Fossil Fuels and Carbon Capture  – Issue Summary

Technical

* Fossil fuels (oil, coal, natural gas and peat) provide stores of carbon/hydrocarbons produced by natural processes, but laid down over geological periods of time – and hence not renewable in anything other than the very long term. Estimates vary from source to source, but at projected rates of usage we probably have reserves of the order of 50 years of oil, 80 years of natural gas and 200 years of coal. This of course does not allow for major new sources (e.g. gas held in clathrate form in oceans) or highly advanced extractive techniques not yet developed (e.g. in situ coal gasification) – and hence could be regarded as a very conservative estimate.

* The geographical distribution of fossil fuels reserves varies considerably. Coal deposits are widespread, whereas those of oil and particularly natural gas are rather more limited (in the case of natural gas, the North Sea, the former Soviet Union, the Middle East and parts of North Africa hold the vast majority of reserves). The UK has been in the fortunate (and comparatively unique) position in the EU of being self sufficient in oil, gas and coal. This position is now being reversed as coalmines have closed, North Sea oil has peaked and as we become a net importer of natural gas via pipeline and ship import.

* The combustion of any fossil fuel releases carbon dioxide – in proportion to the carbon content of coal. Therefore coal produces twice as much carbon dioxide per unit of output as natural gas, with oil in the middle of that range. Emissions per unit of useful energy will depend on theoretical process efficiency (determined by the second law of thermodynamics). Current electricity generation from coal using Rankine cycle technology is around 38-40% efficient (close to the theoretical limit), whereas natural gas burnt in a Combined Cycle Gas Turbine could achieve conversion efficiencies of approaching 55%.

* Technical developments could increase the useful energy output from the use of fossil fuels. For example use of the waste heat from Rankine Cycle electricity generation (Combined Heat and Power) could raise the efficiency from 40% to high 80s (provided coal fired plant were built in city centres and a heat distribution network developed) – similarly for gas generation either centrally or in small ‘micro-generation’ units in the home. Improvements in material technology can also increase the efficiency (supercritical steam technology) yielding up to a 25% carbon dioxide emission reduction in coal fired Rankine cycle generation. More advanced combustion technologies (fluidised bed combustion or coal gasification and combustion of the gas in Combined Cycle) can also reduce emissions per unit output still further. There therefore is considerable scope for emission reducing if existing plant were replaced by new technology plant burning fossil fuels.

* The possibility exists to capture the carbon dioxide created during the combustion of fossil fuels using a range of physical or chemical processes. That captured carbon could then be disposed of in a variety of ways – piped to and stored in exhausted oil and gas wells (where arguably it will be held as was the original oil/gas reserve over geological periods of time) or disposed of to deep ocean where the pressure at depth would hold it in solid form. Disposal to depleted oil reserves (sometimes with extraction of further reserves of oil – Enhanced Oil Recovery) has been proven at small scale in the Norwegian North Sea (Sleipner and Barents) and in the US/Canada (Weyburn) and is in trial in the North Africa (Salah). This could represent a major opportunity for the UK in the light of the North Sea infrastructure and potentially extend the life of certain reserves.

* Carbon extraction technology also offers a route to the creation of hydrogen for use as a clean fuel. Such a demonstration project is proposed by BP using gas form the North Sea with power generation from hydrogen at Peterhead and carbon dioxide disposal to the Miller field. Such technology could also provide hydrogen for use as a road vehicle fuel. A similar project has just been announced by Shell for gas fired generation and methanol production at Tjeldbergodden in Mid Norway. Both are dependent on Government funding.

Economic

* The economics of coal, oil and gas are highly dependent on world markets and geopolitics. Coal is widespread and can be stored and hence its price is relatively stable over time. The price of oil tends to be set by demand pattern and so can be very volatile in times of shortage or even simply fears of shortage. Oil majors (and pure economists) argue that such decoupling from production cost produces price spikes which trigger new (and highly costly) exploration. Longer-term natural gas prices have been based on long-term contracts (gas has been seen as a by product of oil production) with short-term natural gas prices linked to oil and hence more volatile. With market liberalisation in the UK, run down in North Sea production and the coming to an end of long term contracts we have recently seen considerable and unaccustomed gas price volatility (this has been made more noticeable here as markets are more liberalised in UK than Europe).

