. consumer vegetable fat and oilconsumption.8 Soybean oil comes from processing (“crushing”) soybeans,a process that produces both soybean oil and soybean meal. About 19 percent of a soybean’s weight is typically extracted as crude soybean oil.9Futures on soybean oil trade at the Chicago Board of Trade (symbolcode: BO). Figure 15.5 shows a price history chart for the CBOT soybeanoil futures contract. The futures contract is quoted in terms of cents perpound of soybean oil. The chart shows that soybean oil at the end of June2007 was trading near a record high. The sharp rally in soybean oil prices in2006 and 2007 was due in large part to the sharp rally in underlying soybeanprices, which rose because of the much smaller soybean crop planted during spring 2007. The sharp rally in corn prices caused farmers to plant moreland with corn and less land with soybeans, thus cutting the size of thesoybean crop. Soybean oil also rallied in 2006 and 2007 because of strongbiodiesel demand.
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PALM OILPalm oil is becoming a more popular feedstock for biodiesel productionin Asia. About 20 percent of palm oil production currently goes towardbiodiesel production. The Malaysian and Indonesian governments in August 2006 announced their intention to promote increased production ofpalm oil and devote 40 percent of supply to biodiesel production.10 Thisbook’s companion Web site at www.ProfitingFromCleanEnergy.com haslinks to videos discussing palm oil plantations in east Asia.Palm oil comes from the fruit of the oil palm tree, which is a differenttype of palm tree from the more familiar tropical coconut palm. Palm oil isused for cooking oil and margarine and also has industrial uses. Malaysiaand Indonesia are the world’s largest producers and exporters of palmoil. Over the past three decades, the production of palm oil has grown byroughly 17 times from the 1970 production level.11 Palm oil futures trade atthe Malaysian Derivatives Exchange (MDEX), which is a subsidiary of theBursa Malaysia stock exchange (www.klse.com.my).12Figure 15.6 shows a price history chart for palm oil futures. Thefutures contract is quoted in terms of Malaysian ringgit per metric ton. Thecrude palm oil contract closed June 2007 at 2513 Malaysian ringgit, whichis equivalent to about $718 per metric ton at the exchange rate on that dayof about 3.5 ringgit per U.S. dollar. The chart illustrates that crude palm oilin the latter half of 2006 and the first half of 2007 nearly doubled in priceto post record highs, mainly because of strong demand from biodieselproducers.
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Big Coal—MeetYour NewPartnersCleaner Coal Technologyand Carbon Capture
oal is an inexpensive and abundant source of fuel for power generation that will be with us for some decades to come. Solar and windpower cannot grow fast enough to completely replace coal. Moreover, solar and wind power are intermittent sources of power that onlywork during the day or when the wind blows. Power utilities need a powergeneration source that provides a stable base load 24 hours a day and solar and wind power do not fit that bill. For base load power, utilities willbe forced to rely on some mix of coal, natural gas, biomass, and nuclearpower, with increasing help in the future from geothermal and wave/tidepower.Coal-fired power plants have the advantage of being inexpensive andhelping to provide energy security if the coal comes from within the country’s borders. The disadvantages of coal are substantial, however, andinclude environmental damage from coal mining, injuries and deaths ofcoal miners, and greenhouse gas emissions and pollution when the coal isburned. Coal accounts for 40 percent of the world’s CO2 emissions, whichis the same as petroleum at 40 percent, and twice as much as natural gas at20 percent.1Despite coal’s serious disadvantages, there is no practical way to eliminate coal as a significant source of electricity generation for at least thenext few decades. Ontario’s Liberal government has been trying to go coldturkey and shut down all of the province’s coal-fired plants, which provideabout 25 percent of the province’s electricity. The Liberal government originally promised to close the province’s coal-fired plants by 2007, but wasforced to delay the shutdown date until 2014.2 While Ontario’s government
