PB Coal Study

Coal Price & Availability Study
Report for the Electricity Commission
SEPTEMBER 2009
Prepared By:
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Limitations
This Report covers technical data relating to coal prices and availability and is based on
the facts known to PB at the time of preparation. This report does not purport to contain
all relevant information on coal reserves and prices. PB has made a number of
assumptive statements throughout the Report, and the Report is accordingly subject to
and qualified by those assumptions. The uncertainties necessarily inherent in relying on
assumptions and projections mean that it should be anticipated that certain
circumstances and events may differ from those assumed and described herein and that
such will affect the results.
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Report Status : Final
Prepared by : Neil Wembridge, Dave
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Reviewed by : Nick Barneveld
Approved by : Nick Barneveld
Date Issued : 10 September 2009
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PARSONS BRINCKERHOFF
Coal price and availability
PB Report for the Electricity Commission
Contents
Page Number
1 Introduction ..................................................................................................................... 1
1.1 Background 1
1.2 Tasks 1
2 Key drivers of coal price ................................................................................................. 2
2.1 Introduction 2
2.2 Global coal demand and supply 3
2.3 Availability and prices of substitute fuels 5
2.4 Technology developments 7
2.5 International policy settings 10
2.6 Carbon Emissions Trading Scheme (ETS) effects 11
2.7 Australia’s Carbon Pollution Reduction Scheme (CPRS) 13
2.8 The international coal market 15
2.9 Domestic coal demand 18
2.10 Domestic reserves and production 22
2.11 Domestic costs and prices 23
2.12 Net result: Domestic production, imports, exports and prices 24
3 Coal and oil price relationship ..................................................................................... 28
3.1 Introduction 28
3.2 Historic price trends 28
3.3 Current price trends 29
3.4 Substitution value 30
4 New Zealand coal price and availability projections ................................................... 31
4.1 Introduction 31
4.2 Modelling 31
4.3 Base case results 34
4.4 Scenario analysis 35
4.5 Lignite modelling 39
4.6 Summary 41
5 Glossary ......................................................................................................................... 42
5.1 Definitions 42
List of tables
Table 2-1 Domestic reserves by rank and region, PJ, 2001 22

Table 2-2 Production by rank and region, PJ, 2008 22
Table 2-3 Determinants of domestic coal prices 24
Table 4-1 Base case assumptions 34
Table 4-2 Increased coal demand case assumptions 36
Table 4-3 Reduced coal demand case assumptions 37
Table 4-4 Demand shift up: Case assumptions 38
Table 4-5 Demand shift down: Case assumptions 39
Table 4-6 Lignite modelling assumptions 40
PARSONS BRINCKERHOFF Page i

Coal price and availability
PB Report for the Electricity Commission
List of figures
Figure 2-1 World coal demand figures (2002 to 2030) 4

Figure 2-2 NZ quarterly gas production 6
Figure 2-3 World recoverable Coal Reserves as of January 1, 2009, billion short
tonnes 16
Figure 2-4 Coal consumption by sector, Gross PJ, 2000-2008 18
Figure 2-5 Coal consumption shares by sector, 2008 19
Figure 2-6 Net electricity generation by plant type, GWh, 2000-2008 20
Figure 2-7 Net electricity generation by plant type, GWh, 2008 20
Figure 2-8 Coal consumption by the other transformation sector, gross PJ, 2000-2008 21
Figure 2-9 Solid energy coal resources and costs, by region, 2005 23
Figure 2-10 Domestic coal production, exports, imports and consumption, Gross PJ,
2000-2008 25
Figure 3-1 Coal, natural gas and oil price index changes, 2000-2008 29
Figure 3-2 Coal conversion potential 30
Figure 4-1 Base Case: Price-availability supply curve 34
Figure 4-2 Base Case: Domestic supply and price 35
Figure 4-3 Increased coal demand case: Domestic supply and price 36
Figure 4-4 Reduced coal demand case: Domestic supply and price 37
Figure 4-5 Demand shift up: Domestic supply and price 38
Figure 4-6 Demand shift down: Domestic supply and price 39
Figure 4-7 Lignite: Domestic supply and price 40
Figure 4-8 Scenario supply quantities 41
Figure 4-9 Scenario price paths 41
List of appendices
Appendix A
Price and availability modelling data
PARSONS BRINCKERHOFF Page ii

1 Introduction
1.1 Background
The following paragraph is taken from the email received from the Electricity
Commission, dated Tuesday 9th June 2009:
“…The Electricity Commission's (Commission) Generation Expansion Model is
capable of providing least cost build schedules of new power stations under
various scenarios. To date, the cost and availability of coal has been fixed
across the generation scenarios at $4/GJ. In addition, unlimited quantities are
assumed to be available at this price over the entire modelled time horizon,
which is usually 30 years. In view of refining the assumptions for the next grid
planning assumptions, the Commission needs advice on coal availability and
price…”
1.2 Tasks
In order to provide the required information to the Commission, this study has
been divided into three main tasks.
Task 1 – Describes the key drivers of the coal price.
Task 2 – Describes the relationship between coal and oil prices.
Task 3 – Provides New Zealand coal price and availability projections for
the next 40 years.
PARSONS BRINCKERHOFF Page 1

2 Key drivers of coal price
2.1 Introduction
2.1.1 EC brief
“Describe key drivers of the coal price, e.g. demand and supply conditions, price of
substitute fuels, emissions pricing, technology developments such as CCS.”
2.1.2 PB approach
PB has provided a review of the main drivers of the coal price including:
Global coal demand
Global coal supply conditions
Availability and prices of substitute fuels
Technology developments
Regulatory settings such as carbon emissions charging
The abundance of coal on the international market and the intensity of

international demand for coal indicate that New Zealand’s domestic coal market is
heavily influenced by the behaviours of those that New Zealand exports to and
imports from. The availability of coal supply into New Zealand and the prices at
which it can be sourced is driven by a myriad of physical, economic and technical
factors:
1
the domestically available reserves , technologies involved in extraction,
and associated costs,
the potential for importing coal, import prices, and supporting supply chain
infrastructure,
the trade in substitute commodities will impact coal demand and prices,
and
wider economic conditions like terms of trade, inflation rates and

movements in the business cycle.
The complexity involved in understanding these drivers is compounded when the

task at hand involves forecasting coal availability and prices in New Zealand for
the next 40 years.
1
New Zealand has one of the highest per capita coal reserves in the world

To understand the drivers of coal availability and prices in New Zealand, and the
behaviours of these drivers into the future, we provide a description of coal
demand and its composition. The end-uses of coal – mainly in energy generation
and steel making – determine which types of coal is required and in what
quantities.
Then, with an understanding of coal demand and the international coal market, we
then investigate domestic production, exports and imports.
The review has been completed using PB in-house data and publicly available
information.
2.2 Global coal demand and supply

2.2.1 Global demand for coal
Global coal demand is expected to grow at a rate of around 2% per year to 2030.
Around 90% of the corresponding increase in global coal production from 2010-
2030 is expected to occur in non-OECD countries, with China set to almost double
its coal output to help meet an average annual demand growth rate of 3%.
Elsewhere, the US sees average annual demand growth of 0.6%, while Europe is
projected to witness a reduction in demand of on average 0.5% per year. This is
in contrast to regions such as South America with projected demand growth of
3.8% per year and India with 4.1% per year2.
From 2003-2005, global coal use rose 7% with China (15% rise nationally), Russia
(7% rise nationally) and Japan (5% rise nationally) having the biggest
contributions. Figure 2-1 shows the coal demand in 2002 compared to the
projected 2030 demands and the percentage share of coal fuel in electricity
generation3.
2 http://www.worldcoal.org/resources/ecoal/ecoal-current-issue/latest-projections-from-the-international-energy-agency/
3
“The Coal Resource – A Comprehensive Overview of Coal”, World Coal Institute, 2005.

Figure 2-1 World coal demand figures (2002 to 2030)
Figure 2-1 highlights the trend of increasing demand for coal towards the
developing nations, in line with projected increases in the energy demand per
capita in these countries over the same period.
2.2.2 Global coal supply conditions
The following information has been sourced from the US Energy Information
Administration4:
“…Total recoverable reserves of coal around the world are estimated at 929 billion
tonnes. Although coal deposits are widely distributed, 80 percent of the world’s
recoverable reserves are located in five regions: the United States (28 percent),
Russia (19 percent), China (14 percent), other non-OECD Europe and Eurasia (10
percent), and Australia/New Zealand (9 percent). In 2006 those five regions, taken
together, produced 4.9 billion tonnes (95.8 quadrillion Btu) of coal, representing 71
percent (75 percent on a Btu basis) of total world coal production. By rank,
anthracite and bituminous coal account for 51 percent of the world’s estimated
recoverable coal reserves on a tonnage basis, sub-bituminous coal accounts for 32
percent, and lignite accounts for 18 percent.
Australia and Indonesia are well situated geographically to continue as the leading
suppliers of internationally traded coal, especially to Asia. South America is
projected to expand its role as an international supplier of coal, primarily as a result
of increasing coal production in Colombia.”
4
http://www.eia.doe.gov/oiaf/ieo/coal.html

2.2.3 Coal quality
Quality and geological characteristics of coal deposits are important parameters

for coal reserves. Coal is a heterogeneous source of energy, with quality (for
example, characteristics such as heat, sulphur, and ash content) varying
significantly by region and even within individual coal seams.
At the top end of the quality spectrum are premium-grade bituminous coals, or
coking coals, used to manufacture coke for the steelmaking process. Coking coals
produced in the United States have an estimated heat content of 27.7 GJ per
tonne and relatively low sulphur content of approximately 0.8 percent by weight. At
the other end of the spectrum are reserves of low-GJ lignite. On a GJ basis, lignite
reserves show considerable variation. Estimates published by the International
Energy Agency for 2006 indicate that the average heat content of lignite in major
producing countries varies from a low of 4.7 GJ per tonne in Greece to a high of
13.1 GJ per tonne in Canada.
2.3 Availability and prices of substitute fuels

Recent trends in power generation in OECD countries have seen shifts towards
higher efficiency gas fuelled thermal generation and increased demand for
renewable generation such as geothermal, hydro and wind. With the advent of a
carbon emissions charge, the unit cost of electricity generated from competing
forms of generating plant will be comparable and potentially less than that from
traditional coal fuelled subcritical steam plant. Carbon charging is acting as a
driver for higher efficiency in existing thermal plant and increasing the demand for
viable carbon capture and sequestration solutions.
The US Energy Information Administration predicts that coal and gas will fuel
two-thirds of global electricity generation in 20305. The largest country shares of
the demand for thermal fuels will originate from China and India, accounting for
around 50% of the increase in thermal fuel demand.
Consistent high prices for both natural gas and oil will keep coal fuelled generation
a more attractive economic option for nations that are rich in coal resources, which
include China, India, and the United States.
2.3.1 Natural Gas
As at 2007, proved global reserves of natural gas was equivalent to between 50 to

