exxon had been seeking $US 10 billion, and the ICSID had previously capped the maximum payment at $US 6 billion. The tribunal found that “the expropriation was conducted in accordance with due process.” Venezuela is also facing a $30 billion claim by ConocoPhillips, and the ICSID has made a partial ruling already that Venezuela did not act in good faith to the company, suggesting that there may be grounds for a larger amount of compensation. If the Venezuelan government actually pays the determined amounts is a separate question, with the country believed to be in recession and having withdrawn its membership of the ICSID in 2012.

Gazprom considers shelving Vladivostok LNG project to favour China pipeline

Gazprom is considering shelving its $US 7.3 billion (€5.7 billion) Vladivostok LNG project to invest instead in a pipeline to supply gas to China. The Vladivostok project, scheduled to start production in 2018, would have an annual capacity of 10 million tonnes, with Japan seen as the major customer. With major LNG projects in Australia and Indonesia expected to come online in the next few years, and the export of North American shale gas increasing, creating something of a glut in LNG supplies, the economics around the Vladivostok project have come to look less appetising, prompting the turn towards China. Russia and China signed a gas deal earlier in May this year as relations with the West soured over the Ukraine conflict and Russia looked to secure future gas customers. If Gazprom does shift the investment from the Vladivostok project, it would join the $US 30 billion (€23.4 billion) Power of Siberia project, also designed to supply gas to China.

Tepco and Chubu to form alliance to import fuel and build new plants

Two of Japan’s largest power utilities, Tokyo Electric Power Co (Tepco) and Chubu Electric Power, have announced a plan to form a joint venture to purchase fuel and build power plants, in an effort to drive down the costs of generating electricity. With Tepco having purchased 25 million tonnes of LNG last year, and Chubu 14 million, their combined purchasing power will rival South Korea’s Kogas, the world’s largest purchaser of LNG, which last year bought 40 million tonnes of the fuel. There is speculation that the move will prompt other Japanese utilities to form similar alliances to drive down costs, which increased sharply after the Fukushima Nuclear Disaster and the resulting shift to fossil-fuel power generation.