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is making a valiant effort to close coal-fired power plants and reduce emissions, they are running up against the practical barrier of trying to quicklysubstitute new sources of power generation.Regulators around the globe are slowly turning up the pressure on utilities to reduce their dependence on coal-fired power plants. Public pressure against building new coal-fired power plants is also growing. Thelarge power utility in Texas, TXU, for example, planned to build elevennew coal-fired power plants. However, there was a public outcry againstthe coal-fired plants. In response, the two equity firms that are in theprocess of buying TXU, Kohlberg Kravis Roberts and the Texas PacificGroup, scrapped the plans to build eight of the coal-fired power plantsin order to smooth the way for the acquisition.3 In addition, the privateequity buyers announced that two of the coal-fired power plants that remain on the drawing board would be new-style coal-fired plants that burnmore cleanly through gasification (i.e., integrated gasification combinedcycle).4As a means to plug the gap caused by the eight scrapped coal-firedplants, TXU is looking to natural-gas-fired plants, nuclear power, and renewable energy. Texas already generates 2.8 gigawatts of wind power,which is nearly 5 percent of the state’s total capacity. Texas land commissioner, Jerry Paterson told the New York Times, “Wind has the potential tohelp fill the shortfall. Every day that passes, renewables make more economic sense.”5
GLOBAL COAL USAGEThe United States and many other countries in the world are huge consumers of coal. The United States has been called the “Saudi Arabia of coal”because it has the world’s largest coal reserves, as seen in Figure 16.1. Asmentioned in Chapter 4, coal in the United States accounts for 23 percentof overall U.S. energy usage and 52 percent of electric power generation.6Worldwide, coal accounts for 26 percent of total world energy productionand 40 percent of world electricity generation.7 World coal consumptionrose by +4.5 percent in 2006, making it the world’s fastest growing fossilfuel, according to the BP Statistical Review.8The United States is not the world’s only big player in coal.Russia, China and India are ranked as the world’s second, third and fourthlargest holders of coal reserves, respectively. This explains why it is extremely tempting for them to build coal-fired power plants to meet sharplyincreased domestic power demand in their countries, since coal is nearbyand inexpensive.
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FIGURE 16.1 Top 5 Coal Reserve Countries (2002)Source: U.S. Department of Energy, Energy Information Administration, AnnualEnergy Review 2006, June 2007, Table 11.13, http://www.eia.doe.gov/emeu/aer/txt/stb1113.xls.
China relies on coal for 90 percent of its electric power generation.Chinese coal consumption accounted for 39 percent of world coal consumption in 2006.9 Coal consumption in China in 2006 was up by a dramatictotal of 79 percent since 2000 and rose +8.7 percent in 2006, as seen in Figure 16.2. A key element of the world’s energy problem involves China’spell-mell use of coal to meet its rapidly expanding electricity demand.India has also ramped up its use of coal to generate electricity, as seenin Figure 16.3. Coal consumption in India rose +7.1 percent in 2006 and isup by a total of 41 percent from 2000.10It is worth noting that current coal-fired power plants have a top-endefficiency of only about 33 percent to 35 percent.11 The remainder of theenergy content contained in the coal (65 percent to 67 percent) is wastedwith the release of heat into the atmosphere. Coal is widely touted as acheap source of fuel, but its efficiency is not particularly impressive. Topend solar photovoltaic power efficiencies of 22 percent do not look so lowwhen compared with coal efficiency of only 35 percent.
U.S. COAL COMPANIES“Big Coal” is an accurate description of the U.S. coal industry, referring not only to the coal companies but also to their associated political
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FIGURE 16.2 China Coal ConsumptionSource: BP Global, “Global coal consumption increased by 4.5% in 2006,” Statistical Review of World Energy 2007: Coal consumption, http://www.bp.com/sectiongenericarticle.do?categoryId=9017919&contentId=7033429.
