UK coal and N. Sea

[Blue Peter]

On another forum,
someone stated that the UK is ignoring low cost fuels and its indigenous energy, and fleshed out that claim with this:

1. Coal. The price of coal has collapsed in the last 2 years or so, and it is by far the cheapest primary fuel for electricity at present. However, recent legislation puts strict quotas on industrial processes using coal for heat, such as power generation. At present, a plant can only be operated on coal for about 40% of the time, this figure will be gradually reduced to 0% by 2016. (This applies, even if a plant can operate on coal only - e.g. a coal fired power station - current such power stations must be idled 60% of the time, and must close permanently by 2016).

In addition, the price of carbon credits has also collapsed due to the recession in Europe and reduced industrial activity. The price of carbon emissions credits is supposed to be a free-floating market. However, UK govt policy is to put a "ratchet" mechanism in, so that once the price of carbon increases, it cannot decrease again. The difference between the "ratchet" price and the market price is taken as a tax. So, although carbon pricing on the market is at a record low, UK carbon taxes have essentially made energy sources like coal and heavy fuel oil, prohibitively expensive.

2. New policies are specifically designed to decrease investment in North Sea oil and gas reserves. This includes recent changes in tax law which increases corporation tax for oil/gas producers to 50%, and restricts allowable business expenses, so that corp tax is effectively paid on revenue, rather than profit. This has severely changed the economics of North Sea production and exploration, such that a number of companies have abandoned their plans to develop North Sea sites, as they cannot achieve an adequate sale price post-tax to make the venture viable.

Planning for renewable energy sources, such as wind, is still a major difficulty (especially on shore, which is the only economically viable way of building it - off shore, is simply too expensive in maintenance and construction).

There are other minor energy sources, such as nuclear. There are stockpiles of uranium held which would supply many years of power. In addition, there are about 200 tonnes of plutonium stored at sellafield. This is a safety and security hazard, but this plutonium alone could provide nearly 10% of the country's electricity for 20 years.

Anyone any thoughts? From the OFGEM/CIBSE speech, coal does seem to be the cheapest generation fuel at the moment (ignoring the uncosted externalities, of course). Anyone know why this is?

I don't know about N. Sea economics. It is in secular decline, so I don't suppose that it is that rosy a place to invest in and I don't suppose that the amounts left would justify lots of new infrastructure. Does the tax regime make such a big difference here?


Peter.

[adam2]

Coal is out of favour due to being carbon intensive, this tends to reduce the demand and therefore the price.
Much of our coal is imported, shipping costs have fallen a bit due to the economic situation reducing demand for shipping.

Oil production has probably peaked, this would tend to support prices despite declining economic activity. Oil prices have fallen, but not by much.

Coal production must eventually peak, but probably not yet, therefore the economic decline has reduced coal prices to a greater extent than oil prices.

Coal is carbon intensive fuel and should idealy be left in the ground
If some coal burning is unavoidable, then it would be better to burn it in a modern stove than in a power station which then powers electric heating.

[ziggy12345]

The tax regime for North Sea Oil makes all the difference. There are still ecconomic recoverable reserves under the north sea if the tax regime was anything like other favourable countries.

The whole lot should be nationalised

[Blue Peter]

The tax regime for North Sea Oil makes all the difference. There are still ecconomic recoverable reserves under the north sea if the tax regime was anything like other favourable countries.

The whole lot should be nationalised

What's the current Brent price? $110? Can they not make a profit at that price?


Peter.

[clv101]

The tax regime for North Sea Oil makes all the difference. There are still ecconomic recoverable reserves under the north sea if the tax regime was anything like other favourable countries.

The whole lot should be nationalised

What's the current Brent price? $110? Can they not make a profit at that price?


Peter.

The majority of that goes straight back to the Treasury. Then there's all the normal taxes... surprisingly little is left at the end. It's why it doesn't make that much difference that the North Sea is operated by private companies and the Gulf is operated by national oil companies.

[Blue Peter]

The majority of that goes straight back to the Treasury. Then there's all the normal taxes... surprisingly little is left at the end. It's why it doesn't make that much difference that the North Sea is operated by private companies and the Gulf is operated by national oil companies.

