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Along A Bumpy Road

Oilfield Technology,

The whole article can be found in the February issue of World Coal. Subscribers can login here to view the full issue.

Canadian coal resources contribute a robust portion to the country’s economy. According to Natural Resources Canada (NRC), a Government ministry, the country has 8.7 billion t of proven coal reserves, 6.6 billion t of which are recoverable. There are 24 active coal mines, most of which are located in western Canada. According to a recent PriceWaterhouseCooper report commissioned by the Coal Association of Canada (CAC), the industry contributes C$ 5.2 billion to Canada’s GDP, and over 42,000 people are directly and indirectly employed by the coal industry.

Further, the sector is growing at a healthy rate: over the last 10 years, capital investment rose by almost 20%/year, and revenues grew at an average rate of 15%/year during the same time frame. “Over the medium to longer term, the Canadian coal industry is very optimistic about its prospects, with strong forecasted demand for thermal and metallurgical coal in Asia one of the key reasons for its bullish outlook,” says Ann Marie Hann, president of the CAC.

But producers in Canada are not immune to the cyclical nature of the sector. “Canadian coal production for 2012 is slightly lower than the previous year,” says Hann. “The short-term challenge has been from the slowing of China’s growth in the last year. Producers seem now to be adopting a more cautious approach and placing more focus on expenditure control until markets and prices rebound once again.”

Although the short-term outlook is flat, the industry is investing several billion dollars in new projects in anticipation of longer-term export growth.

In anticipation of export expansion, the coal sector has been co-ordinating transportation infrastructure with various stake-holding partners, upgrading engines and tracks, removing bottlenecks and streamlining scheduling.

The three coal terminals on Canada’s western coast – Ridley Terminals in Prince Rupert, and Westshore and Neptune terminals near Vancouver – handle about 80% of Canada’s exports, and all are currently expanding. In all, west coast terminals expect to be handling around 70 million tpa by 2015. In anticipation of expanded production, mining companies are renegotiating their existing contracts.

Problems galore

Environmental challenges

In spite of the positive long-term outlook, the sector faces several major challenges. One of the most serious is climate change, and the association made between the greenhouse gases (GHGs) emitted by coal-fired utilities and global warming. Global emissions total around 28 billion tpa of CO2, of which the burning of coal for electricity production accounts for about 11 billion t, making it a prime target for reduction regulations.

After several years of consultation, the Canadian Government published coal-fired utilities regulations that will take effect starting 1 July 2015. The law requires new plants built after that date to be as clean as natural gas-fired generators, emitting no more than 420 t of CO2 per GWh of power produced. Existing coal facilities will have to meet the new performance standards when they reach end-of-life, at 50 years. The regulations are expected to reduce cumulative emissions from the sector by 214 million t over a 20 year period.

Although environmental critics find the new regulations too lenient on many of the oldest facilities, coal-fired power plants will begin to be affected by 2018. In order to keep operating, the plants will have to adopt GHG emissions reduction technologies. One of the most promising is carbon capture and storage (CCS). But CCS is expensive to build and operate: retrofitting a facility can easily exceed C$ 1 billion, and some estimates place operating costs at over C$ 100/t.

Rather than install costly technologies that are unproven at a commercial level, some jurisdictions and utilities are phasing coal-fired generation out. A decade ago, Ontario had 19 coal-fired plants with over 6000 MW of capacity. It has closed 10 of these plants since 2003, and most remaining plants are scheduled to be closed by 2015.1 Although the Canadian coal sector is not directly affected by the closures (most of Ontario’s thermal coal comes from the US), utilities in other jurisdictions are taking advantage of low gas prices to switch to combined cycle gas turbines (CCGTs). These gas-to-power (GTP) plants give utilities the flexibility to meet both baseload and peakload needs efficiently and cheaply:

Falling prices

Another challenge to the sector is the uncertainty over the price of coal. Recent fluctuations in Asian imports have set off investor warnings. Teck Resources’ Q3 2012 profits fell 78% in comparison to Q2 2012, primarily due to drops in coal prices.

Skills shortage

Labour shortages in the sector are also causing concern. “Companies do everything they can to source workers locally because they have a strong commitment to the local communities,” says Hann. “The reality is there is a shortage of skilled labour in the sector, and if Canadians cannot be found, then immigration has to be considered.”

Some good news

Government and industry are working together to find a solution to GHG emissions and several new, high-tech coal-fired plants are being built by Canadian utilities. Progress has been made in the permitting and approval of coal and other natural resource projects. “The federal Government enacted the Canadian Environmental Assessment Act 2012 to streamline environmental assessments and avoid duplication,” says Hann. “It also significantly reduces the number and types of project that require a full assessment. They have clearly articulated that it is being done for the sake of improving the process, and will not compromise environmental protection. There is also legislation under development to establish specific timelines for the process. The industry is very positive about this legislation.”

The Government of Alberta is also proceeding with similar legislation, and has tabled the Responsible Environmental Development Act that will consolidate former regulatory bodies and certain responsibilities of the Department of the Environment into a single regulator that will deal with upstream oil and gas, oilsands and coal. “It will reduce duplication, streamline the process and support and enhance competitiveness of the energy sector,” says Hann.

The CAC and Government are also working on ways of alleviating the skilled labour shortage. “There are a myriad of solutions as to how to meet that demand,” says Hann. “We need to work to bring in more women, more Aboriginals and more youth.”

While the sector can only wait to see how coal prices fluctuate in the short term, long-term prospects are much brighter as Asian countries use coal as a key energy source to help make their economies grow. China alone, which imports about 165 million tpa to meet its steel and electricity demands, is expected to need 300 million tpa by 2015.

“Over the medium to longer term, the Canadian coal industry is very optimistic about its prospects, with strong forecasted demand for thermal and metallurgical coal in Asia one of the key reasons for its bullish outlook,” says Hann.

Written by Gordon Cope.

The whole article can be found in the February issue of World Coal. Subscribers can login here to view the full issue.

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