60 years of global annual consumption6. With the recent developments in global
LNG capacity and infrastructure, both demand for and supply of natural gas has
been increasing. Demand for gas from non-OECD countries is currently rising
twice as fast as the OECD countries.
Since there is currently no import or export of natural gas in New Zealand, the
price of gas is primarily determined by domestic supply and demand. There are a
number of uncertainties in the estimates of gas resources:
Geological and operations
5
http://www.eia.doe.gov/neic/speeches/howard052709.pdf
6
http://www.eia.doe.gov/emeu/international/reserves.html

Reserve estimates over time
The amount of gas remaining in the Maui field
Probability that there will be gas from “new” fields in the near future
Potential future resources – coal gasification, lignites, Methane hydrates

etc.
The current price of gas in NZ is approximately $7/GJ and is subject to change on

new discoveries of gas reserves. Market prices will be capped by parity with
imported LNG and competition from coal and a $15/t of CO2 carbon tax will add
another $0.80/GJ to the gas price if it is fully passed through. Figure 2-2 shows
the NZ quarterly gas production from December 2000-May 2009.
Figure 2-2 NZ quarterly gas production
At current rates of gas production, PB estimates that 50% of the known producing
and planned gas reserves will be depleted within twenty years. In the absence of
significant new fields being found which can provide long term and bankable gas
supplies for electricity generation it is likely that at some point around this time
7
LNG will be imported to fulfil domestic demand . This will raise the domestic price
to the imported LNG price. Section 3 discusses the relationship between coal, oil
and gas prices.
2.3.2 Nuclear
Demand for electricity generation from nuclear power is increasing rapidly amidst
concerns about rising thermal fuel prices, energy security, and a desire to curb
CO2 emissions. Higher coal and natural gas prices improve the economics for
nuclear plant despite the high capital and maintenance costs incurred for nuclear
electricity generation technologies. Nuclear energy is seen as a way to increase
the electricity supply diversity, improve security of supply, and reduce CO2
emissions by displacing fossil fuel plant options. A key issue with nuclear is that
7
Gasbridge notes that importing LNG is not currently economic and that the need for importing LNG will be revisited by
2020.

the demand could easily outstrip supply due to the very low production base for
nuclear equipment and limited technical resources for design and construction.
2.4 Technology developments

The predominant coal combustion technology worldwide is sub-critical pulverised
fuel, which is well proven technology with over 40 year’s operational experience.
The technology has progressively matured and scaled up to large, reliable and low
cost units of up to 1,400 MW. By restricting the steam cycle to subcritical
conditions (below 221 bar), boiler design and operation is simplified, but overall
efficiency is limited to about 35% (net generation, and HHV (Higher Heating
Value)).
New coal-fired electricity generation is increasingly making use of one or more of

the “Clean Coal Technology” options that are available. Clean coal technology
refers to a range of coal-fired generation technologies that are current state of the
art, or are under development, and are strongly focused on reducing pollutant
discharge and increasing plant efficiency in a cost-effective manner.
Another approach to reducing greenhouse gases caused from coal-fired electricity

generation is “Carbon Sequestration” which involves capturing CO2 and other
types of carbon by biological, chemical and physical processes and storing it.
Because of the very large coal resource still available, the development and
deployment of coal fuelled electricity generation technologies is very strongly
motivated and is the subject of very large investments by a wide range of
stakeholders. There is potential for currently uneconomic technology applications
(discussed in Section 2.4) to reduce CO2 emissions from coal fuelled generation to
become economic, and facilitate the continued use of coal as an energy source.
2.4.1 Clean Coal Technology
Super-critical Pulverised Fuel. Supercritical pulverised fuel technology has now

supplanted subcritical plant as the leading coal-fired plant technology for new coal-
fired plant. The cost, availability and reliability of supercritical plant is now on a
par with subcritical plant, but the 10% to 15% efficiency gain leads to significant
reductions in emissions and fuel cost savings for the supercritical plant. For
example, improving plant efficiency from 35% to 41% HHV, results in a 14%
reduction in specific fuel consumption and a similar reduction in emissions level.
Atmospheric Fluidised Bed Combustion. Atmospheric fluidised bed

combustion is expected to further develop and exploit a niche market dealing with
difficult fuels and the disposal of waste materials. Unit size is currently limited to
around 300 ~ 400 MW but the technology is not proven at this size. Efficiency is
good and likely to improve as supercritical steam conditions are used.
Pressurised Fluidised Bed Combustion, and Integrated Gasification

Combined Cycle. Pressurised Fluidised Bed, and Integrated Gasification
Combined Cycle, both utilise gas turbine technology to improve generation
efficiency. IGCC also offers potential advantages of H2 production for fuel cell or
other applications. These technologies are still at the development stage and

have yet to demonstrate the high reliability at reasonable cost that is required to
proceed to wide scale commercial application.
2.4.2 Carbon Sequestration
Carbon Sequestration is a method for the long-term storage of CO2 to reduce the
amount of greenhouse gas produced from coal-fired electricity generation. The
method involves capturing the carbon emissions either pre-combustion or post-
combustion and storing the captured gas using a variety of storage methods. If
the costs prove attractive and the required support is present then sequestration
may be an option for the Huntly Power Station.
Pre-Combustion
Pre-combustion capture involves removal of CO2 prior to combustion to produce
hydrogen. The combustion of hydrogen produces zero CO2 emissions with the
main by-product being water vapour. Once the hydrocarbon fuel (in this case,
gasified coal) has been converted into hydrogen and carbon monoxide (CO) to
form a synthetic gas, it is reacted with water then the conversion is shifted. The
CO2 is then separated from the hydrogen for clean combustion and compressed
into a liquid for transportation and storage.
Post-Combustion
Post-Combustion capture involves removing the dilute CO2 flue gases after
hydrocarbon combustion. The most common method is passing the CO2 through a
solvent and adsorbing it and then being released by changing the temperature
and/or pressure. Another process currently under development is “calcium cycle
capture” that uses quicklime to capture the CO2 which is then produces limestone.
This limestone can be heated and the CO2 removed with the quicklime left over
being recyclable.
Post-Combustion methods require additional energy input to successfully remove

CO2 from the solvent and may increase energy costs by up to 30% (compared to
plants without capture). This may be reduced to 10% with more efficient solvents
currently being developed.
Research and development is currently being done to create more post-

combustion methods including cryogenically solidifying CO2 from flue gas, passing
CO2 through a membrane and using adsorbent solids.
2.4.3 CO2 Storage
Underground storage. Underground storage of CO2 involves injecting CO2

directly into underground geological formations (oil fields, gas fields, unwinnable
coal seams, saline formations etc).
Oil fields have been used for injecting CO2 into declining oil fields to increase oil
recovery and is an attractive option in a number of locations. This is due to the
geology of hydrocarbon reservoirs usually being well known and the additional sale
of oil can offset part of the storage costs. There are arguments that question the
net CO2 reduction of this strategy however; “The big question is how to account for
the emissions arising from the upstream operations of extra oil production,
downstream refining and finally combustion of the fuel. It is my belief that any

emissions trading benefits which arise from CO2 sequestration as part of a CO2
enhanced oil recovery project should be discounted according to a detailed
analysis of the full cycle carbon balance … using the principal of additionality.”8
Unminable coal seams have been used for CO2 storage due to CO2 absorption by
the surface of coal but this relies heavily on the chemical structure of the coal bed.
During this absorption the coal releases previously absorbed methane which can
be recovered and sold to offset part of the CO2 storage costs. The disadvantage
is that the burning of the methane gas produces CO2 which negates part of the
CO2 stored. A similar argument to the enhanced oil recovery above.
Ocean storage. Another proposed form of carbon storage is in the oceans.

Several concepts have been proposed:
'dissolution' injects CO2 by ship or pipeline into the water column at depths
of 1,000 m or more, and the CO2 subsequently dissolves.
'lake' deposits CO2 directly onto the sea floor at depths greater than
3,000m, where CO2 is denser than water and is expected to form a 'lake'
that would delay dissolution of CO2 into the environment.
convert the CO2 to bicarbonates (using limestone)
Store the CO2 in solid clathrate hydrates already existing on the ocean
floor, or growing more solid clathrate.
The environmental effects of oceanic storage are generally negative, but poorly
understood. Large concentrations of CO2 kills ocean organisms, but another
problem is that dissolved CO2 would eventually equilibrate with the atmosphere,
so the storage would not be permanent.
Mineral sequestration. In this process, CO2 is exothermically reacted with

abundantly available metal oxides which produces stable carbonates. This
process occurs naturally over geological timescales and is responsible for much of
the surface limestone. The reaction rate can be made faster, for example by
reacting at higher temperatures and/or pressures, or by pre-treatment of the
minerals, although this method can require additional energy.
The additional energy required to achieve mineral sequestration to a conventional

power plant is between 60-180% with the by-product created being able to be sold
to offset part of the additional costs.
The advantages of mineral sequestration are:
The carbonates formed are thermodynamically stable and the disposal is

therefore permanent. There is no chance of the carbon dioxide escaping
into the atmosphere.
The mineral resources on earth far exceed need.
Carbonate is the lowest energy state of carbon, not carbon dioxide.
8
Will the wheels of CCS be oiled? Sam Gomersall, carbon capture journal Issue 9, May – June 2009

"Mineral carbonation occurs naturally on a geological time scales and
would eventually absorb all the additional carbon dioxide." The process is
just speeding up one that occurs in nature.
The minerals are readily accessible in locations near high-density power

generation centres.
There is potential to produce value-added by-products.
The process is compatible with both technologies under development and

current power systems.
Predicted cost is not unreasonable.
Implementation without an external supply of heat is possible because the

reaction is exothermic.
The disadvantages of mineral sequestration are:
Carbonation plant must be at the site of the mine due to the large volumes
of the raw minerals required.
Volumes increase upon carbonation; in order to store the newly formed

carbonates back in the source mine some terrain alteration will be
necessary.
Extensive mining operations necessary, which will have environmental

and CO2 production impact.
There is the potential for asbestos to be present in the mineral deposit.
The mineral preparation or sequestration process must be able to deal

with ore impurities.
2.5 International policy settings

The future demand for coal-fired generation could be significantly reduced
following consensus international agreement to reduce CO2 emissions. However,
globally, as coal is the largest source of energy for electricity generation,
especially in developing nations, these agreements are unlikely to have any major
effects in. Current global usage levels strongly motivates policy settings to still
allow for coal fuelled electricity generation but technically, commercially and
economically motivates the application of carbon capture and sequestration.
There appears to be a growing consensus that while putting a cost on the emission
of CO2 by emissions trading will help reduce CO2 emissions, this is not sufficient in
itself to achieve the proposed global CO2 emission reduction targets. To achieve
the desired CO2 emissions targets, many jurisdictions are regulating a minimum of
the total electricity generation to be generated using renewable energy sources.