lobbying and public relations firms. U.S. coal companies are particularly adept at operating below the radar and avoiding the harsh public criticism that is often directed at the world’s big petroleum companies. Big Coal is able to keep out of the public eye even though coalproduces more environmental extraction damage and just as much CO2emission as the petroleum industry. The largest publicly traded coal companies in America include Peabody Energy Corp (NYSE: BTU), Consol Energy (NYSE: CNX), Arch Coal (NYSE: ACI), and Massey Energy(NYSE: MEE).Peabody Energy is by far the largest American coal company with $5.3billion in revenues and $601 million in net income in 2006. Peabody isvery active in Washington, D.C. by lobbying and providing contributions topoliticians. According to Jeff Goodell in his book, Big Coal: The Dirty Secret Behind America’s Energy Future, Peabody Energy during 2000–2004was the single largest corporate contributor to the Republican Party interms of percentage of company revenues.12 The reality is that Big Coalhas a lot of political clout and will therefore have an impact on the futuredirection of energy policy in the United States. The coal industry is likelyto survive in some modified form in the future, but only with help fromcleaner coal technologies.
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FIGURE 16.3 India Coal ConsumptionSource: BP Global, “Global coal consumption increased by 4.5% in 2006,” Statistical Review of World Energy 2007: Coal consumption, http://www.bp.com/sectiongenericarticle.do?categoryId=9017919&contentId=7033429.
CLEANER COAL TECHNOLOGIESAs mentioned earlier, the United States and the world are so dependenton coal-fired power plants that there is no way to quickly phase out coalas a source of fuel. In spite of that, there is strong pressure to reduce thepollution and greenhouse gas emissions from coal-fired power plants. Thissqueeze produces a big opportunity for companies that offer solutions formaking coal a more environmentally friendly source of power.These solutions fall into several categories: (1) upgrading the quality ofcoal so that it burns more cleanly; (2) retrofitting existing coal-fired plantswith scrubbers to reduce pollution; (3) coal gasification, which removesmany impurities prior to burning; (4) technologies to capture and bury orconvert CO2 gas from the plants; and (5) liquefying coal to be used as motorfuel. These technologies will now be discussed in greater detail.
CLEANER BURNING COALCoal comes in many different grades. High-grade coal is a hard coal thathas low ballast, meaning it has low ash and water content. It burns hotter
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and with relatively low emissions and is more expensive. Low-grade coal isless expensive but it has limited uses because of its high ash and moisturecontent. This soft coal burns less effectively at lower temperatures andwith greater harmful emissions.Technology is now available to improve the quality of low-grade coalto make it burn hotter and emit fewer pollutants. Evergreen Energy (NYSE:EEE), formerly KFx, Inc., has a technology that heats low-grade coal whileunder pressure and turns it into coal that burns more efficiently. ThisK-Fuel process removes about 80 percent of the water as well as muchof the mercury, sulfur dioxide and nitrogen oxides.13 Another company,Headwaters (NYSE: HW), has several product lines, including construction materials, but one of its divisions provides solutions for convertingcoal and heavy oil into higher-value and cleaner products.