* Fears now exist that with increasing demand for all fossil fuels (even coal prices have risen somewhat as China and India use more of their vast reserves internally and export less) price increase and volatility will be the norm. Others fear that perverse (or collusive) action by suppliers will lead to price spikes or shortages – this is particularly true of natural gas with Russia and a few key pipelines being projected to be critical to European supply by 2020. Some (the US) argue strongly for domestic energy self sufficiency (and in the US case are boosting investment in domestic coal mining and generation) whereas others (the EU) stress that trade is the binding force that creates mutual benefit and hence political stability.

* Capital costs for coal fired generation plant are higher than gas or oil, but the fuel cost is lower - and carbon emissions are twice as great. As gas and oil prices rise, existing coal-fired plant is used increasingly (driving up carbon dioxide emissions). Applying carbon dioxide costs (via carbon trading under the EU Emissions Trading Scheme) should redress this balance (and indeed drive the costs of coal – and eventually gas – towards the costs of nuclear and renewables. Similarly this mechanism should in time make it economic to close older coal fired plant and build gas, adopt higher technology coal fired plant and in due course to adopt carbon capture and storage technologies.

* UK Government place great confidence in ‘the market’ to deliver the correct generation mix and have thus far refused to intervene (albeit renewable energy and energy efficiency have specific support mechanisms as Government see failure to adopt these as evidence of market failure). The mix of coal, gas and use of Combined Heat and Power (either small or large scale) – and arguably nuclear - are therefore highly dependent on the view of the future adopted by generators and suppliers. The cost of carbon emissions (driven by the EU Emissions Trading Scheme) now has come on the scene – but the future targets and scope are uncertain beyond 2012. It is arguably therefore very difficult for an investor in new power plant with a payback period of up to twenty years and a lifetime of forty to make an informed decision – and as is always the case, investment risk means that a higher rate of return will be required.

* The development of new technologies – advanced coal combustion by gasification, carbon capture and storage etc. will require considerable ‘up front’ investment. Countries such as the US and Japan have and continue to be willing to channel large sums to industry and utilities for these purposes, whereas the UK have made only limited sums available (UK £20m for the Carbon Abatement Technology project as opposed to $2bn for the US FutureGen project to construct and demonstrate a zero carbon emission coal plant with production of hydrogen as a road transport fuel).

Ethical questions

* Fossil reserves (particularly coal) remain comparatively abundant; at least for the lifetime of the next generation of plant build. Would it be justified to continue to use these reserves, recognising they would not be available for future generations, so long as we use that opportunity to develop the next generation of carbon free and low resource use technologies – renewables or nuclear and energy efficiency?

* Should we seek to be self sufficient in providing our energy needs, or should we recognise that trade could build a more stable political framework, increase prosperity and well being in parts of the world with few other resources and so add to the broader aims of Sustainable Development?

* Carbon capture and storage offers the ability to use coal as a fuel for some considerable time to come – and could be a viable alternative to large-scale nuclear development (indeed the Royal Commission Report details just such a possibility). How comfortable would we feel about leaving carbon dioxide in stored form in exhausted oil and gas wells or in deep ocean? Are there parallels with nuclear waste (indeed the volume of nuclear waste and hence the task on keeping tabs on it would be much simpler) and should we reject leaving any waste for the future? …. Or could we regard carbon dioxide in an underground reservoir as similar to natural gas (a potent greenhouse gas too) or the naturally occurring pockets of carbon dioxide in the earth’s crust as a perfectly acceptable land use (take out the hydrocarbon, put back the carbon dioxide – it was there anyway).

* How comfortable are we that the market should be allowed to deliver the mix of fuel use and control the trajectory towards lower emissions generation? Market design and emissions trading are complex ways to so do – but have Government been very good at such central planning in the past? How confident could we be that Government would get it right?

* Countries such as US and Japan are using R&D spend as a way to develop skills and new technology for political ends in their energy infrastructure, but also to give their manufacturing industry a competitive advantage (indeed the US led ‘Kyoto alternative’ is based on such technology transfer).  However this will drive up the general burden of taxation and energy costs internally – given the risks involved in developing new technologies is this a justifiable approach? 

Church of Scotland, Church and Society Council - May 2006