2.5.1 NZ regulatory setting
The New Zealand Government has been trying to define and implement a
comprehensive greenhouse gas emissions policy since 2002. The 2007 NZ
Energy strategy defined a target of 90% of generation should be from renewable
sources by 2025, and introduced a ten year moratorium on new baseload thermal
generation enacted with an Emissions Trading Scheme.
The current New Zealand Government is reviewing the Emissions Trading

Scheme legislation, and has repealed the moratorium on new thermal generation.
Considerable uncertainty exists on the future format for regulations around
greenhouse gas emissions in New Zealand.
2.5.2 Impact of carbon charging on energy cost
If we assume9 Huntly West No. 1 fuel contains 56.3% carbon (% mass), giving rise
to a fuel specific CO2 emission rate of 2.06 kg CO2 per kg of coal. For an
assumed Huntly Power Station plant efficiency of 35% (net, HHV), the electrical
energy specific emission is 943 kg CO2/MWh.
Because CO2 emissions are derived directly from the carbon in the coal fuel, an
emissions charge on CO2 is effectively a surcharge on the cost of fuel. An
emissions charge of $25/tonne of CO2 will effectively add $52.53/t or $2.29/GJ to
the cost of the assumed Huntly West No. 1 coal.
An emissions charge of $25/tonne of CO2 will add 2.36 cents/kWh to the energy
cost, based on the use of Huntly West No. 1 coal and a 35% net, HHV plant
efficiency.
Thus, if the proposed maximum emissions charge of $25/tCO 2 were to be passed

through ‘at cost’ to an industrial customer on an energy component of the
electricity tariff of 6 cents/kWh for all the electricity purchased, the energy tariff
would be increased by 39%. This is substantially more than the 16% estimated in
the Government’s Climate Change paper referred to above, which we speculate
was calculated on the basis of a mix of hydro and thermal generation.
2.6 Carbon Emissions Trading Scheme (ETS)

effects
ACIL Tasman has carried out a study for the Energy Supply Association of
Australia to examine the effects on an Australian Emissions Trading Scheme
(ETS) introduced from 2010 on Australia’s stationary energy markets. ACIL
created a simulated model based on the year 2020. The simulations indicate the
forced retirement of about 6,700 MW of base load plant in the 10%10 case to be
replaced by 15,000 MW of new plant between about 2011 and 2020. The
modelling produced an emission permit price of $45/tonne CO2-e in the 10% case
and $55/tonne CO2-e in the 20% case.
9
NZ Energy Information Handbook, J.T. Haines, 1993.
10
A case involving a 10% reduction in the 2000 emission levels by 2020.

The major effects11 of the ETS are:
Prices
With a 10% target emission prices reach $45/tonne CO2-e in real terms
and $57.50/tonne CO2-e in nominal terms by 2020. With a 20% target
emission prices reach $55/tonne CO2-e in real terms and $67/tonne CO2-e
in nominal terms.
Regional reference prices (in nominal prices) in the National Electricity

Market (NEM) are $97 to $109/MWh in the 10% case while in the 20%
case they are $98 to $122/MWh.
In real terms the recommended retail prices (RRPs) range from $70 to
$79/MWh in the 10% case and $71.50 to $88/MWh in the 20% case.
Queensland, NSW, South Australian and Victorian prices are within a few
dollars while Tasmanian prices are the lowest.
Changes in capacity
New generation capacity to replace retiring brown coal and some black
coal plant will need a significant building effort. The modelling indicates
that the 10% case will cause the retirement of 6,145MW of mostly brown
and some black coal plant in the NEM.
In the 10% case, retirements would be replaced by 13,672MW of gas fired

and renewables plant in the NEM.
The capacity of new plant in the NEM is about 205% of that being retired
in the 10% case and approximately 160% in the 20% case. This is partly
to cope with some level of growth in demand, although growth in energy
demand in both cases is low given the effects of conservation measures,
demand response to higher prices and the use of distributed renewables,
but mainly because much of the new plant is renewable generation with a
relatively low capacity factor (less than 35%) and more capacity is
required to produce the same amount of energy.
Sale of existing assets
Using the net present value of returns per kW over the 10 years 2010 to
2020, the average of this indicator for Victorian and South Australian coal
fired generation indicated a fall of over 80% in asset value in the 10%
case and over 90% in the 20% case.
For NSW coal generation the corresponding falls were under 80% and
about 90% and Queensland coal fired generation assets also reduced by
80% and almost 95%.
Gas fired CCGTs on average reduced in value by about 40% in the 10%
case and about 45% in the 20% case, largely because of the increase in
the costs of gas for generation. The average asset value of gas fired
OCGTs reduced in value by 70% and about 80% respectively.
11
“The Impact of an ETS on the energy Supply Industry”, ACIL Tasman, July 2008.

Capital expenditure
In the 10% case it was estimated the cost of investment in generation in

2008 prices at $30.3 billion in the NEM.
In the 20% case it was estimated the cost of investment in generation in

2008 prices at $33.5 billion in the NEM.
These estimates of capital expenditure do not include the costs of

expanding the electricity transmission network in order to connect
geothermal and wind generation in remote locations or the cost of
expanding the gas supply network. It is estimated that approximately $4
billion would be required to enhance the transmission network to include
this new plant and at least $0.5 billion in the new pipeline investment to
carry additional gas to power stations
2.7 Australia’s Carbon Pollution Reduction

Scheme (CPRS)
With Australia being one of the biggest coal exporters in the world the CPRS is set
to make a significant impact on the global market as well as any combined
Emissions Trading Scheme that may be set between Australia and New Zealand.
The following are components of the scheme that are relevant to coal. 12
Currently under review, the CPRS includes transport fuel, but mitigates the cost
for 3 years, while excluding agriculture for at least 5 years. Coal-fired generators
will be provided compensation and trade exposed emission intense industries will
be given free permits up to 30% of the total. Businesses that emit more than
25,000 tonnes CO2-e will be obligated under the scheme.
2.7.1 Captured’ coal mines
Several submissions from the coal-mining industry argued that ‘captured’ coal
mines should receive assistance as a strongly affected industry. Those
stakeholders included the Australian Coal Association, the Minerals Council of
Australia, the New South Wales Minerals Council, Centennial Coal, Xstrata Coal
and Wesfarmers Limited.
The Government acknowledges that the relative emissions intensity of coal-fired

electricity generators has the potential to cause impacts in the generation sector
that translate through to the mines that supply coal to those generators. However,
the particular circumstances of those coal mines might not justify assistance
measures.
Even though coal-fired electricity generators’ profitability might reduce under the
scheme, that loss will not affect coal mines supplying them unless the generators
materially reduce the volume of coal they use. The Government’s modelling of the
electricity generation sector indicates that the majority of coal-fired electricity
12
“ Carbon Pollution Reduction Scheme”, Australian Government, 2008

generators are able to maintain their market share during the first decade of the
scheme.
Those generators that might lose volume or close during the first decade of the
scheme are generally those of relatively lower efficiency and therefore higher
emissions intensity, and may be vulnerable to losing market share in the absence
of the scheme. Offering assistance to a coal mine that supplies such a generator
would require the Government to assess the likelihood that the generator would
not have lost market share in the absence of the scheme.
Furthermore, providing assistance on this basis requires the assumption that, in

the event of the closure of a given generator, the coal mine would be physically
unable to supply another generator in the domestic or export markets. This
requires an assessment of the physical circumstances of a mine, such as access
to railway or port facilities, as well as the likelihood that a new facility would be
constructed to use the coal at that source, such as a generator using carbon
capture and storage or coal gasification technologies.
Because of these material uncertainties, the Government will not provide strongly
affected industry assistance to ‘captured’ coal mines.
However, the Government recognises the significant exposure of particularly

emissions-intensive underground coal mines under the scheme, and has proposed
a transitional assistance package to this class of coal mines through the Climate
Change Action Fund.
2.7.2 Coal-fired Generation
For coal-fired generators, it has been determined that even though coal-fired
electricity generators profitability might reduce under the scheme, coal mines will
not be effected unless the generation capacity of the generator is reduced. As
there will be no assistance given to generators and assistance only given to a
certain class of coal mines, the Government is focusing on improved energy
efficiency which may have to be achieved by:
Upgrading current coal & gas fired generators to super-critical or

ultra-supercritical boilers
Further development in the production of “clean coal” electricity

generation technology.
2.7.3 Carbon Capture and Storage
Carbon capture and storage (CCS) is likely to be a key future component of the
global solution to climate change. Coal is likely to continue to be a major energy
source for the world over coming decades. For Australia, coal will be the main
source of its electricity supply into the future and a major contributor to Australia’s
export revenue. All major Australia and international models of ways to achieve
lower greenhouse gas emissions expect a significant part of the reduction to be
achieved through the use of CCS. The Government has announced the Global
Carbon Capture and Storage Initiative to accelerate the scaling up and
deployment of CCS technology across the world.