COAL-FIRED POWER PLANT POLLUTIONCONTROLSThere are many coal-fired power plants in the United States, and particularly overseas, that could be retrofitted with scrubbers so that they emitfewer pollutants. Currently, there are approximately 540 coal plants in theUnited States and of those only 140 have scrubbers that cleanse coal emissions of harmful pollutants.14In the most common type of coal plant, pulverized coal is blown intoa furnace where it burns while it is airborne. The heat converts water thatis flowing in pipes through the furnace into steam, which is in turn feedinto a turbine that turns an electric generator and produces electricity. Asthe coal burns, it releases sulfur dioxide, nitrogen oxides, and carbon dioxide, among other gases. The sulfur is partially removed by scrubbers. Ascrubber uses a limestone slurry to absorb the sulfur as it passes through.Scrubbers can remove about 90 percent of the sulfur emissions but the restof the smaller particles go up the smoke stack into the atmosphere. However, the scrubbers do not remove carbon dioxide from the plant’s exhaustand it all goes out the smoke stack into the atmosphere.15 There are twomain U.S.-based companies that manufacture and install pollution controlequipment:
r Fuel Tech Inc (Nasdaq: FTEK). Fuel Tech specializes in pollutioncontrol equipment for power-generation facilities. Fuel Tech notesthe size of the pollution-control opportunity, quoting Industrial Information Resources as saying that the 87 environmental-complianceprojects that began in 2006 were worth about $8 billion. Fuel-Tech is
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a small company that will only be able to capture a small portion ofthe target market. However, Fuel-Tech is growing quickly with sales of$75 million in 2006 (+25 percent year-on-year) and a large backlog oforders.r Babcock & Wilcox. Babcock & Wilcox, a unit of McDermott International (NYSE: MDR), is a key player in constructing and retrofittingpower plants. Babcock & Wilcox is also the biggest player in cleaning up power plants to meet environmental regulations. Babcock &Wilcox also happens to be a major player in the construction and maintenance of biomass power plants. As a large conglomerate, the parent of Babcock & Wilcox, McDermott International, cannot be considered a pure play in clean energy but the company will neverthelesssee significant benefits from effort to clean up U.S. and global coalplants.
COAL GASIFICATION AND CO2SEQUESTRATIONA better method of dealing with the pollution problems associated withcoal is to use coal gasification technology. Rather than burning coal directly, a gasification process first breaks the coal down into its main chemical constituents of carbon monoxide (CO) and hydrogen (H2 ), plus othergases. This gas mixture is called synthesis gas or syngas for short. Thesyngas is then fed into a furnace where it is burned to create steam forthe turbines. Coal gasification can remove as much as 97 percent of thesulfur and 82 percent of the nitrogen oxides from the emissions. In addition the plant emits 50 percent less mercury and 20 percent less carbondioxide.16An improvement on simple coal gasification is the use of oxygen inthe gasification process rather than just air. This makes the CO2 easerto extract from the unit before burning the syngas. The syngas, whichthen has a high concentration of hydrogen and virtually no nitrogen,burns cleaner. In a further boost to efficiency, the exhaust from the hotgas turbine goes into a steam generator to create steam for a steamturbine-generator to generate more electricity. This book’s companionWeb site at www.ProfitingFromCleanEnergy.com has a link to a video explaining the new coal gasification plant that will be built at Taylorville,Illinois.An optional addition to the coal gasification process is that the extracted CO2 from the plant can be pumped into underground cavernsor depleted oil wells, or otherwise captured or converted.17 The process
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of capturing and containing CO2 is called CO2 sequestration or carboncapture.CO2 sequestration is already being used successfully at the DakotaGasification Company’s Great Plains Synfuels Plant in North Dakota. Thecoal gasification plant, which extracts a form of natural gas from coal,sends its waste CO2 through a 205-mile-long pipeline northward to Canada.The CO2 is then injected into a 70 square-mile underground oil field nearWeyburn, Saskatchewan, owned by EnCana (Toronto: ECA CN).The stored CO2 increases the pressure in the nearly depleted 50-yearold underground oil field and enhances the recovery of the remainingoil. When the oil field is fully depleted, the underground oil field willbe capped off, ensuring that the 20 million tons of CO2 remains underground permanently instead of being released into the atmosphere. Scientific studies have shown that there has been no CO2 leakage so farfrom the underground oil field. The success of this project has raised thepossibility of developing more CO2 pipeline projects, which could offernew business opportunities to pipeline operators and pipeline constructioncompanies.The technology for building power plants that first gasify coal andthen burn the gas is called integrated gasification combined cycle (IGCC).There are two IGCC plants currently operating in the United States, oneplant at Wabash River in Indiana and another plant run by Tampa Electric,which is a subsidiary of TECO Energy (NYSE: TE). Neither plant is currently capturing and sequestering CO2 but that technology could be addedlater. Both Duke Energy Corp (NYSE: DUK) and American Electric Power(NYSE: AEP) have announced plans to build IGCC power plants, thus lending further credibility to the technology and economics of coal-gasificationpower plants.The U.S. Department of Energy is providing funding for clean coalprojects through its Clean Coal