Why the Gulf Is Switching to Coal

OIL PRICE SIDE-EFFECT

By Wolfgang Reuter
Der Spiegel
02-Jul-2008

The Persian Gulf may be sitting atop massive oil reserves. But with prices for crude skyrocketing, it makes more sense to sell it than to burn it. Instead, the Gulf is turning to coal for its energy needs -- to the detriment of the climate.

A coal-fired plant belonging to Evonik Steag in Turkey. The company is currently
expanding in the Gulf.

For Alfred Tacke, CEO of the Essen energy giant Evonik Steag, it's the yellowish-brown pall below that tells him the plane he's on is approaching the Persian Gulf. Beneath the haze, he knows, is Kuwait, which has five large-scale gas- and oil-fired power plants in operation. The power they generate provide around-the-clock electricity for Kuwait's gigantic seawater desalination plants and the country's enormous air-conditioning needs.

"Here, you only need to stick your finger in the sand and you're likely to strike oil or gas," says Tacke, whose energy group ranks fifth among Germany's electricity producers. But Tacke has his own ideas about how to make money in the region. And they center on a different kind of black gold: coal-fired power plants. "We're currently in the process of discussing the conditions for projects of this kind," he says.

As odd as the idea may seem, coal power in the gulf is just one more outcome of skyrocketing oil prices. In a world with dramatically disparate ideas on how or even whether to address the risks of global warming, demand for coal plants across the globe is growing rapidly to the detriment of efforts to increase the production of renewable energies such as solar, hydro and wind.

Nowhere is that demand more paradoxical than in the oil-rich Middle East. At the end of April, for example, the state-owned Oman Oil Company signed a memorandum of understanding with two Korean companies on the construction and operation of several coal-fired power plants. Dubai, for its part, is initially planning to build at least four large facilities with a cumulative output of 4,000 megawatts. Abu Dhabi also wants to get into the act. Even Egypt is thinking of constructing its first coal-fired plant on the shores of the Red Sea.

Two-Hundred More Years of Coal

Other regions in the world are fuelling the trend as well. Oil-rich Russia is planning the construction of more than thirty new coal-fired power plants by 2011. In China a new facility is connected to the grid about once every 10 days. Greenpeace estimates that around five thousand coal-fired power plants will be in operation worldwide by 2030.

The economics behind the coal fad are clear. To produce a megawatt hour of electricity using Australian coal, it costs just €11. Using natural gas, on the other hand, ups that price to €26 while oil-fired power plants swallow up €50.50 per megawatt hour of electricity.
Plus, coal is likely to be available for quite some time to come. Global coal reserves will last an estimated 100 more years and possibly even twice that long. As a result, coal is relatively cheap and in some cases can even be gleaned from open pit mines as in Australia, but also in the US, South Africa, China and Russia. The difference between the prices of natural gas and oil on the one hand, and coal on the other is growing increasingly large.

For the Gulf, the development is turning into a highly lucrative business model. They are currently able to sell their oil at record prices on the global market (currently over $140 a barrel). At the same time, they are able to satisfy their own energy needs at a much lower cost with coal shipped in from overseas.

From an environmental standpoint, of course, this trend is devastating. The Gulf states, first and foremost the United Arab Emirates, are among the world's boom regions. It is predicted that by 2015 the population of Dubai will double to a total of 2.6 million. Per capita energy consumption in the Emirates is six times higher than the global average and a third more than even the US average.

Deserts Devoid of Solar Power

Should coal play a major role in satisfying such a growing energy demand in Dubai and elsewhere, prospects for the global climate are dim. Even a modern anthracite-fired power plant emits 750 grams of CO2 per kilowatt hour of electricity produced, twice as much as a gas-fired power plant and around 50 percent more than an oil-fired power plant. The amount of CO2 emitted by lignite-fired power plants is much greater, further aggravating the greenhouse effect.

The situation is one which shows the limitation of climate protection policies developed and implemented on the national rather than the international level. Germany has committed to reduce its CO2 emissions by 20 percent by 2020 relative to 1990 levels and is striving to achieve double that reduction figure. Many Gulf States, on the other hand, including the United Arab Emirates, are classified as developing countries -- meaning that even though they've ratified the Kyoto Protocol, they have no obligation to reduce their CO2 emissions.

A quick look at the potential of solar power in the region shows the absurdity of this situation. In the sun-baked Gulf, one square meter of solar cells produces at least 2,200 kilowatt hours of electricity per year. In Germany annual output for a square meter is less than half that amount. In the Gulf States, though, solar energy is much too expensive when compared with coal. In contrast to Germany, there are no subsidies for those who invest in solar collectors.

In Germany last year, solar power facilities with an output of 1,300 megawatts were installed. In Saudi Arabia the other Gulf States, it was just 36 megawatts. Even if only a fraction of the solar electricity subsidies available in Germany were available in the Gulf, the positive effect for the global climate would be many times greater.