2.7.4 Coal Gasification
Coal Gasification can be used to produce syngas, a mixture of carbon monoxide

(CO) and hydrogen (H2) gas. This syngas can then be used for electricity
generation or converted into transport fuels like gasoline and diesel through the
Fischer-Tropsch process. This process has been successfully conducted in both
underground coal mines and coal refineries.
In Australia, CSIRO Energy has developed several collaborative initiatives into

clean coal technologies, in particular coal gasification. At this current time there
are several trial gasification plants being operated or under construction including
the Bloodwood Creek Underground Coal Gasification site located in the Surat
basin in south-east Queensland run by Carbon Energy Limited.
The implementation of coal gasification for power generation would preserve a

high level of coal demand for electricity generation.
2.7.5 Coal-to-Liquids (CTL)
CTL technologies have the potential to increase additional future demand for coal.
The production of liquids from coal requires the breakdown of the chemical
structures present in coal through the simultaneous elimination of oxygen, nitrogen
and sulphur in the introduction of hydrogen. The action produces a stable liquid
product. Coal can be converted into a variety of products including petrol, diesel,
jet fuel, plastics, gas, ammonia, synthetic rubber, tars, alcohol and methanol.
2.8 The international coal market

2.8.1 Overseas reserves and production
In 2006 there were about 137 years of recoverable coal reserves available
worldwide. This important fact suggests that worldwide coal reserves are unlikely
to be a constraint on the availability of coal to New Zealand over the 40 year
forecast period for this project. The following chart shows 2006 reserves and
levels of production by country13.
13
Source: US Energy Information Authority

Figure 2-3 World recoverable Coal Reserves as of January 1, 2009, billion
short tonnes
Australia and Indonesia are the two major exporters of coal in the Asia-Pacific
region, and the likely sources of coal imports into New Zealand.
Australia exports 100 million tonnes of thermal or steaming coal per year (99.86
Mt in 2002) and is the largest exporter of steaming coals in the world. The main
ports for export of coal are Newcastle, Gladstone and Dalrymple Bay. Almost all
of the Australian exported steaming coal is bituminous.
Indonesian sub bituminous coals are low in ash (1%) and sulphur (0.1%). They
are classified as sub-bituminous B the same as the better coals in the Waikato and
appear to be similar in character. The low sulphur characteristic is important for
Huntly power station because it relies on this low sulphur content to comply with
the SOx emission limits imposed by its resource consent.
2.8.2 Overseas costs and prices (historically, now, and in the future)
International prices outside of the US vary depending on the coal quality and
source. Between 1991 and 1998 the market price for steaming coals, with heat
content around 27 GJ/t, delivered to northwest European ports has ranged from
US$31.8 to US$45.8 per tonne (cost, insurance, freight or CIF). The Japanese
have traditionally used a benchmark system which is still functioning effectively,
however Japanese utilities are undertaking some purchases on the spot market, to
obtain coal at discounts to the bench mark price. The benchmark price for
steaming coal in 1997 was US$45.5 per tonne (CIF), having ranged between
US$41.3 and US$50.8 per tonne over the previous decade.
The competitive pricing and the relatively short distance to transport the coal from
Australia to New Zealand makes steaming coal sourced from Australia cost

effective. Steady decline in costs of extraction in Australia due to increase in coal
sector productivity.14
The other potential source is Indonesia which exports both bituminous and
sub-bituminous coals. The cheapest coals are the sub-bituminous types, with
PT Adaro and PT Kideco being the major exporters of this type. These
sub-bituminous coals are very similar to the Waikato Coals and have low sulphur
content. Indonesian coal would be expected to be priced around US$25 CIF at the
Port of Tauranga, making an allowance for the extra shipping distance to New
Zealand. Sea freight charges are heavily dependent upon quantities and the size
of the vessel and are thus difficult to estimate with any degree of certainty.
The international traded coal fob prices, plus sea freight and inland delivery costs,
including amortised costs of the importing facilities, provide an indicative price cap
for locally sourced coal.
Imported coal will be invariably priced in US dollars with the consequent exposure
to the $US:$NZ exchange rate. Long term protection against exchange rate
fluctuations in the $US:$NZ is difficult to achieve and the economics of coal
importing will need to cater for expected changes in the exchange rate. It may be
possible to purchase Australian coal in $AUS which may provide a better foreign
exchange hedge for New Zealand than $US.
In the past, in the Asia-Pacific region, trade in steaming coal was largely via
long-term supply contracts and much pricing was referenced to the “Japanese
Benchmark”. In recent years, however, this system has been breaking down, and
a much greater proportion has been purchased under short-term contracts or on
spot prices. As a result, there is much greater price volatility, reflecting global
supply/demand imbalances, which superimpose on longer term cyclicity in coal
prices.
The factors that limit the impact of international coal prices on local prices are:
Sufficient indigenous resources and production capacity to meet local

demand,
most local suppliers do not export,
the high per GJ transport costs to import relatively small amounts of coal, and
the limited availability of coal importing port infrastructure.
A very large coal consumer may find it economic to import coal in large shipments
through dedicated facilities at the point of consumption. In a press statement in
March 2002, Todd Energy, in announcing its impending sale of its interest in the
West Coast Rapahoe mine, offered the opinion that:
“There was plenty of coal mined around the world that could be mined easily
and it could be shipped to New Zealand for power generation. So there was no
guarantee New Zealand coal would be cost effective, especially if it had to be
moved to the North Island for sale. If New Zealand moved to coal-fired power
stations they would be north of Auckland, close to its big market, near a deep
water port like Whangarei where big volumes of coal could be brought in.”
14
ABARE, Energy Outlook 2011

This view would be contested by Solid Energy who would be very keen to supply
local power generation market and to prevent coal imports affecting their local
market presence.
Since a significant number of competing suppliers supply the domestic market,

and they supply from local reserves, the international prices obtainable for export
coals is not a fundamental benchmark for local coal prices.
Today, NZ import coal prices comprise a ‘port’ and a ‘transport’ component. The
port price for coal is presently about $4/GJ, with transport costs to site an
additional $0.25 to $0.5/GJ.
2.9 Domestic coal demand

New Zealand consumed about 3.9 million tonnes of coal in 2008 (84.8 PJ). This
represented a 25% increase over 2007, but a 10% drop from 2006 consumption
levels. The left hand side figures in the following chart shows New Zealand’s coal
consumption since 2000: consumption has increased over the period, but has
plateaued over the past 5 years. The right hand side shows sector shares of coal
consumption in 2008, indicating that the electricity generation industry is the
largest user of coal in New Zealand, by far.
Electricity generation is also the sector that has the greatest impact on coal
demand, with coal being used to provide the greatest proportion of the flexibility
required to generate sufficient energy during dry years.
Figure 2-4 Coal consumption by sector, Gross PJ, 2000-200815
100
Other
90
Commercial
80
Industrial
70
Other
60 transformation
50 Electricity
generation
40
30
20
10
0
2000 2001 2002 2003 2004 2005 2006 2007 2008
15
Energy Data File – 2008 Calendar Year Edition. Ministry of Economic Development, 2009.

Figure 2-5 Coal consumption shares by sector, 200816
Other use
Commercial
3%
5%
Other
transformation
19%
Electricity
generation
51%
Industrial
22%
Just over half the coal consumed in 2008 was used for electricity generation by
large generators. Other transformation – almost exclusively steel making –
accounted for 19%. Small scale energy generation in the industrial, commercial
and residential sectors accounts for the remaining consumption.
Major consumers of New Zealand’s coal include:
Genesis, Huntly power station (approximately 2 - 2.5m tonnes per year)
Glenbrook steel mill (700,000 tonnes per year)
Cogeneration plant at dairy factories e.g. Clandeboye.
General industrial use and residential market.
2.9.1 Electricity generation
Domestic coal consumption in New Zealand is dominated by the electricity

generation industry. However, as a proportion of fuels used in generating
electricity, coal ranks third behind renewable sources and natural gas.
Furthermore, as the following chart indicates, the use of coal in generating
electricity has been variable since 2000. The minority status of coal used in
electricity generation, and its variability over time, are important considerations in
forecasting demand for coal into the future.
16
Energy Data File – 2008 Calendar Year Edition. Ministry of Economic Development, 2009..

Figure 2-6 Net electricity generation by plant type, GWh, 2000-200817
45000
Other Non-renewable
40000
Coal
35000
Gas
30000
Other renewable
25000
Wind
20000 Geothermal
15000 Hydro
10000
5000
0
2000 2001 2002 2003 2004 2005 2006 2007 2008
Figure 2-7 Net electricity generation by plant type, GWh, 200818
Other Non-renewable
0.4%
Gas
23.7%
Hydro
52.3%
Coal
10.5%
Other renewable
1.2%
Wind
2.5%
Geothermal
9.4%
2.9.2 Other transformation
Steel making represents historically the other significant use of coal in New
Zealand, accounting for approximately 18% of coal consumption. New Zealand
has two significant steel plants: Glenbrook and Pacific Steel. However, while
Glenbrook sources coal from Waikato, much of the raw material input at the
17
18
Energy Data File – 2008 Calendar Year Edition. Ministry of Economic Development, 2009..

Pacific Steel plant is scrap metal. To the extent that New Zealand’s coal
consumption is driven by the steel making industry, it will be driven by Glenbrook.
The following figure shows that coal consumption categorised as ‘other

transformation’ – the significant majority of which is steel making – has remained
relatively constant since 2000, and declined between 2006 and 2008.
Figure 2-8 Coal consumption by the other transformation sector, gross

PJ, 2000-200819
20
18
16
14
12
10
0
2000 2001 2002 2003 2004 2005 2006 2007 2008
The domination of fuel sources other than coal in the generation of electricity and
the relatively constant consumption of coal by New Zealand’s steel industry
support the idea that, without substantial changes in both industries, domestic
demand for coal in New Zealand into the future will not grow appreciably. Future
demand for coal is addressed in the next two subsections.
2.9.3 Future demand trends – electricity generation
According to New Zealand’s Ministry of Economic Development (MED) in 2005,

domestic electricity supply was to grow by 40% – or 1.5% year on year – between
2005 and 2030. MED expected hydro-generated power to maintain its dominant
share, but that costs of new development, environmental constraints on new plant
development, and competition for water use would mean the amount of power
generated from hydro sources would remain constant, indicating that its overall
share would fall.
In contrast, the share of wind, gas and geothermal in electricity generation would
increase substantially, compensating for the proportionate reduction in hydro
power, and displacing coal. MED forecast coal use in domestic electricity
generation to increase by 15% only between 2005 and 2030, or 0.6% year-on-
year.
2.9.4 Future demand trends – steel
Despite the recent downturn, MED expects worldwide steel demand to remain
strong over the forecast period, supporting high steel prices. Of New Zealand’s
19

two significant steel plants – Glenbrook and Pacific Steel – this will benefit
proportionately Glenbrook, which exports about half its output.
However, the steel-making process at the Glenbrook plant is designed to

accommodate the specific properties of coal sourced from Waikato, and (as
discussed below) coal extraction at Waikato is expected to become increasingly
more expensive. Absent unexpected shifts in the steel market, MED surmises that
Glenbrook will not expand production – and its consumption of coal – appreciably.
2.10 Domestic reserves and production

To this point it has been established that growth in New Zealand’s domestic coal
consumption is expected to be moderate, there is an abundance of coal available
on the international market for import into New Zealand, and that import prices will
be a binding constraint on the margins earned by domestic coal producers. In
addition to these factors, domestic supply of coal for domestic consumption will be
impacted by domestic coal reserves, the costs of extraction, and export
opportunities.
Table 2-1 shows domestic reserves by rank and by region. Huntly Power Station
has traditionally burnt lower calorific value (CV) sub bituminous coals, which are
typical of the coals in Waikato region, and Waikato in the north is by far the
significant source of thermal coal; the West Coast deposits in the south supplies
all bituminous, harder, coal.
Table 2-1 Domestic reserves by rank and region, PJ, 2001