Power Initiative.18 The biggest project onthe docket is the $1 billion FutureGen industry consortium that will combine IGCC clean coal gasification technology with the underground sequestration of CO2 emissions. The FutureGen power plant will have 60 percent efficiency (versus the typical pulverized coal-fired plant efficiency of35 percent) and extremely low emissions. However, the project is movingslowly and is not due to be completed until 2012, meaning that other companies may beat FutureGen to the goal of producing the world’s first IGCCplant combined with CO2 sequestration.There are other large-cap companies that will see benefits from cleancoal as well. For example, General Electric (NYSE: GE) and Bechtel (privately held) have teamed up to offer turnkey coal gasification power plantsto power utilities. GE is developing technologies for CO2 capture andsequestration, looking ahead to the likelihood of eventual CO2 emission
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regulation. Shell and ConocoPhillips also offer coal gasification technologies.Gasification can also be used to separate hydrogen gas from other feedstocks such as petroleum coke (which is a low grade byproduct of oilrefining), biomass materials, and municipal waste. Regarding gasificationof petroleum coke, a project is currently underway to build a hydrogenpowered electricity generating plant using petroleum coke near BP’s Carson, California petroleum refinery. This is a joint venture between BP(NYSE: BP) and Edison International (NYSE: EIX). For fuel, the plant willuse the petroleum-coke residue left over from the BP refinery after all theuseful products have been removed. The petroleum coke will be heated toconvert it into hydrogen and carbon dioxide. The hydrogen will then beburned in a specially modified gas turbine to make electricity. The mainbyproduct of this process is water. The CO2 will be transported by pipelineand pumped thousands of feet down into depleted oil and gas fields forstorage and to help flush out gas and oil that would otherwise be leftbehind. The project was announced in February 2006 and the project isplanned for completion by 2011.19 The same gasification technology thatproduces hydrogen for the plant could also be used to produce hydrogenfor fuel cells.
ALGAE-BASED CO2 ABSORPTIONTechnology to convert CO2 into oxygen would obviously be a much better solution to stopping global CO2 emissions than just pumping the CO2into the ground and hoping it stays there. In fact, there is photo-bioreactortechnology that uses algae to convert CO2 into oxygen. After the algae havedone their job, their mass can be dried and turned into fuel or animal feed.This solution to reducing greenhouse gases is already in the testing stage ata large coal-fired power plant in New Roads, Louisiana.20 The system wasdesigned and built by Greenfuel Technologies Corp (see below).Algae are microscopic plants that are familiar to us as pond scum.Since they are plants, they use CO2 as fuel and use sunlight to convert itto oxygen (photosynthesis). The CO2 for the conversion process can comestraight from the waste gas from a coal-fired power plant. The gaseousemission from the smoke stack is fed directly into a large container filledwith algae. The microscopic-sized algae are suspended in water and whenexposed to sunlight they multiply and grow rapidly using the CO2 as food.An algae mass can double in size in less than a day, making algae one of thefastest growing plants on earth. In the growth process, they give off harmless oxygen and nitrogen that is let out into the atmosphere. The process
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periodically filters out some of the algae, which is then dried into granules.These granules can be used directly as fuel for the electricity generatingplant or processed into ethanol fuel, biodiesel fuel, animal food, or manyother useful products.21There are many different types of algae that can be used and the strainchosen for a particular system depends in part on the desired end product. Some algae strains have more oil, so their residue is more suited tomaking bio-diesel fuel. Other algae strains have more sugar content, sotheir residue is more suited to making ethanol. Still other algae strainshave greater protein content so their residue is more suited to makinganimal feed.The output from the algae conversion process is remarkable and canprovide a much more efficient source of feedstock for biodiesel production than crops such as soybeans. According to the U.S. National Renewable Energy Laboratory, “microalgae are capable of producing 30 timesthe amount of oil per unit area of land, compared with terrestrial oilseedcrops.22Two privately held companies that are involved in algae CO2 conversion are GreenFuel Technologies Corporation (www.greenfuelonline.com)and Solix Biofuels (www.solixbiofuels.com). GreenFuel Technologies wasformed in 1994 and works closely with the Massachusetts Institute of Technology where it built the first field photo-bioreactor system.23 The companyis now in the process of building a test facility for NRG Energy’s powerplant in Louisiana. Solix Biofuels was started in April 2006 and completedits first generation prototype in August 2006. Since then the company hasstarted work on its second-generation prototype.Since sunlight is critical to the process, researchers are working ona way to create even larger photo-bioreactor systems using concentratedsunlight brought into the bioreactor with hybrid solar lighting.24 A hybridsolar light system, using optical cables, can deliver the visible sunlight thatis needed inside the photo-bioreactor.Research on algae-based CO2 conversion is still in the early stages.However, a breakthrough on creating a large-scale algae-based CO2 conversion system that is economically attractive would have immense importance to the goal of curbing greenhouse gas emissions.
