What to do about coal?
THIS article is one of two that deal with the key issues in the coal industry. This first article deals with three questions:(1) Does Bangladesh need to develop the coal industry? (2) What technologies are appropriate for coal? (3) How should coal fit into the development of the power sector? The second article will deal with how to develop the coal sector.
Does Bangladesh need to develop the coalindustry?
If Bangladesh wishes to grow at 7% per annum for the next decade, then the electricity supply must grow at 9%. This requires adding 6,200 MWs of power generating capacity over the decade. There is sufficient gas reserves available to fire about 3,500 MWs, although the real state of reserves is somewhat opaque. This leaves a minimum of 3,000 MWs of coal fired plant required. If there is no development of coal fired plants then the GDP growth will be held to perhaps 3.5% per annum. The shortage of electricity will keep the manufacturing sector and the service sector from developing rapidly. That is the choice -- develop the coal or grow the economy slowly. I am wrong in this only if there is much more natural gas available than is now counted in the gas reserves. There is room for a lot of argument about the reserve level, but I think the balanced conclusion is that more gas availability is very questionable. Certainly, Petrobangla is very conservative in its outlook. Furthermore, the country needs much more urea production than is now possible, requiring additional gas for that use. There is no doubt that there is a great deal of natural gas within Bangladesh, but it takes time for exploration and development. During the next ten years it is likely that there will be major natural gas discoveries; future power requirements after the next decade can be partially fueled by the newly discovered gas. But during the ten years in front of us it is urgent to get the coal fired plants running. The alternative to developing the coal resources is to import coal. That seems an expensive alternative when there are substantial reserves in the country. The conclusion to develop the coal seems robust and compelling: Bangladesh must develop its coal resources immediately to provide the electricity needed for rapid economic growth. What technologies are appropriate?
In developing coal, there are two choices: Underground mines or open pit mines. The choice should be determined by the geology and left to the experts. In western Bangladesh, it appears that the experts favour open pit mining. In developing open pit mines it is essential that provision be made in the mine development plan for adequate treatment of the environment. It is the responsibility of the authorities to insure that any mine manages the environment well. With modern techniques and experience, this is readily accomplished. There are many examples of well managed open pit mines. Such a mine may be an environmental problem, but need not be if the regulatory authorities and the mine owners work together. The critical question is whether the economics of the project are such that the costs of managing the environment can be covered and the investment can still retain a reasonable rate of return. Open pit mining is acceptable only when the return is sufficiently high to cover these special costs. In the case of Phulbari, the environmental costs are covered, as indicated from the available data. That is, the project can produce coal at competitive international prices, earn a reasonable return to investment, pay all of the taxes due the government, and cover all the costs of resettlement and environmental management. Of course, this analysis is based on the existing tax structure and any significant change in taxing the existing project would nullify this conclusion. How should the power sector be developed?
The existing view of the power sector is based on the idea that the combined cycle plants that provide a base load plus a peaking capacity is the optimum way to generate power. Based on this conclusion, the approach has been to build more and more combined cycle plants to cover both the base load and peaking plants to meet the high demand levels in the evening hours. Is this the correct approach? If we want to compare to coal, it is necessary to decide the price of the gas and underlying that the price of crude oil. The existing analysis of the Master Plan uses $30 per barrel, far too low; more realistic estimates of oil prices lead to coal being cheaper than oil as a fuel for Bangladesh power plants. Once one goes to $60 per barrel, then the coal is the cheaper fuel for generating electricity. The preferred approach to the power sector would use coal for the base load and the gas for the peaking. Ideally, one would want to build MW 6,000 of coal fired plants over the next decade. That would require 450 million mt of coal to be set aside for generating the power. Between Barapukuria and Phulbari there is sufficient coal to meet this level of demand. It would take a decade to build these plants. The peaking requirements could be fueled by the available gas. However, the government is committed to building at least two of the large combined cycle gas fired plants. These plans would certainly go ahead, but ideally after two such plants the effort should switch to gas fired peaking plants. To continue this strategy into the next decade would require another 9,000 MWs or an additional committed coal of 680 million mts of coal. The national reserves are sufficient to support this demand. Natural gas would be used to fire peaking plants and only modest discoveries of gas would be needed to supply electricity for the next 20 years. This then is a completely different approach to the power sector combining the gas and coal in their most natural forms and providing the electricity at minimum cost. The conclusion from this brief discussion is obvious -- the coal sector must be developed as rapidly as possible and used to fuel the base load. For Bangladesh, that means approving the existing Phulbari project, encouraging Tata to take up open pit mine at Barapukuria, and starting immediately to develop coal fired power plants through IPPs. By starting at once the generating capacity of the power sector can just meet the needs of the economy at 7% growth. If Bangladesh fails to develop its coal resources promptly then there will not be enough electricity to support the economic growth except by importing coal. Importing coal is very wasteful. It also fails to provide the develop boost to the western regions of Bangladesh that exploiting the coal resources would achieve. The coal import strategy is then both not economic but it also condemns the western half of the country to continuing poverty with respect to the east.