Reserves
Rank
Bituminous Sub- Lignite
bituminous
North Island Waikato 15,601
South Island West Coast 2476.8 134.7
Canterbury 18.8
Otago 61.3 1.4
Southland 193.4 252.1
New 2476.8 16,009.2 253.5
Zealand
Table 2-2shows 2008 levels of production, and demonstrates that domestic
reserve totals could sufficiently supply New Zealand for hundreds of years. As
such, domestic reserves are not a binding constraint on availability.
Table 2-2 Production by rank and region, PJ, 2008

Production
Rank
Bituminous Sub- Lignite
bituminous
North Island Waikato 40.5
South Island West Coast 78.4 2.8
Canterbury 0.4
Otago 1.2
Southland 4.7 3.8
New 78.4 49.6 3.8
Zealand

South Island West coals are typical high CV bituminous coals. These are less
volatile, making them safer to transport, and have higher energy content per
tonne, making transport cheaper per unit of energy provided. Almost all of this
coal is exported, and mostly for steelmaking and specialist uses.
2.11 Domestic costs and prices

New Zealand coal commodity prices for domestic coal are determined by factors
that include:
extraction costs, including mine development and rehabilitation costs,

competing coal suppliers for the specified coal quality, and annual and total
quantities required,
coal quality and impacts on capital, operating and maintenance costs for the
most appropriate utilisation technology,
location of the fuel relative to the place of consumption
competing fuels, and competing utilisation technology

Figure 2-9, sourced from MED, shows the costs of extraction of New Zealand’s
significant coal operations.
Figure 2-9 Solid energy coal resources and costs, by region, 200520
It has been established previously in this report that the most relevant source of
thermal coal for domestic consumption is the Waikato. Costs of extraction at
Waikato begin at about $2.50/GJ, rising to $5.50 for the first 2,200 PJ extracted.
Costs then increase steadily. As indicated previously, prices for domestic coal
which is consumed domestically will be constrained by import prices. From
current levels, import prices would have to rise substantially for coal reserves at
Waikato to be exploited fully.
20
Source: New Zealand’s Energy Outlook to 2030, September 2006, Ministry of Economic Development

Table 2-3 summarises the remaining significant determinants of domestic coal
prices.
Table 2-3 Determinants of domestic coal prices
Suppliers State-owned Solid Energy controls about 80% of

national coal production, with the remainder mined
by a number of smaller private mining companies.
Given the high proportion of state ownership,
market concentration leading to oligopoly pricing
is unlikely.
Domestic coal transportation The Waikato coal fields are in close proximity to
the Huntly power station and, relative to unloading
and transport costs associated with importing
coal, advantage domestic suppliers.
Competing fuels: domestic gas While coal prices are expected to remain very
prices competitive with gas it is expected that there will
be an upward pressure on the price of coal as the
price of gas increases with the depletion of Maui
and the development of new more expensive gas
resources.
Competing fuels: renewables The costs of power generation from renewable
sources in New Zealand are especially
competitive, and represent a constraint on the
translation of coal extraction costs into coal prices.
Cost supply curves for renewable power begin
lower than those for coal: about 4,600 GWh can
be produced with renewable power for a marginal
cost of less than 6 cents/kWh, while North Island
coal generation starts at 7 cents/kWh.21 Capacity
is the significant constraint on renewable
production. While hydro is expected to be
constrained in the future because of environmental
concerns, significant capacity expansion is
expected in wind and geothermal generation.
2.12 Net result: Domestic production, imports,

exports and prices
Preceding discussion has established that:
New Zealand’s thermal coal consumption is variable, but has decreased in

recent times as renewable and gas fuelled electricity production has
displaced coal.
Historically, thermal coal consumption was met, mostly, by domestic

production. Recently, competitive imports have displaced up to one third
of domestic production.
Domestic production of thermal coals is becoming increasingly more

expensive with costs of extraction expected to increase at a faster rate
than some international suppliers such as Indonesia and Australia.
21
Source: East Harbour Management Services, Availabilities and Costs of Renewable Sources of Energy for Generating
Electricity and Heat, 2005 Edition, June 2005, and East Harbour Management Services, Fossil Fuel Electricity Generating
Costs, June 2004.

Over half of New Zealand’s domestic production is exported for steel
production overseas. The attractiveness of export prices for this harder
variety of coal makes it unlikely that it will be consumed domestically.
This effectively bifurcates the New Zealand coal market: most thermal
coal produced domestically is consumed domestically, with imports
making up the domestic shortfall; while harder coal is exported and not
available for domestic consumption.
Figure 2-10 reflects these market dynamics.
Figure 2-10 Domestic coal production, exports, imports and consumption,

Gross PJ, 2000-200822
150
100
50
-50
-100
2000
2001
2002
2003
2004
2005
2006
2007
2008
Exports Domestic production - exports Domestic production - domestic consumption Imports
2.12.1 Looking forward
In the report New Zealand Energy Outlook to 2020, dated February 2000, the
Ministry of Economic Development states that:
“Currently around 80PJ of coal is extracted in New Zealand, including coal for
export. The projected growth in domestic consumption to 2020 will therefore
put very significant pressures on the New Zealand coal industry and its
supporting infrastructure. It is unlikely that all this increased demand will be
met by New Zealand production, given that significant new mine development
would be required, potentially at a higher cost than imports. Thus a sizeable
portion of future demand is likely to be sourced internationally.”
The same report also states:
“Projections of internationally traded coal prices act as a cap on the domestic

price of coal allowing for transport costs. The baseline scenario assumes that
New Zealand wholesale coal prices rise from around $2.60/GJ in 1998, to
22
Source: New Zealand Energy Data File, 2008 Calendar Year Edition, Ministry of Economic Development

$3.00/GJ in 2010 in real terms, remaining flat thereafter. Significant new
investment in mine capacity will be required to source all of New Zealand’s
projected coal demand domestically, given the growth in demand, and the
decline in some of New Zealand’s existing coal mines over the outlook period.”
It is expected that Solid Energy would make every effort to both exploit indigenous
coal resources at competitive extraction costs and work with transport companies
to minimise transport costs in order to maintain the cost of domestic coal below
that of imported coal.
While coal prices on an energy basis are presently, and will continue to be
competitive with gas, future coal prices will not only depend on the mining costs
but will be subject to external factors including:
the future price for gas and its availability post Maui (restricted gas supplies
will increase the “opportunity” cost of coal);
the level of demand for coal within the Waikato region (including whether
Glenbrook steel making plant closes, allowing the annual production of coal
supplied under this contract to be made available to others); and
whether an appropriate (long term) contract can be agreed between Solid

Energy and the purchaser which allows for economic mine planning.
During the drought of early 2003, Genesis announced plans for the importation of
coal via Tauranga. A joint media release from Solid Energy and Genesis Power
dated 4 June 2003 announced the supply of 11 Mt (and possibly up to 14 Mt) of
coal to Huntly Power Station over eight years. After a period of ramping of
deliveries, Solid Energy would increase coal supply to 1.7Mt per year out to 2011.
In addition, Genesis indicated it could augment supplies, with 0.5Mt per year from
other operators and 0.5Mt per year from Indonesia.
Both South Island West Coast coals and internationally traded bituminous coals
are higher CV coals. They are less volatile, making them safer to transport, and
have a higher energy content per tonne, (making transport cheaper per unit of
energy provided) but are generally not well matched to Huntly’s design coal.
Huntly is designed to operate on lower CV, sub-bituminous coals. If it was
necessary to burn significant proportions of West Coast coal at Huntly Power
Station, it is expected plant modifications may be required. Modifications to the
precipitators may be required to ensure that particulate emissions remain at an
acceptable level. Some West Coast coal has a high sulphur (2.1%) content
compared to the Waikato coals. To ensure that sulphur emissions are within the
consented limits, blending with low sulphur Waikato coal would be required. West
Coast coal which is low in sulphur has a high value and is exported.
Looking forward, this discussion supports the following conclusions:
Absent extraordinary investment or concessions by Solid Energy, thermal coal

reserves will be increasingly more expensive to extract for use at Huntly
Development of new renewable sources of power generation will continue to
restrict use of domestic coal for power generation

The prices of coal on the international market will cap prices for domestic coal,
and lead to greater domestic penetration of imports, most likely sourced from
Australia and Indonesia.

3 Coal and oil price
relationship
3.1 Introduction
3.1.1 Electricity Commission brief
“Describe the relationship between coal and oil prices.”
3.1.2 PB approach
To demonstrate the price relationship between coal and oil, PB has reviewed
historic movements and current trends in the relevant prices for coal and oil.
3.2 Historic price trends

Historical experience in fuel prices suggests that oil and gas demonstrate a
stronger relationship than the diminishing link between coal and oil prices. This is
exemplified by the fact that during oil price shocks, gas prices increase
substantially due to the fact that that gas and oil are often in direct competition in
industrial and power end-uses. During this time prices for coal rose less than that
for gas. Demand for coal increased as generators substituted coal for heavy fuel
oil where possible. The high prices for coal during the late 1970’s and early ‘80s
reflected the ability of higher cost coal producers to increase supply accordingly.
Following this increase in demand coal supply markets reacted and investments
were made in mining and transport capacity which resulted in a decrease in the
real cost of coal back to long term trend levels.
The linkages between oil and coal prices may be increased by the
commercialisation of economic technology to convert coal into oil and gas
substitutes. The Capex of converting coal currently does not allow market pricing
of coal to gas or oil.
Demand shift in fuels for electricity generation have further weakened the price
link between coal and oil. Since the oil shocks, fuel oil is rarely used for baseload
generation, but may be kept as reserve generation or to provide peaking capacity
e.g. Whirinaki. Fuel oil has become less of a substitute for coal and as such
changes in the oil price have a reduced effect on the demand for power generation
fuels and prices.

