COAL: A POTENTIAL ALTERNATE TO OIL AND GAS

SHAMSUL GHANI
(feedback@pgeconomist.com)
Nov 29 - Dec 5, 20
10

The capital cost outlay, besides an economy's resource base, is usually the guiding factor when it comes to choosing from a number of available energy options. A recent article by Dr. Samar Mubarakmand makes a revealing comparison of per KWH capital investment required for various energy generation options. Hydro, solar and wind energy options carry a capital cost of around $2.5 per KWH. This somewhat high capital cost compensates in the shape of a low generation cost and higher plant lives. Energy generation based on natural gas carries a low capital cost of $1 per KWH and also a low generation cost of Rs.3- 5 per KWH.

But the meager gas reserves that can now hardly last for another 20 years force us to rule out this option. Oil-based energy generation carries a capital cost of around $1.5 per KWH with generation cost ranging from Rs9 to Rs10 per KWH. Volatile world oil prices, environmental concerns and shorter plant lives resulting in drastically reduced generation capacity makes this option the most expensive and undesirable proposition. In this background, it will not be out of place if Alan Greenspan's views on world energy options are reproduced:

"Long-term shortages of gas and oil have inevitably stimulated renewed interest in the expansion of coal, nuclear power, and renewable energy sources, the most prominent of which are hydroelectric power from dams and the energy generated through the recycling of waste and by products from industry and agriculture. Solar and wind power have proved economical in small-scale and specialised uses, but together account for only a tiny fraction of energy use.

The United States has large reserves of coal, primarily dedicated to electric power generation. But, the burning of coal in power plants has been restrained by concerns about global warming and other environmental damage. Technology has already alleviated some of these concerns, and given the limited range of alternatives, coal is likely to remain a major fall-back in the energy future of the United States."

United States, being the largest oil-consumer and a highly developed economy has far more environmental concerns than our small and under-developed economy has. Our huge coal reserves and industrial world's state-of-the-art technology can combine together to provide us a long-lasting energy solution. A delay of almost 50 years in designing a master plan for profitable utilisation of huge coal reserves reflects badly on our economic sense of resource utilization. Islamabad versus provinces tiffs and energy sector cartel forces have been instrumental in delaying the all important economic breakthrough that carries every hope of country's economic revival. The under-estimation of our "coal potential" is a bit enigmatic. The policy of federalisation of provincial resources has already done great damage to this country. It has not only hampered the country's economic development but has also created political divide among the masses. It was back in sixties when the feasibility of Thar coal deposits and their utilisation was undertaken. It is quite inexplicable why this matter of great national importance has nor been expedited with a sense of urgency. The four Thar-coal-related energy projects that are presently underway will cumulatively produce just 2800 MW. This is criminal underutilisation of our gigantic coal reserve base that is capable of producing 50,000 MW of power and 100 to 200 million barrels of oil/diesel annually for the next 500 years.

It is quite intriguing that any detailed and authentic information on Thar coal reserves was not being made available. There were contradictory views on the quality and sulphur content of deposits. Dubious accounts regarding the real utility of these deposits were presented. High extraction cost and environmental issues were being described as inhibiting factors. This all led to the undervaluation of the real worth of this resource.

Finally, the idea of UCG, underground coal gasification, which is a proven and old technology hit our minds. Two pilot projects - 100 MW government of Sindh/government of Pakistan project in Thar coal block V and 400 MW Cougar Energy (UK) project in block III are based on this technology. Other two projects are a 1200 MW joint venture between government of Sindh and Engro and a 300 MW (extendable to 1100 MW) Oracle Coalfields plc (UK) project.

Recently the US government has shown its keen interest in resolving Pakistan's energy crisis. The US team of experts will give its input to an extensive energy plan that will be prepared by the GoP. US will also use its influence to arrange funding for energy projects to get Pakistan out of the energy squeeze.

Our experience with the only world power has little to encourage us to believe that the interest taken by the US in our energy problems does not have any strings attached to it. The situation reminds one of John Perkins' accounts of Iceland's economic boom and bust. He writes in his book Hoodwinked:

"The raw material for Iceland's boom--its gold--was hydroelectric and geothermal power. The glaciers, rivers, volcanoes, and underground hot springs appeared to offer limitless amounts of energy. Because this resource cannot be boxed or barreled, it had to be exploited on site. The biggest of the big energy users, the aluminum companies, came to Iceland in 1960s. During the next four decades as global aluminum demand soared, they convinced Iceland's leaders to construct power plants for the sole purpose of energising foreign-owned smelters. Alcoa made an offer that would place Iceland on the map-a deal to build a mammoth "water-to-aluminum" complex in the remote north.

All Iceland had to do was commit to a very large loan-collateralised by the revenues anticipated from the sale of kilowatt-hours-and hire foreign corporations to build a dam and power plant to generate 600 megawatts to fire just this one smelter (compared to the 300 megawatts used by all the people of Iceland).

The people celebrated-that is until they learned that their utility company was hemorrhaging tens of thousands of dollars every hour that Alcoa ran its equipment.

On October 6, 2008, the unheard of happened. Iceland's banks which had grown to many times the size of the country's economy, collapsed.

There is no reason to believe that the story of Iceland will be repeated in Pakistan, but there is every reason to believe that while working with the US team, a number of our economic documents will be perused by the US energy experts. Planning commission's Vision-2030, energy development program will surely provide them some stuff for amusement. And, before that happens, Planning Commission would do well to go through the projections made in the said development program and get prepared to explain that why the generating capacity could not be enhanced to 27,420 MW by the end of 2010? It might also be required to explain that while China and India are producing most of their energy from coal, why Pakistan is underestimating the potential of its huge coal reserves? The most embarrassing question might be that while Pakistan's gas reserves, in the absence of new recoveries, are bound to exhaust by 2030, how it will be able to produce more than 50 percent of its energy requirement from gas?

PLANNING COMMISSION'S VISION-2030 ENERGY ESTIMATES

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THERMAL

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OIL GAS COAL HYDEL NUCLEAR RENEWABLE TOTAL
Existing Capacity 6,400 5,940 160 6,460 400 180 19,540
ADDITION
2010 160 4,860 900 1,260 - 700 27,420
2015 300 7,550 3,000 7,570 900 800 47,540
2020 300 12,560 4,200 4,700 1,500 1,470 72,270
2025 300 22,490 5,400 5,600 2,000 2,700 110,760
2030 300 30,360 6,250 7,070 4,000 3,850 162,590
Total 7,760 83,760 19,910 32,660 8,800 9,700 162,590
%age 4.77 51.52 12.25 20.09 5.40 5.97 100