So, are the taxes so great, that they are materially affecting N. Sea development?


Peter.

[UndercoverElephant]

Coal is carbon intensive fuel and should idealy be left in the ground

I believe that humans will, eventually, recover and burn every deposit of fossil fuel that it is worth them recovering. Nothing will be left in the ground, not even very poor quality lignite. Humans will only stop burning fossil fuels when those that remain are sufficiently difficult to get hold of that it has ceased to be worth the effort required to so. This will happen because of a combination of:

decreasing quality of remaining deposits
increasing recovery costs
declining demand due to other sorts of collapse (e.g. serious climate change)

What I cannot imagine happening is for cold human beings in places like Russia and North America leaving burnable, recoverable coal in the ground. This would only happen in a "Star Trek future" where technology has solved all our problems.

[emordnilap]

I believe that humans will, eventually, recover and burn every deposit of fossil fuel that it is worth them recovering. Nothing will be left in the ground, not even very poor quality lignite.

Yup; I've said this on several occasions. Nothing barring an outright extinction can stop it.

[Tarrel]

What I cannot imagine happening is for cold human beings in places like Russia and North America leaving burnable, recoverable coal in the ground

An interesting thought-experiment; if you found yourself marooned in such a climate for the winter, in a cabin on the edge of the tree-line, with enough frozen seal-meat to keep you going for a few months, and someone had thoughtfully left a tonne of coal in there, would you burn it? (Assume wood is available, but in limited supply, and would require expenditure of large numbers of calories to fell and process it.)

[adam2]

I believe that humans will, eventually, recover and burn every deposit of fossil fuel that it is worth them recovering. Nothing will be left in the ground, not even very poor quality lignite.

Yup; I've said this on several occasions. Nothing barring an outright extinction can stop it.

Agree entirely, all technicly and economicly recoverable FF will be extracted and used.
And remember that rising prices and technical improvements will render many presently unviable rescources worth extracting.

Efforts at conservation and use of renewables may slightly slow the rate of FF consumption but ultimatly it will all be burnt.

[UndercoverElephant]

What I cannot imagine happening is for cold human beings in places like Russia and North America leaving burnable, recoverable coal in the ground

An interesting thought-experiment; if you found yourself marooned in such a climate for the winter, in a cabin on the edge of the tree-line, with enough frozen seal-meat to keep you going for a few months, and someone had thoughtfully left a tonne of coal in there, would you burn it? (Assume wood is available, but in limited supply, and would require expenditure of large numbers of calories to fell and process it.)

Of course I would, but I'm not sure what is interesting about the thought experiment.

[biffvernon]

Agree entirely, all technicly and economicly recoverable FF will be extracted and used.

Hmmm....even ignoring for a moment all consideration of factoring in the costs of externalities like environmental damage, there is no economic case for burning fossil fuel if gathering energy from sunshine is cheaper. We're not going to dig coal if it's cheaper to generate electricity from renewables. Current trajectories make this look real.

[UndercoverElephant]

And remember that rising prices and technical improvements will render many presently unviable rescources worth extracting.

Sadly, this is likely to include resources currently buried under the main antarctic ice sheet. Resources we can't even know about at this point, because the ground above them is itself sitting under a couple of kilometres of ice.

[emordnilap]

Agree entirely, all technicly and economicly recoverable FF will be extracted and used.

Hmmm....even ignoring for a moment all consideration of factoring in the costs of externalities like environmental damage, there is no economic case for burning fossil fuel if gathering energy from sunshine is cheaper. We're not going to dig coal if it's cheaper to generate electricity from renewables. Current trajectories make this look real.

Electricity, possibly, but even then the increasing cost of infrastructure (which uses fossil fuel) may well diminish relative advantages. True, we might manage to build solar powered factories for turning out solar generation equipment. We'll see.

Because electricity is not always appropriate, all fossil fuels will be extracted.

[biffvernon]

Electricity can be used for pretty much everything - coal is much more awkward.