COAL-TO-LIQUID TRANSPORTATION FUELThe technology for converting coal into liquid fuels has been around since1925. The basic technology, the Fischer-Tropsch process, which uses heatand steam to convert coal to a synthetic gas, is still the technology used
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today. The synthetic gas is then cleaned by removing the sulfur and CO2.The synthetic gas then reacts with a catalyst to form synthetic petroleum,which is refined to make diesel fuel. Companies that use this technologyinclude:
r Sasol Ltd (Johannesburg: SOL SJ). Sasol is the world’s largest producer of coal-based liquid fuel. Sasol, which is based in South Africa,was founded in the 1950s because South Africa’s leaders were worried that the country might eventually be subject to a petroleumblockade because of apartheid. The country therefore encouraged thedevelopment of synthetic petroleum manufactured from coal. Sasol iscurrently producing about 150,000 barrels a day of coal-based liquidfuel. Sasol improved the Fisher-Tropsch process in the 1980s by developing a low-temperature slurry phase reactor which uses iron or cobaltbased catalysts. This technology allows for the creation of liquid fuelsand other chemicals from either coal or natural gas.25r Rentech Inc (Amex: RTK). Rentech is a U.S.-based company that hasa flexible process (coal-to-liquids or gas-to-liquids) that converts underutilized hydrocarbon resources such as coal, petroleum coke, andremote or stranded natural gas into synthesis gas. The process canalso convert biomass into synthesis gas. The process then convertsthe synthesis gas into diesel fuel, fertilizers, and petrochemical products that are cleaner than standard petroleum products. In May 2007,Rentech announced an agreement with Peabody Energy (NYSE: BTU),the world’s largest nongovernment owned coal company, to codeveloptwo coal-to-liquid projects that will produce cleaner liquid transportation fuel. Through this technology, the United States obtains cleanerburning diesel fuel and petrochemicals directly from U.S.-based coal,thus avoiding the need to import more foreign crude oil.
CLEAN COAL INVESTMENT CONCLUSIONSCoal as an energy source for electricity generation is clearly under attackfrom an environmental and policy standpoint. However, coal will still bewith us for at least the next several decades simply because it plays sucha large role at present in generating the world’s electricity. There are anumber of interesting investment plays in this sector. However, investorsshould recognize that coal is likely to play a sharply reduced role in powergeneration going forward and coal may be completely phased out as anenergy source within three to four decades, thus rendering all investmentsin the sector obsolete on that long-term time horizon.
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Carbon TradingPoised to Become the World’sLargest Commodity Market?
arbon trading is expected by some to become the world’s largestcommodity market and perhaps even the largest market overall. Thecarbon trading market is presently centered in Europe since theEuropean Union implemented a cap-and-trade system for CO2 emissionsas part of its compliance with the Kyoto Protocol. Australia is close to setting