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Clean Coal CCS Project a Possible Victim of Queensland Flooding

January 11, 2011

The flooding in Queensland, Australia, will likely have major direct budgetary cost implications for the State through infrastructure damage and reduced minerals royalties.  The State is already running a substantial deficit.  There will undoubtedly be a focus to identify measures to reduce non-essential expenditure.

Australia largely shuts down for a month over the Christmas and New Year period as the country willfully resigns itself to Christmas parties and shopping and family summer holidays on the beach.  The run-up to Christmas is therefore a great time for Government to dump bad news. 

The Queensland Government announced results of a review of clean coal investment activities just before Christmas, in which it decided it was canning the flagship Zerogen Integrated Gasification Combined Cycle (IGCC) and Carbon Capture and Storage (CCS) project near Rockhampton in the Bowen basin.

Over AUD $100m has already been spent on this project. 

The announcement lays bare the difficulties faced by the coal industry to deliver their promise to cost-effectively deliver emissions abatement within the near future.

There have been varying reasons cited by different parties for the cancellation of the project. 

On the one hand, the head of the Queensland Resources Council has implied to the ABC that the issue is that the storage characteristics of that area of the Bowen basin are not suitable for commercial-scale capture, and that the Surat basin will now be investigated.  (The surat basin is currently inundated, with most resources activities temporarily halted).

On the other hand, technologists have implied that IGCC itself is not a viable technology option to pursue due to uncommercial cost considerations.  The Australian quotes Peter Cook, the head of the Cooperative Research Centre for Greenhouse Gas Technologies in the context of the Zerogen decision, as stating that emphasis is moving away from pre-combustion (e.g. IGCC) to post-combustion technologies.  IGCC is a key pre-combustion technology component of coal industry plans for low-emissions coal combustion in the future.  It is included as a critical technology by Australia’s Coal21 consortium, Peabody Energy (an industry flag-waver for ‘clean coal’), as well as international coal associations. IGCC is also one of the technology characteristics of Queensland’s Wandoan project in the Surat basin – one of the three remaining clean coal projects in the Australian Government’s major funding tender process.

Revealingly, the mayor of Rockhampton indicated that the decision was made on investment/risk basis, the ABC quoting him as stating:

“This is very tough economic times and those sorts of research projects – no matter how worthwhile they are – there maybe other higher priorities that the state financiers need to look at,”

“If we’ve got risky projects that’s taking money away from key infrastructure projects, this may be a very proper and appropriate decision that the Queensland Government have had to take.”

The Australian Coal Association has bravely stated that theZerogen decision

‘does not signal a significant impediment to the continued development and demonstration of CCS technologies in Queensland’,

yet goes on to state that the Zerogen work

‘demonstrated that 2015 was not a realistic target for completion of a commercial scale power station with CCS and that it may be best to use an alternative capture technology to the Zerogen proposal’. 

In effect, Zerogen has generated only dead-ends.

Any Queensland clean coal project selected by the Australian federal Government Carbon Capture and Storage Flagship program, to be announced in the first half of 2011, must be co-financed by industry and the Queensland Government.  Following cancellation of Zerogen, Wandoan is now the only remaining shortlisted project in Queensland.

Queensland is running an operating budget deficit, with 2010-2011 forecast to be $1.7 billion, including asset sales to reduce borrowing.

Queensland’s Government budget is about to be even more stretched as a result of the extensive flooding that has occured over the past month over large parts of the State.  The damage cost from these floods is currently assessed to be over $6 billion.  The rain is still falling onto saturated catchments.  2010-2011 coal royalty projections for Queensland in the 2009-10 budget were $2.77 billion.  Flood impacts on mining and coal freight will mean a possible downward revision of this income.

It is quite feasible that a high-risk, long-term, expensive and uncertain research and development project such as the Wandoan clean coal technology demonstration project will come under close scrutiny as an option to reduce Government expenditure.

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