3.3 Current price trends
If oil and coal fuels were perfect substitutes, the price trends would be identical.
To demonstrate the point that the fuels are not perfect substitutes we can examine
historic price movements. At its maximum in 2008, the price of oil was about 4
times it's January 2000 value whereas the price for coal was approximately 1.8
times the January 2000 value. Figure 3-1 demonstrates the relevant movements
in prices for coal, gas and oil from January 2000 to January 2008.
Figure 3-1 Coal, natural gas and oil price index changes, 2000-2008
4
Price index, Jan 2000 = 1
3
Coal
Gas
2 Oil
0
2000 2001 2002 2003 2004 2005 2006 2007 2008
Year
A primary reason for coal prices to have increased half the rate of oil is the coal
market has a limited range of applications and low substitution value, as well as
the delivery cost of coal. The transportation cost of coal is a substantial
component of delivered cost while the transportation costs of oil are a relatively
small proportion of the delivered costs.
In the US, domestic coal use has declined recently due to the economic
conditions. Coal price has increased marginally, however, due to higher
transportation fuel costs and increased foreign demand for US coal. The increase
in the price of oil, and hence transportation costs has indirectly contributed to an
increase in delivered coal prices23.
Crude oil prices are more a function of world economic growth and supply
restrictions. The growth rates of oil consumption in developing economies have
been greater than the growth rate of the world crude oil supply. The current (2009)
world economic recession has temporarily removed the consumption-supply
upward price pressures on oil.
23
U.S. Coal Supply and Demand: 2008 Review," EIA, April 15, 2009

3.4 Substitution value
As discussed in Section 2, the potential for coal as a substitution fuel is high but
currently involves prohibitive Capex issues. As gas and oil prices rise, these coal
based technologies will become economic and have the potential to increase the
price linkage between the fuels. For example Solid Energy is investigating the
conversion of Southland Lignite to transport fuels.
Figure 3-2 demonstrates the potential for coal conversion technologies raising the
potential for strengthening price links across fuels.
Figure 3-2 Coal conversion potential24
24
Coal: Americas Energy Future, The National Coal Council. March 2006.

4 New Zealand coal price
and availability projections
The primary purpose of this section is to present modelling results of price and
availability projections for New Zealand out to 2049 under a range of scenarios.
To motivate the modelling framework designed for this project, and choices of
modelling parameters, this section relies on the discussion of past and likely future
trends in domestic coal demand and supply options covered in Sections 2 and 3.
4.1 Introduction
4.1.1 EC Brief
“Provide several sets of coal price and availability projections for New Zealand for
the next 40 years (some around $/GJ per year and others around PJ/year) and
clearly specify the assumptions made (e.g. coal country of origin).”
4.1.2 PB approach
The purpose of Sections 2 and 3 was to provide the context for the development
of modelling infrastructure and model parameterisation.
From previous discussion the interrelatedness of price and availability for

domestic purchasers of coal in New Zealand is manifest. Rather than facing, in
effect, an unlimited supply of coal at a fixed price, coal is available to cost-
minimising coal purchasers as a schedule comprising a series of price-quantity
pairs. The economics of the coal market in which domestic purchasers operate
means they confront an upward-sloping supply curve in which marginal purchases
can be made at non-decreasing prices. The model designed for this project does
two things: First, for a given set of assumptions, it produces a supply curve
(comprised, itself, of price-quantity pairs) confronted by domestic purchasers; and
second, it shows the likely sources of supply given this supply curve and forecasts
of domestic demand.
4.2 Modelling
Modelling includes a base case reflecting expectations about availability and price
absent extraordinary market events, and four scenarios including:
Increased demand: Future coal demand increases at a faster rate due to

market forces such as a lower future gas supply resulting in increasing natural
gas prices.

Reduced demand: Future coal demand exhibits a negative growth rate as
Governments implement policies and strategies to move toward increased
generation from renewable power sources. Similarly, an abundant future
domestic gas supply promotes gas fuelled energy production at the expense
of coal demand.
Demand shift up: Clean coal technology advances will result in the
development of an IGCC plant being built in 2020, creating an upwards shift
in NZ thermal coal demand.
Demand shift down: The introduction of carbon charging and promotion of
renewable energy generation options in NZ results in the decommissioning of
Huntly power station (Units 1-4) in 2020.
4.2.1 Assumptions
Assumptions used in modelling the base case include:
All prices are in New Zealand Dollars and are based on long term coal
contracts.
The infrastructure is in place to import thermal (sub-bituminous) coal into the

North Island from the South Island or overseas.
The power station has the physical plant characteristics that allow it to burn
both sub bituminous and bituminous coals or a mixture of both and can
dispose of the waste products.25
There are no environmental constraints on the delivery and combustion of the

assumed quantities of coal at Huntly power station.
The Glenbrook steel mill continues to take coal from Huntly East.
Ceilings on coal prices are determined by:

Domestic gas prices
The price of imported coal
Costs of coal extraction both domestically and overseas
International prices for coal do change, but the availability of coal sourced
internationally is unlimited
4.2.2 Current prices
Current prices for sub-bituminous coal on a long term contract basis used for
electricity generation are assumed at $4/GJ. This is consistent with the estimated
value of the coal stockpile for Huntly derived from the Genesis Energy annual
26
report.
Current contract prices for lignite are assumed at $2.00/GJ.
25
We assume, further, that the consequence of this assumption does not lead New Zealand to consume its own production
of bituminous coals (which are exported). It does admit, however, the importation of bituminous – but lower quality – coal
from overseas.
26
http://activemagazine.smedia.com.au/Repository/GEN/2008/09/25/Genesis_AR%20final%20pdf%2018.9.08.pdf#OLV0_Pag
e_0001

4.2.3 Analytical framework
The analytical framework used in modelling is relatively simple. Two supply

curves are produced each year: one each representing minimum prices and
associated supply quantities for domestic and overseas suppliers respectively.
The single supply curve confronting domestic purchasers thus comprises a given
quantity and the minimum price at which that quantity can be supplied.
Further, international supply is combined to resemble a single supplier (likely

either Australia or Indonesia). Relevant modelling variables are thus:
Initial sub-bituminous coal demand, set at current consumption (50 PJ)

Initial lignite coal demand, set at (10 PJ)
Domestic sub-bituminous coal demand growth, reflecting growth in coal used
in power generation and in steel making
2010 prices for domestic coal and overseas-sourced coal
Extraction cost growth both at home and abroad. This reflects resource
scarcity only and is passed through completely into growth in coal prices in
each market
Inflation both home and abroad, reflecting price changes independent of

scarcity, including transportation costs, wages costs and costs of capital.
4.2.4 Modelling limitations
Modelling design and assumptions were selected to produce realistic yet tractable
results. The constraints on modelling, however, lead to the following limitations:
Demand and cost growth “smoothness”. The model assumes constant

changes in demand and costs. In reality, changes in these factors are likely to
be variable and lumpy. As such, they are reflective of trends rather than
accurate year-specific forecasts.
Substitutability of bituminous for softer coals. The model assumes that
the bifurcation of New Zealand’s coal market persists. Technological
innovation, the discovery of new deposits or extraordinary changes in costs
(for example, in transportation) might render this assumption questionable.
World profile. Import schedules are, largely, treated as fixed in the model.
Unlimited imports are possible at the going international rate. Major shifts in
the international market – for example, a new supplier – are assumed away.

4.3 Base case results
Assumptions included in the base case are:
Table 4-1 Base case assumptions

Notes
Initial NZ coal demand (PJ) 50.00
2010 first unit home price ($/GJ) $ 4.00

2010 first unit abroad price ($/GJ) $ 4.05
Coal demand growth 0.60% In line with elec demand growth unless coal share changes
Home inflation 1.10% Captures cost indexation indep of "effort to extract"

Abroad inflation 1.075% Captures cost indexation indep of "effort to extract"
Home extraction cost growth 0.70% Captures growth in difficulty in extraction effort. Can't be < 0
Abroad extraction cost growth 0.20% Captures growth in difficulty in extraction effort. Can't be < 0
Base case results are shown in the following set of charts27:
Figure 4-1 Base Case: Price-availability supply curve
7.50
7.00
Offered price ($/GJ)
6.50
6.00
5.50
5.00
4.50
4.00
3.50
0 25 50 75 100 125 150 175 200 225 250
Availability (PJ)
Bid Home 2010 Bid Home 2030 Bid Home 2049
Bid Abroad 2010 Bid Abroad 2030 Bid Abroad 2049
At the beginning of the forecast period prices are relatively low at $4.03/GJ for
smaller quantities, rising to $4.73 for the largest domestically supplied quantities.
By the end of the period, domestic prices begin at $6.20 and increase to $7.33 for
the largest quantities. As annual demand quantities increase, domestic supply
prices exceed international prices due to greater increases in extraction costs.
27
Full size charts are included in Appendix A.

Figure 4-2 Base Case: Domestic supply and price
70.0 $6.50
60.0 $6.00
Availability (PJ)
Price ($/GJ)
50.0
$5.50
40.0
$5.00
30.0
$4.50
20.0
10.0 $4.00
0.0 $3.50
2010
2012
2014
2016
2018
2020
2022
2024
2026
2028
2030
2032
2034
2036
2038
2040
2042
2044
2046
2048
Home Abroad Price average Price max
Approximately 60% of demand is met from domestic sources in the early part of
the forecast period, but demand is increasingly met by overseas sources as time
progresses. By 2049, approximately 80% of domestic demand is met by imports.
Average prices over the forecast period range between $4.06 in 2010 and $6.18 in
2049.
4.4 Scenario analysis

4.4.1 Increased coal demand
If no significant new gas reserves are found, the demand for coal would increase
at a faster rate on the back of higher natural gas prices. A lack of bankable gas
supplies may prolong the life of Huntly power station fuelled on coal and promote
the commercialisation of clean coal technology options.
Assumptions included in the increased coal demand case are included in Table
4-2:

Table 4-2 Increased coal demand case assumptions
Notes

Coal demand growth 2.00% Faster demand growth due to reduced gas reserves future

Figure 4-3 Increased coal demand case: Domestic supply and price
120.0 $6.50
100.0 $6.00
Availability (PJ)
Price ($/GJ)
80.0 $5.50
60.0 $5.00
40.0 $4.50
20.0 $4.00
0.0 $3.50
2010
2012
2014
2016
2018
2020
2022
2024
2026
2028
2030
2032
2034
2036
2038
2040
2042
2044
2046
2048
Demand is met approximately equally from domestic and international sources in

the early part of the forecast period, but demand is increasingly met by overseas
sources as time progresses. By 2049, approximately 90% of domestic demand is
met by imports. Average prices over the forecast period for purchases range
between $4.06 in 2010 and $6.21 in 2049.
Domestic supply of cheaper sub-bituminous coal is limited and the costs of

extraction will rise faster than for coal mined in countries such as Indonesia and
Australia. Thus the increased coal demand scenario reflects proportionately
increased quantities being supplied from international sources.
4.4.2 Reduced coal demand
Increases in future gas supply through either new gas field finds or importation of
LNG, or the introduction of carbon charging and carbon emissions reduction

targets may result in a declining annual coal demand. Although gas and coal are
not perfect substitutes in the short term, a slowing in gas price increases may
reduce the demand for coal especially when combined with a future which includes
a cost of CO2 emissions.
Assumptions included in the reduced coal demand case are:
Table 4-3 Reduced coal demand case assumptions
Notes
Initial NZ coal demand (PJ) 50.00 PJ
2010 first unit home price $ 4.00 $/GJ