If Bangladesh wishes to grow at 7% per annum for the next decade, then the electricity supply must grow at 9%. This requires adding 6,200 MWs of power generating capacity over the decade. There is sufficient gas reserves available to fire about 3,500 MWs, although the real state of reserves is somewhat opaque. This leaves a minimum of 3,000 MWs of coal fired plant required. If there is no development of coal fired plants then the GDP growth will be held to perhaps 3.5% per annum. The shortage of electricity will keep the manufacturing sector and the service sector from developing rapidly. That is the choice -- develop the coal or grow the economy slowly. I am wrong in this only if there is much more natural gas available than is now counted in the gas reserves. There is room for a lot of argument about the reserve level, but I think the balanced conclusion is that more gas availability is very questionable. Certainly, Petrobangla is very conservative in its outlook. Furthermore, the country needs much more urea production than is now possible, requiring additional gas for that use. There is no doubt that there is a great deal of natural gas within Bangladesh, but it takes time for exploration and development. During the next ten years it is likely that there will be major natural gas discoveries; future power requirements after the next decade can be partially fueled by the newly discovered gas. But during the ten years in front of us it is urgent to get the coal fired plants running. The alternative to developing the coal resources is to import coal. That seems an expensive alternative when there are substantial reserves in the country. The conclusion to develop the coal seems robust and compelling: Bangladesh must develop its coal resources immediately to provide the electricity needed for rapid economic growth. What technologies are appropriate?
In developing coal, there are two choices: Underground mines or open pit mines. The choice should be determined by the geology and left to the experts. In western Bangladesh, it appears that the experts favour open pit mining. In developing open pit mines it is essential that provision be made in the mine development plan for adequate treatment of the environment. It is the responsibility of the authorities to insure that any mine manages the environment well. With modern techniques and experience, this is readily accomplished. There are many examples of well managed open pit mines. Such a mine may be an environmental problem, but need not be if the regulatory authorities and the mine owners work together. The critical question is whether the economics of the project are such that the costs of managing the environment can be covered and the investment can still retain a reasonable rate of return. Open pit mining is acceptable only when the return is sufficiently high to cover these special costs. In the case of Phulbari, the environmental costs are covered, as indicated from the available data. That is, the project can produce coal at competitive international prices, earn a reasonable return to investment, pay all of the taxes due the government, and cover all the costs of resettlement and environmental management. Of course, this analysis is based on the existing tax structure and any significant change in taxing the existing project would nullify this conclusion. How should the power sector be developed?
The existing view of the power sector is based on the idea that the combined cycle plants that provide a base load plus a peaking capacity is the optimum way to generate power. Based on this conclusion, the approach has been to build more and more combined cycle plants to cover both the base load and peaking plants to meet the high demand levels in the evening hours. Is this the correct approach? If we want to compare to coal, it is necessary to decide the price of the gas and underlying that the price of crude oil. The existing analysis of the Master Plan uses $30 per barrel, far too low; more realistic estimates of oil prices lead to coal being cheaper than oil as a fuel for Bangladesh power plants. Once one goes to $60 per barrel, then the coal is the cheaper fuel for generating electricity. The preferred approach to the power sector would use coal for the base load and the gas for the peaking. Ideally, one would want to build MW 6,000 of coal fired plants over the next decade. That would require 450 million mt of coal to be set aside for generating the power. Between Barapukuria and Phulbari there is sufficient coal to meet this level of demand. It would take a decade to build these plants. The peaking requirements could be fueled by the available gas. However, the government is committed to building at least two of the large combined cycle gas fired plants. These plans would certainly go ahead, but ideally after two such plants the effort should switch to gas fired peaking plants. To continue this strategy into the next decade would require another 9,000 MWs or an additional committed coal of 680 million mts of coal. The national reserves are sufficient to support this demand. Natural gas would be used to fire peaking plants and only modest discoveries of gas would be needed to supply electricity for the next 20 years. This then is a completely different approach to the power sector combining the gas and coal in their most natural forms and providing the electricity at minimum cost. The conclusion from this brief discussion is obvious -- the coal sector must be developed as rapidly as possible and used to fuel the base load. For Bangladesh, that means approving the existing Phulbari project, encouraging Tata to take up open pit mine at Barapukuria, and starting immediately to develop coal fired power plants through IPPs. By starting at once the generating capacity of the power sector can just meet the needs of the economy at 7% growth. If Bangladesh fails to develop its coal resources promptly then there will not be enough electricity to support the economic growth except by importing coal. Importing coal is very wasteful. It also fails to provide the develop boost to the western regions of Bangladesh that exploiting the coal resources would achieve. The coal import strategy is then both not economic but it also condemns the western half of the country to continuing poverty with respect to the east.
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