“The mission of RBAC is to contribute to the prosperity of mankind through improvements in the quality and ethics of economic decisions made by the energy industry. This, in turn, will increase the availability of affordable energy throughout the world, while still allowing for profitability of those projects to deliver shareholder value to the investors as well as the interests of other stakeholders.” – Dr. Robert Brooks, Founder, RBAC, Inc.
According to the International Energy Agency (IEA) there are roughly 1.1 billion people without access to electricity[1]. This is one of the biggest challenges facing mankind today. How do we bring energy to a billion people still in the dark?
In recent discussions about the current state of the Chinese energy market and the transition from coal to natural gas with my colleagues Dr. Robert Brooks and Dr. Ning Lin, we looked at some of the main challenges it faces and what solutions it is trying to implement that could possibly be replicated in other developing nations.
Dr. Lin recently joined RBAC as a Senior Market Analyst working with RBAC’s Global Gas Market Model (G2M2®) to find solutions to the many challenges being faced in the global energy markets.
According to Dr. Lin, the Chinese government is pushing hard to limit coal in its energy mix. She referred to the China policy for climate change[2] published in 2017 by National Development and Reform Commission (NDRC), which delineated two principles of the coal policy:
Stop approving additional capacities of coal mines for 3 years starting 2016 through 2018.
Promoting coal to electricity or gas for heating, which is the key driver of peaking LNG price in China this winter.
In addition, at provincial level, the government is shutting down a lot of small to medium size coal fired generators, leaning on large-scale coal fired generators with scrubber in the power supply mix going forward.
Although unlikely to completely replace coal in the energy mix, China has taken a very determined step in limiting coal usage and reducing emissions. As a result, it is expected that China will need a lot more natural gas to replace coal. For coastal provinces which are traditionally coal burning regions, importing LNG is a viable alternative. This is good news for the North America energy industry[3]. However, despite all of the excitement over gas, the recent spiking of LNG and energy prices in China has revealed a lot of challenges to replacing coal and meeting winter peak demand. Local gas shortages this winter combined with spiking LNG prices make many local utilities and communities, as well as market analysts on global gas issues, start to question the obstacles and impact of the coal to gas switch policy. Is China ready for such a switch? Is this switch too costly?
Dr. Lin stated, “I see potential opportunity for US LNG and the energy industry in general. In recent months, there are many cases of diversion of LNG cargos into China from other routes. Hence, there is clearly a need for long term stable gas source to China market, and this need has been acknowledged by both Chinese and US energy players. However, we have not yet seen many long term strategic deals of LNG imports to meet the local demand from the US yet. When discussing with players on both sides, I can hear the hesitation due to lack of good knowledge and clear outlook of the long-term market in term of key drivers like future of gas supply stabilities in the US, gas price reform in China, and etc. Without any robust point of views of the fundamental gas market on a global level, it is difficult for the market participant to evaluate LNG contracts for the long term. This is where G2M2 can help: as sufficient resources have been dedicated to develop this global gas model, RBAC’s team has brought a timely solution for helping the market participant to develop a robust point of view on long term gas market. That is why we are so excited about introducing this tool to the market. “
Beyond all those good reasons of cleaner environment, lower emission, and market opportunities, Dr. Lin shared an important human interest story that reveals a different side behind the coal to gas switch policy, regarding the millions of workers and their families who work in coal mines.
This is a very touching and award-winning project that tells the story of a miner in China with pneumoconiosis[4]. This is a very typical scenario for Chinese miners. Dr. Ling noted that “in some sense, this family is above average: many of these workers who have black lung disease were left alone by their wives because everyone knows it is a fast approaching end with no cure. There are about 6 million workers who have contracted this disease, mainly from coal and other rare metal mines in China.”
You can watch the whole movie clip with English subtitles at the following link:
Dr. Lin stated, “When I read about this story, I found one more reason why I should be working on the G2M2 model. This would help bring some clarity and creative solutions to bridge the supply to demand areas, and hopefully this would help bring coal to gas switch in China into reality.”
The story about the gold miner with black lung disease was very poignant. Dr. Brooks’ great grandfather (my great great grandfather) was a coal miner in the State of Illinois in the early 1900’s through the Great Depression. He died of black lung disease also, but in his 80’s, not in his 30’s like the man in the video.
Dr. Brooks discussed the stages the energy industry went through to bring access to electricity to six billion people on earth in order to better understand what needs to be done for the remaining 1.1 billion.
Dr. Brooks noted, “there is an important principle for growth in production and economic activity: quantity, then quality, then viability. This can apply to almost anything, including energy. First you have to grow in volume, no matter what the cost. Next you have to improve the quality of that production. Finally, you have to make the whole process viable.”
One important thing to note is that China and other developing countries can go through these stages with discoveries and knowledge that has already been developed by their predecessors.
Dr. Brooks stated, “I think the change in China we are seeing now is moving from stage 1 to stage 2, quantity to quality. The Chinese government’s policy to switch from coal to gas is an example of the effort to get into stage 2, quality. It’s not really viable yet (stage 3), but it still must be done; the negative consequences of stage 1 are just too high to continue in that condition.”
In the West and other developed countries, the challenge is largely to move from stage 2 to stage 3, quality to viability. In the case of energy, stage 3, viability, is usually referred to as “sustainability”. The West still has a mixture of stage 1 and stage 2, but is mostly in stage 2 and according to Dr. Brooks, “the environmentalists, the industry, and the government are all working to move to stage 3, viability.”
Some people believe you can bypass stages 1 and 2 and address the problem with stage 3 solutions. Unfortunately, this is not possible. Just like China, they will have to suffer the pain of stage 1 growth first, then move to quality and finally to viability (sustainability).
Dr. Brooks believes, “The goal should be to get them going and then to work hard to help them through stage 1 quickly. China actually did this pretty fast. From Deng Xiaoping’s Open Door Policy in 1978 to now is just 40 years. With both East and West working together (or in competition with each other), we should be able to help Africa and other underdeveloped places to get into and through stage 1 even more quickly.”
Following our own mission statement, RBAC has a goal to “contribute to the prosperity of mankind through improvements in the quality and ethics of economic decisions”. Modeling tools such as our Global Gas Market Model (G2M2®) give one the ability to evaluate many different scenarios and strategies for addressing these issues. It assists companies and governments to make better decisions and policies for all their stakeholders, which in the end will also improve the overall condition of mankind.
[1]https://www.iea.org/energyaccess/
[2]http://en.ndrc.gov.cn/newsrelease/201711/P020171108521968689324.pdf
[3]https://www.yahoo.com/news/chinas-shanxi-calls-gas-supply-guarantee-switch-coal-093447725.html
[4] A disease of the lungs due to inhalation of dust, characterized by inflammation, coughing, and fibrosis.