2010 first unit abroad price $ 4.05 $/GJ
Coal demand growth -0.80% Reduced demand

Figure 4-4 Reduced coal demand case: Domestic supply and price
60.0 $6.50
50.0 $6.00
Availability (PJ)
Price ($/GJ)
40.0 $5.50
30.0 $5.00
20.0 $4.50
10.0 $4.00
0.0 $3.50
2010
2012
2014
2016
2018
2020
2022
2024
2026
2028
2030
2032
2034
2036
2038
2040
2042
2044
2046
2048
Demand is met approximately equally from domestic and international sources

over the forecast period, with imports gradually increasing market share. By 2049,
approximately 70% of domestic demand is met by imports. Average purchase
prices over the forecast period range between $4.06 in 2010 and $6.16 in 2049.
4.4.3 Demand shift up: New IGCC plant in 2020
To model the effects of a upwards shift in demand, a decision to build a new IGCC
plant in 2020, close to Waikato coal sub-bituminous reserves, has been assumed.
This results in an increase of annual coal demand up to 80PJ in 2020.
Assumptions included in this demand shift case are:
Table 4-4 Demand shift up: Case assumptions
Notes
Initial NZ coal demand (PJ) 50.00 Increasing to 80 PJ in 2020

Coal demand growth (%/annum) 0.60% In line with elec demand growth unless coal share changes

Figure 4-5 Demand shift up: Domestic supply and price
100.0 $6.50
90.0
$6.00
80.0
Availability (PJ)
Price ($/GJ)
70.0
$5.50
60.0
50.0 $5.00
40.0
$4.50
30.0
20.0
$4.00
10.0
0.0 $3.50
2010
2012
2014
2016
2018
2020
2022
2024
2026
2028
2030
2032
2034
2036
2038
2040
2042
2044
2046
2048
Approximately 60% of demand is met from domestic sources in the early part of
the forecast period. The majority of the demand shift in 2020 would be met from
international coal sources. By 2049, approximately 90% of domestic demand is
met by imports. Average prices over the forecast period for purchases range
between $4.06 in 2010 and $6.20 in 2049.
4.4.1 Demand shift down: Huntly decommissioned in 2020
Huntly represents 60% to 70% of the NZ demand for thermal or sub-bituminous

coal in any one year. Significantly reducing the demand for thermal coal in 2020
vastly reduces the quantities of coal imported, resulting in domestic supply

subsequently meeting the majority of domestic demand. It is unlikely the price
path will change materially as the costs of extraction will continue to rise albeit at a
slower rate. Assumptions included in the downwards demand shift case are:
Table 4-5 Demand shift down: Case assumptions
Notes
Initial NZ coal demand (PJ) 50.00 Reducing to 30 PJ in 2020

Coal demand growth (%/annum) 0.60% In line with elec demand growth unless coal share changes

Figure 4-6 Demand shift down: Domestic supply and price
60.0 $6.50
50.0 $6.00
Availability (PJ)
Price ($/GJ)
40.0 $5.50
30.0 $5.00
20.0 $4.50
10.0 $4.00
0.0 $3.50
2010
2012
2014
2016
2018
2020
2022
2024
2026
2028
2030
2032
2034
2036
2038
2040
2042
2044
2046
2048
60% of demand is met from domestic sources in the early part of the forecast
period. As a result of reduced NZ annual demand in 2020 the majority of coal
would be sourced domestically, however, by 2049, approximately 80% of domestic
demand is met by imports. Average prices over the forecast period for purchases
range between $4.06 in 2010 and $6.20 in 2049.
4.5 Lignite modelling

Since importation of lignite is unlikely, all NZ supply would be from Southland
deposits. Prices would increase marginally over the longer term, consistent with
the marginal increases in extraction costs.

Assumptions included in the lignite base case are:
Table 4-6 Lignite modelling assumptions

Notes

Coal demand growth (%/annum) 0.60% In line with themal coal demand growth unless lignite share changes

Figure 4-7 Lignite: Domestic supply and price
14.0 $3.50
$3.30
12.0
$3.10
Availability (PJ)
Price ($/GJ)
10.0 $2.90
$2.70
8.0
$2.50
6.0
$2.30
4.0 $2.10
$1.90
2.0
$1.70
0.0 $1.50
2010
2012
2014
2016
2018
2020
2022
2024
2026
2028
2030
2032
2034
2036
2038
2040
2042
2044
2046
2048
Average lignite prices over the forecast period range between $2.03 in 2010 and
$3.07 in 2049.

4.6 Summary
Figure 4-8 and Figure 4-9 summarise the supply quantities and price paths for the
thermal coal scenarios outlined above.
Figure 4-8 Scenario supply quantities
120
100
80
Quantity (PJ)
60
40
20
0
2010 2013 2016 2019 2022 2025 2028 2031 2034 2037 2040 2043 2046 2049
Year
Base case Increased demand Reduced demand Demand shift down Demand shift up
Figure 4-9 Scenario price paths
6.5
6
Price ($/GJ)
5.5
4.5
4
2010 2013 2016 2019 2022 2025 2028 2031 2034 2037 2040 2043 2046 2049
Year
Base case Increased demand Reduced demand Demand shift down Demand shift up

5 Glossary
Term Definition
BTU British Thermal Unit
Capex Capital Expenditure
CCGT Combined Cycle Gas Turbine
CCS Carbon Capture and Storage
CFB Circulating Fluidised Bed
CIF Cost, Insurance and Freight
CO2 Carbon Dioxide
CTL Coal to liquids
CV Calorific Value
ETS Emissions Trading Scheme
FGD Flue Gas Desulphurisation
GEM Generation Expansion Model
GT Gas Turbine
GWh Gigawatt-hour
IGCC Integrated Gasification Combined Cycle
kJ Kilo joule
kWh Kilowatt-hour
LNG Liquified Natural Gas
MW Megawatt
NOx Oxides of Nitrogen
O&M Operations and Maintenance
OECD Organisation for Economic Co-operation and Development
PB Parsons Brinckerhoff
PJ Petajoule
ST Steam Turbine
5.1 Definitions
Coal-in-ground or In-place coal reserves. Is the quantity of coal estimated to
exist in place.
Recoverable reserves. Is the amount of coal-in-ground that is estimated would

actually be mined using existing mining technology.
Economically recoverable reserves. The final selling price of coal determines

the economically recoverable reserves from the mines.

Appendix A
Price and availability modelling data
PARSONS BRINCKERHOFF Page A-1

Price and Availability Data
Base Case
Year Home Supply (PJ) Abroad Supply (PJ) Price average ($/GJ) Price max ($/GJ)
2010 30.00 20.00 4.06 4.09
2011 30.00 20.30 4.10 4.13
2012 30.00 20.60 4.14 4.18
2013 30.00 20.91 4.19 4.22
2014 30.00 21.21 4.23 4.27
2015 30.00 21.52 4.28 4.32
2016 30.00 21.83 4.33 4.36
2017 30.00 22.14 4.37 4.41
2018 30.00 22.45 4.42 4.46
2019 30.00 22.77 4.47 4.50
2020 20.00 33.08 4.52 4.55
2021 20.00 33.40 4.57 4.60
2022 20.00 33.72 4.62 4.65
2023 20.00 34.04 4.67 4.70
2024 20.00 34.37 4.72 4.75
2025 20.00 34.69 4.77 4.80
2026 20.00 35.02 4.82 4.85
2027 20.00 35.35 4.87 4.91
2028 20.00 35.68 4.93 4.96
2029 20.00 36.02 4.98 5.01
2030 20.00 36.35 5.03 5.07
2031 20.00 36.69 5.09 5.12
2032 20.00 37.03 5.14 5.18
2033 20.00 37.38 5.20 5.23
2034 20.00 37.72 5.25 5.29
2035 20.00 38.07 5.31 5.34
2036 20.00 38.41 5.37 5.40
2037 20.00 38.76 5.43 5.46
2038 20.00 39.12 5.49 5.52
2039 20.00 39.47 5.54 5.58
2040 20.00 39.83 5.61 5.64
2041 10.00 50.19 5.67 5.71
2042 10.00 50.55 5.73 5.77
2043 10.00 50.91 5.79 5.83
2044 10.00 51.28 5.86 5.90
2045 10.00 51.65 5.92 5.96
2046 10.00 52.02 5.98 6.02
2047 10.00 52.39 6.05 6.09
2048 10.00 52.76 6.11 6.15
2049 10.00 53.14 6.18 6.22

Increased demand scenario
2010 30.00 20.00 4.06 4.09
2011 30.00 21.00 4.10 4.13
2012 30.00 22.02 4.14 4.18
2013 30.00 23.06 4.19 4.22
2014 30.00 24.12 4.23 4.27
2015 30.00 25.20 4.28 4.32
2016 30.00 26.31 4.33 4.36
2017 30.00 27.43 4.37 4.41
2018 30.00 28.58 4.42 4.46
2019 30.00 29.75 4.47 4.50
2020 20.00 40.95 4.52 4.56
2021 20.00 42.17 4.57 4.61
2022 20.00 43.41 4.62 4.66
2023 20.00 44.68 4.67 4.71
2024 20.00 45.97 4.72 4.76
2025 20.00 47.29 4.77 4.81
2026 20.00 48.64 4.83 4.86
2027 20.00 50.01 4.88 4.93
2028 20.00 51.41 4.94 4.98
2029 20.00 52.84 4.99 5.03
2030 20.00 54.30 5.04 5.09
2031 20.00 55.78 5.10 5.14
2032 20.00 57.30 5.15 5.20
2033 20.00 58.84 5.21 5.25
2034 20.00 60.42 5.27 5.32
2035 20.00 62.03 5.33 5.38
2036 20.00 63.67 5.39 5.43
2037 20.00 65.34 5.45 5.49
2038 20.00 67.05 5.50 5.55
2039 20.00 68.79 5.56 5.61
2040 20.00 70.57 5.63 5.68
2041 10.00 82.38 5.69 5.74
2042 10.00 84.23 5.75 5.81
2043 10.00 86.11 5.81 5.87
2044 10.00 88.03 5.88 5.93
2045 10.00 89.99 5.94 6.00
2046 10.00 91.99 6.01 6.07
2047 10.00 94.03 6.07 6.14
2048 10.00 96.11 6.14 6.20
2049 10.00 98.24 6.21 6.27