For the moment, though, there is currently not enough political support for solutions of this kind, neither in the oil-producing countries nor in the industrialized nations. Which means that Alfred Tacke of Evonik Steag is hoping for tidy profits in the future. "The Gulf," he says hopefully, "is a growth region for us."

Translated from the German by Larry Fischer

http://www.spiegel.de/international/business/0,1518,563502,00.html

Skyward oil stokes a coal-fired future

Der Spiegel, the German newsmagazine, explained earlier this month why the Persian Gulf states are switching to coal. “[They] may be sitting atop massive oil reserves,” the magazine said. “But with prices for crude skyrocketing, it makes more sense to sell it than to use it. Instead, the Gulf states are turning to coal for their own energy needs – to the detriment of the climate.” And these states are not alone. “Demand for coal plants,” the magazine says, “is growing rapidly across the globe.”

Abu Dhabi (largest of the seven UAE emirates) has announced that it will switch to coal-fired power plants. Dubai (the second largest) is already building four of them – with a combined output of 4,000 megawatts – as a first-phase investment in coal. Apart from the United Arab Emirates, Oman (widely regarded as “the next Dubai”) has signed a contract with South Korea for the construction of several coal-fired plants. Beyond the Gulf, Egypt proposes to build its first coal-fired plant on the shores of the Red Sea. Russia has announced plans to build more than 30 coal-fired plants by 2011.

As almost everyone now knows, China connects a new coal-fired plant to its electrical grid every 10 days – and intends to keep doing so for several years. Less known is China's decision to construct a massive coal-fired plant in Inner Mongolia that will convert the region's vast coal reserves into oil. With 10,000 people now engaged in the construction, the plant will be completed by the end of the year. The coal-to-liquid process used by this plant will consume twice as much coal and produce twice the CO{-2} emissions as the simple burning of coal in a conventional power plant.

The Kyoto Protocol, incidentally, classifies the Gulf states as developing countries – meaning that they are under no obligation, oil revenues notwithstanding, to reduce CO{-2} emissions. They have opted for coal for a single compelling reason: cost. They can produce a megawatt-hour of electricity using Australian coal, Der Spiegel calculates, for $17.49 (U.S.). Using natural gas, the cost rises to $41.34. Using oil, the cost rises further to $79.50. At the same time, they can sell their oil on the global market for something approaching (or occasionally exceeding) $140 a barrel.

One of the ironic differences between Germany and the Gulf states, Der Spiegel observes, is the absence of solar energy investment “in the sun-baked Gulf states.” Germany produced 1,300 megawatts from solar installations in 2007; the Gulf states combined produced 36 megawatts. As impressive as its commitment to solar power appears, though, Germany has its work cut out. It has promised to generate most of its electricity by renewable energies (largely wind and solar) by 2020 – when it will phase out its nuclear power. Germany has thus opted for the world's most expensive electrical power even as other countries simultaneously opt for the cheapest.

For an assessment of Germany's chances, check out CanadianEnergyIssues.com, the website of Steve Aplin, the perceptive Ottawa-based energy and environment consultant. “Germany must bring at least 12,000 megawatts of base-load electricity into service by 2020, the year in which the nuclear phase-out will begin,” Mr. Aplin writes. “German politicians are beginning to realize the difficulty, if not the impossibility, of plugging the gap left by the departure of nuclear.”

It appears that German environmentalists are making it harder for the country to reach its aggressive objective – and are driving up the country's CO{-2} emissions, too. Some German Greens are blocking construction of power lines needed to connect wind power to the grid in a bid to prevent despoiling of the countryside. Mr. Aplin notes that emissions from German power generation rose by 12 million tonnes between 2005 and 2007. “In their zeal to admonish the rest of the world,” he says, “German Greens are making sure that their own emissions will continue to rise.”

Other German Greens are championing – you are ready for this, right? – coal. “The more strident of the anti-nuclear politicians in Germany are now advocating new coal and gas plants to ward off a certain electricity supply crisis,” Mr. Aplin says. “Why is coal in this mix? It is cheap and domestically available.”

Cheap, reliable power apparently still has its practical uses – and its political appeal. The Germans are now operating a showcase 40-megawatt solar power plant near Leipzig (which, in its experimental startup phase, will operate as a 24-megawatt plant). But 40 megawatts are a long way from 12,000 megawatts. “Hence,” Mr. Aplin says, “the new enthusiasm [in Germany] for coal and gas.”

The bizarre debate still rages on here and there in the developed countries. What limits on carbon emissions must be imposed? What taxes levied? Two days ago, though, Germany's Finance Ministry issued a remarkably candid public statement. It conceded that Europe's proposals for reductions in greenhouse gases – without the participation of all major contributors worldwide – will be pointless.

Precisely.

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