Reduced demand scenario
2010 30.00 20.00 4.06 4.09
2011 30.00 19.60 4.09 4.13
2012 30.00 19.20 4.14 4.17
2013 30.00 18.81 4.18 4.22
2014 30.00 18.42 4.23 4.26
2015 30.00 18.03 4.27 4.31
2016 30.00 17.65 4.32 4.35
2017 30.00 17.27 4.37 4.40
2018 30.00 16.89 4.41 4.45
2019 30.00 16.51 4.46 4.49
2020 20.00 26.14 4.51 4.54
2021 20.00 25.77 4.56 4.59
2022 20.00 25.41 4.61 4.64
2023 20.00 25.04 4.66 4.69
2024 20.00 24.68 4.71 4.74
2025 20.00 24.32 4.76 4.79
2026 20.00 23.97 4.81 4.84
2027 20.00 23.62 4.87 4.90
2028 20.00 23.27 4.92 4.95
2029 20.00 22.92 4.97 5.00
2030 20.00 22.58 5.03 5.06
2031 20.00 22.24 5.08 5.11
2032 20.00 21.90 5.14 5.17
2033 20.00 21.57 5.19 5.22
2034 20.00 21.23 5.25 5.28
2035 20.00 20.90 5.30 5.33
2036 20.00 20.58 5.36 5.39
2037 20.00 20.25 5.42 5.45
2038 20.00 19.93 5.47 5.50
2039 20.00 19.61 5.53 5.56
2040 20.00 19.29 5.59 5.62
2041 10.00 28.98 5.65 5.68
2042 10.00 28.67 5.71 5.74
2043 10.00 28.36 5.77 5.80
2044 10.00 28.05 5.84 5.86
2045 10.00 27.75 5.90 5.92
2046 10.00 27.44 5.96 5.99
2047 10.00 27.15 6.03 6.05
2048 10.00 26.85 6.09 6.12
2049 10.00 26.55 6.16 6.18

Demand shift up scenario
2010 30.00 20.00 4.06 4.09
2011 30.00 20.30 4.10 4.13
2012 30.00 20.60 4.14 4.18
2013 30.00 20.91 4.19 4.22
2014 30.00 21.21 4.23 4.27
2015 30.00 21.52 4.28 4.32
2016 30.00 21.83 4.33 4.36
2017 30.00 22.14 4.37 4.41
2018 30.00 22.45 4.42 4.46
2019 30.00 22.77 4.47 4.50
2020 20.00 60.00 4.54 4.58
2021 20.00 60.48 4.58 4.63
2022 20.00 60.96 4.63 4.68
2023 20.00 61.45 4.68 4.73
2024 20.00 61.94 4.74 4.78
2025 20.00 62.43 4.79 4.83
2026 20.00 62.92 4.84 4.88
2027 20.00 63.42 4.89 4.94
2028 20.00 63.92 4.94 4.99
2029 20.00 64.43 5.00 5.04
2030 20.00 64.93 5.05 5.10
2031 20.00 65.44 5.11 5.15
2032 20.00 65.95 5.16 5.21
2033 20.00 66.47 5.22 5.26
2034 20.00 66.99 5.27 5.32
2035 20.00 67.51 5.33 5.38
2036 20.00 68.04 5.39 5.43
2037 20.00 68.56 5.45 5.49
2038 20.00 69.10 5.50 5.55
2039 20.00 69.63 5.56 5.61
2040 20.00 70.17 5.63 5.68
2041 10.00 80.71 5.69 5.74
2042 10.00 81.25 5.75 5.81
2043 10.00 81.80 5.81 5.87
2044 10.00 82.35 5.88 5.93
2045 10.00 82.91 5.94 6.00
2046 10.00 83.46 6.00 6.06
2047 10.00 84.02 6.07 6.12
2048 10.00 84.59 6.13 6.19
2049 10.00 85.15 6.20 6.26

Demand shift down scenario
2010 30.00 20.00 4.06 4.09
2011 30.00 20.30 4.10 4.13
2012 30.00 20.60 4.14 4.18
2013 30.00 20.91 4.19 4.22
2014 30.00 21.21 4.23 4.27
2015 30.00 21.52 4.28 4.32
2016 30.00 21.83 4.33 4.36
2017 30.00 22.14 4.37 4.41
2018 30.00 22.45 4.42 4.46
2019 30.00 22.77 4.47 4.50
2020 20.00 10.00 4.50 4.53
2021 20.00 10.18 4.55 4.58
2022 20.00 10.36 4.60 4.63
2023 20.00 10.54 4.65 4.68
2024 20.00 10.73 4.70 4.73
2025 20.00 10.91 4.75 4.78
2026 20.00 11.10 4.81 4.83
2027 20.00 11.28 4.86 4.89
2028 20.00 11.47 4.91 4.94
2029 20.00 11.66 4.96 4.99
2030 20.00 11.85 5.02 5.05
2031 20.00 12.04 5.07 5.10
2032 20.00 12.23 5.13 5.15
2033 20.00 12.43 5.18 5.21
2034 20.00 12.62 5.24 5.27
2035 20.00 12.82 5.30 5.32
2036 20.00 13.01 5.35 5.38
2037 20.00 13.21 5.41 5.44
2038 20.00 13.41 5.47 5.50
2039 20.00 13.61 5.53 5.56
2040 20.00 13.81 5.59 5.62
2041 10.00 24.02 5.65 5.68
2042 10.00 24.22 5.71 5.74
2043 10.00 24.43 5.77 5.80
2044 10.00 24.63 5.84 5.86
2045 10.00 24.84 5.90 5.92
2046 10.00 25.05 5.96 5.99
2047 10.00 25.26 6.03 6.05
2048 10.00 25.47 6.09 6.12
2049 10.00 25.68 6.16 6.18

Lignite scenario
2010 10.00 0.00 2.01 2.01
2011 10.06 0.00 2.03 2.04
2012 10.12 0.00 2.05 2.06
2013 10.18 0.00 2.07 2.08
2014 10.24 0.00 2.10 2.10
2015 10.30 0.00 2.12 2.13
2016 10.37 0.00 2.14 2.15
2017 10.43 0.00 2.17 2.17
2018 10.49 0.00 2.19 2.20
2019 10.55 0.00 2.21 2.22
2020 10.62 0.00 2.24 2.25
2021 10.68 0.00 2.26 2.27
2022 10.74 0.00 2.29 2.30
2023 10.81 0.00 2.31 2.32
2024 10.87 0.00 2.34 2.35
2025 10.94 0.00 2.36 2.37
2026 11.00 0.00 2.39 2.40
2027 11.07 0.00 2.42 2.43
2028 11.14 0.00 2.44 2.45
2029 11.20 0.00 2.47 2.48
2030 11.27 0.00 2.50 2.51
2031 11.34 0.00 2.53 2.53
2032 11.41 0.00 2.55 2.56
2033 11.48 0.00 2.58 2.59
2034 11.54 0.00 2.61 2.62
2035 11.61 0.00 2.64 2.65
2036 11.68 0.00 2.67 2.68
2037 11.75 0.00 2.70 2.71
2038 11.82 0.00 2.73 2.74
2039 11.89 0.00 2.76 2.77
2040 11.97 0.00 2.79 2.80
2041 12.04 0.00 2.82 2.83
2042 12.11 0.00 2.85 2.86
2043 12.18 0.00 2.88 2.89
2044 12.26 0.00 2.91 2.92
2045 12.33 0.00 2.94 2.95
2046 12.40 0.00 2.98 2.99
2047 12.48 0.00 3.01 3.02
2048 12.55 0.00 3.04 3.05
2049 12.63 0.00 3.07 3.09

PB Coal Study

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Coal Price & Availability Study

Report for the Electricity Commission

Report for the Benefit of the Electricity commission

Document Reference : 153015A Coal Study Report v006 final.doc

Table 2-1 Domestic reserves by rank and region, PJ, 2001 22

PARSONS BRINCKERHOFF Page i

Figure 2-1 World coal demand figures (2002 to 2030) 4

PARSONS BRINCKERHOFF Page ii

Task 1 – Describes the key drivers of the coal price.

Task 2 – Describes the relationship between coal and oil prices.

PARSONS BRINCKERHOFF Page 1

Global coal demand

Global coal supply conditions

Availability and prices of substitute fuels

Regulatory settings such as carbon emissions charging

The abundance of coal on the international market and the intensity of

wider economic conditions like terms of trade, inflation rates and

The complexity involved in understanding these drivers is compounded when the

PARSONS BRINCKERHOFF Page 2

2.2 Global coal demand and supply

PARSONS BRINCKERHOFF Page 3

2.2.2 Global coal supply conditions

PARSONS BRINCKERHOFF Page 4

Quality and geological characteristics of coal deposits are important parameters

2.3 Availability and prices of substitute fuels

2.3.1 Natural Gas

As at 2007, proved global reserves of natural gas was equivalent to between 50 to

Geological and operations

PARSONS BRINCKERHOFF Page 5

The amount of gas remaining in the Maui field

Potential future resources – coal gasification, lignites, Methane hydrates

The current price of gas in NZ is approximately $7/GJ and is subject to change on

Figure 2-2 NZ quarterly gas production

PARSONS BRINCKERHOFF Page 6

2.4 Technology developments

New coal-fired electricity generation is increasingly making use of one or more of

Another approach to reducing greenhouse gases caused from coal-fired electricity

2.4.1 Clean Coal Technology

Super-critical Pulverised Fuel. Supercritical pulverised fuel technology has now

Atmospheric Fluidised Bed Combustion. Atmospheric fluidised bed

Pressurised Fluidised Bed Combustion, and Integrated Gasification

PARSONS BRINCKERHOFF Page 7

2.4.2 Carbon Sequestration

Post-Combustion methods require additional energy input to successfully remove

Research and development is currently being done to create more post-

2.4.3 CO2 Storage

Underground storage. Underground storage of CO2 involves injecting CO2

PARSONS BRINCKERHOFF Page 8

Ocean storage. Another proposed form of carbon storage is in the oceans.

convert the CO2 to bicarbonates (using limestone)

Mineral sequestration. In this process, CO2 is exothermically reacted with

The additional energy required to achieve mineral sequestration to a conventional

The advantages of mineral sequestration are:

The carbonates formed are thermodynamically stable and the disposal is

The mineral resources on earth far exceed need.

Carbonate is the lowest energy state of carbon, not carbon dioxide.

PARSONS BRINCKERHOFF Page 9

The minerals are readily accessible in locations near high-density power

There is potential to produce value-added by-products.

The process is compatible with both technologies under development and

Predicted cost is not unreasonable.

Implementation without an external supply of heat is possible because the

The disadvantages of mineral sequestration are: