The John Homer

Papers

The World Bank Washington, D.C.

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A collation of the briefing papers written by John Homer

during his time with The World Bank from March 1990 to June 1992

Dedicated to Afsaneh Mashayelchi, creator and chief of the Natural Gas Development Unit,

and to the twenty four developing countries with which the Unit worked in the first two years of operation.

Summaries

Paper 1

Natural Gas in Developing Countries: Evaluating the Benefits to the Environment

- a paper wrirten as a rderence for the resources and opportunities for natural gas in the developing countries of the world. It provides a brief on the technical aspects of ~ l n v a l gas we partr'cularly aimed at giving an overall perspective on the environmental beqfits of wing natural gas. In the later pages it emmines three country cases, the UK, Korea and Poland, and shows how an increared reliance on natural gas has helped or is expected to help to solve some of the di@ultproblemr of environmental pollution which industrial development creates. The paper was developed in the form which is shown here as a working paper for the World Development Report 1992

Natural Gas in the International Context: International Enthusiasm and Industry Structures

- presented as the lead invited paper to a Seminar on the Institutional Organization of the Gas Sector organized by the Colombian Government and held in Santa Manu, Colombia, in December 1991. It touches on the wide variety of gas indurny structures that have developed around the world, on the current move towards privahcltlzorion of government owned gas indurtries and on the related issue of regularion.

Paper 3

The Environmental Value of Natural Gas

- presented to the Symposium on Gas and the Environment held in Berlin in July 1991 as part of the 18th World Gas Coqference. It advertised the work which the Natural Gas Unit was engaged in for the Polish Government on incorporating economic environmental credits into the decision proms aimed at priority investment in natural gas.

Methane Emissions from Natural Gas Systems

- a briefing paper written for the World Bank in July 1990 to place into perspective (and so to calm) the concern that methane leaking from gas industry operations might be having a major impact on the global environment.

Paper 5

CNG for Vehicles in Developing Countries

- a review paper for the Seminar on the Use of Compressed Natural Gas in Transport which was held in the World Bank, Washington DC, in June 1991. The paper reviews the technical and economic position of CNG and discusses why the gasoline and diesel markets are overwhelmingly the favorite fuels for r d vehicles in the world's economies. A summary is included of the country program on CNG which have been promoted by the World Bank.

Paper 6

Coal Gasification Technology: A Brief Guide for Future Prospects

- a briefing paper written for the World Bank in August 1990 to describe the variow technologies for producing gas from coal and demonstrating how the market for coal garificaswn technology is severely limited whereverfuel oil and natural gas are readily available at the kind of competitive prices which the world has seen in the last decade.

Paper 7

A Story about C h d n g New Coal Utilization Technology

- a bri&ng paper written in Augwt 1991 to promote a debate in the World Bank on the care which has to be taken over the choice of clean coal technologies w o r e they can promoted ar a reliable contributor to economic and environmental development.

Paper 1

Natural Gas in Developing Countries: Evaluating the Benefits to the Environment

December 1991

John Homer Natural Gas Development Unit

Energy Sector Management Assistance Programme The World Bank

Washington, D.C.

Natural Gas in Developing Countries. Evaluating the Benefits to the Environment

Introduction

Natural Gas Resource

The World's N a n d Gas Resource N m a l Gas Resources in Developing Counlries Economics of N w a l Gas Producrion in Developing Countries Further Resources of Narural Gas Gas Qualities The Pracrice of Gas Flaring

Natural Gas Use and Environmental Emissions

Clean Fuel Characterisrics of Nawal Gas Use of Natural Gas in Power Generation Use of Natural Gas in Residential, Commercial and Indusm~al Markets Use as a Fuel for Vehicles Use as a Chemical Feedsrock Gas Leakage CO2 Emissions during Producrion and Transport

Assessment of Environmental Benefits

Concerns over Air Pollurion Cosrr of Air Pollution Analysis of Environ~ntal Benefirr from the Use of Narural Gas - Case Study 1. London

- Case Study 2. Korea - Case Study 3. Poland

Future Trends and Issues

Natural Gas in Developing Countries. Evaluating the Benefits to the Environment

1. Introduction

Natural gas has always been reg& as a prcmium fuel. It is non-toxic and burns

with a remarkably clean and controllable k, so giving condexable practical and economic

benefits to industrial, commerciai and residential consumers alike. It has been regarded also as

somewhat of a scarce commodity, so that certain govenunents, particularly those of Western

Europe, who found themselves in the position of being endowed with natural gas, as well as

having available other fuels, such as coal, oil and nuclear, adopted a strategy of directing natural

gas towards markets where its premium qualities could be of most benefit to society, and allocated

the other fuels, more often than not in abundant supply, to the task of the industrial workhorse, in providing the base load supply of energy.

The last few years has seen an important change in amtude. From being reluctant to

broaden the markets for natural gas, governments arc now encouraging its wider use. This is especially so as a fuel for power generation. Such moves arc taking place in many OECD counmes and in Central and Eastern Europe, and international agencies, such as the World Bank,

are encouragmg similar moves in developing countries. Three factors have combined to bring about the change.

Firstly, the world's known reserves of natural gas, which can be economically

produced, arc larger than ever before. Continuing exploration activity, as well as improvements in

gas production technology, have steadily increased known reserves to about 700 billion barrels of

oil equivalen,~ virtually equd to the amount of rocoverable oil reserves, andequal to about 60 years

of supply of natural gas at current rates of consumption. Furthermore, there is a confidence that

exploration can reveal substantially marc reserves. Governments can commit their countries

therefore to a greater use of natural gas without undue risk of a fall off in supply.

Secondly, new developments in technology are making available large-scale, highly

efficient gas-fired power generation plants, which, for reasons of lower capital cost and higher

speed of construction are attracting a new wave of investment in the electricity industry.

Thirdly, and pahaps most mpomdy, is the strong in-nal reaction to the growing problems of envimmntal pollution, and the saengthening reahation that natural gas can help Solve those problems of an b n d a t c as well as long tam future

On tbe enviro~ltntal sidc, thac have also bectl major dtvtlop~11ts. Strongly intmwbd with energy strategy issues of the last decade arc uhe morm~us changes in -t

thinking on environmental i s m espcaally of air pollution. In the 1970's. it will be ncalltd, the

main focus of environmental attention was on pollution problems. During the early 1980'~, this broadened to encompass r c & d air pollution problems, esptclally associated with acid ra.h and so extended the deb= to include aansboundary pollution. Transnational discussion led to

full intentrrtiod debate as the 1980's unfolded A new threat to the world's environment arose in the form of the Greenhouse Effect, which was confirmed by a growing consensus of opinion from the scientific communities. The t h . came from the ever increasing emissions of Greenhouse Gases, in part from the burning of fossil fuels, which could mgger a serious change in the balance of the world's climate, including that of a global warming. It has become an international issue of global dimensions.

This paper reviews the position of natural gas as an important energy resource for developing counmes. It discusses the opportunities prtsenttd to them by recent developments in international environmental concerns and by the availability of technology for using natural gas in an efficient way to reduce air pollution loads.

Previous reviews on environmental benefits of natural gas have painted a strong but somewhat qualitative picture. This paper attempts to move more towards evaluating those benefits

in quantitative way and, where possible, in economic terms. It refers to three counay case sNdies, and describes the way in which the xewtive governments approach the problems of sevae air pollution. It explores appropriate methodologies to guide the governments of developing C O U ~ U ~ S

on the choices between alternative energy investment policies.

2. Natural Gas Resource

2.1 The Worlcfs Nuturd Gas Resource

Thcwoaldhassufficientpvcdrcsavesof nanPal gastolast60yearsatcuntnt consumption rates. The petroleum lndustry continues to find new Total pmvd g a ~

reserves increased by 12% in 1989 by afurther 1% in 1990 to a total of 130.a00X lo9 m3 (130 Tcm) which is equivalent to 700 billion bbl of oil equivalent and equal to 85% of the world's total

oil r e m e s . Gas reserves art distributed widely across the world in 85 countries. The following Table 2.1 identifies the 15 countries with the largest reserves. The USSR has by f a . the most, with 40% of the world's reserves and Iran is second with 13%.

Table 2.1 The World's Natural Gas Reserves

Proved Gas Resenres (Tcm) O/O

Country World 1990 1991 1990

USSR Iran Abu Dhabi Saudi Arabia US4 Qatar Venezuela Algeria Iraq Nigeria canda Indonesia Norway Australia Mexico

70 others

40% 13% 4% 4 'Yo

4% 3 % 3% 3 % 2% 2% 2% 2% 2% 2% 2%

Total World 130.2 131.8 100%

2 2 Nanual Gas Resources in Developing Countries

A h s t liolf of th world's Mhvrrl gar ~CSCNCS era in drveloping countries and thelongtamsupplysituationisseonginalmwtalldthem. Therat iooftotalrcsc~~to~ c m t proddon is as much as 140 years f a the developing c o ~ i c s which have proved gas rcsQves. It is expected to be even mart plentiful than that. A generally accepted view is that

proved nscrws of n a n d gas often are uadasuued sina the delilvafion of gas maves is much less precise and marc c o d v e than that of crude oil. To date then has been relalively little exploration in developing countries. Natural gas nsaves have been identified mainly while

e x p l h g for oil and it is expected that additional gas nserves, some of them being large, will k discovered as gas markets arc developed and gas exploration becomes economically attractive.

A listing of the developing countries which have proved natural gas reserves is given in Ihe following Table 2.2. It shows the extent of natural gas resource and natural gas consumption

as given by the 199 1 Repon on Natural Gas published by Cedigaz .

Table 23 Developing Countries with Proved Natural Gas Reserves (1989 economic data and 199019 1 gas data)

Iran United Arab Emirates Saudi Arabia varmela && IraS Nigeria

Murico Malam Kuwait Libya India china Bangladesh Arg- Palristan Trinidad and Tobago EWpr Puu Omar Myanmar Papua New Guinea Thailand Yanen Bolivia Syria Poland Cohbia Hungary Taruania Brazil chiic Ecuadar Camcroon Rcnnanm Afghanlsran Cdtc d'Ivoire

Otha Countries (2 1)

Sources: World Bank Md Cedigar

The above table is designed to highlight those developing counaics with the gnatest

resource in natural gas, but we must also idcnhfy, alongside, those developing counmcs with the g m r t c s t ~ n c t d .

Thc next two tables Tables 2 3 and 2.4, list thosc developing economics with p v d natural gas nservcs, in order of increuring GNP per cqpito. The n u m b are compared with thc basic economic data for cach country of papulation, GNP per capita aad total consumption of commslcial energy taken h m the 1991 World Development Report of the World Bank. Tht counties are shown in the tables, grouped into low and middle income economics as catcgarized by the World Bank Report .

Table 2 3 Natural Gas Reserves in Low-Income Economies (1989 economic data and 1990/91 gas data)

Total Ea~zgy Natural Gas --

GNP Cansumption Consumption Natural Gas country per capita Population pa year per year Rescrva

S (millims) (millions toe) (millions toe) (Bcm) (Bcm)

Mozambique Wopia Tanzania Somalia Bangladesh Mad%= Nigeria Zairt R wan& India China Pakistan Guinea Indonesia Af- Myanmar Sudan

- - -

Sowces: World Bank and Cedigaz

Table 2.4 Natural Gas Reserves in Mid-Income Economies (1989 economic data and 1990191 gas data)

NaMal Gas GNP NatumI Gas

Ansph Bdivia Egypr Yanen a t e d'Ivoirc M- Papua New Guinea Congo Syria Camaooa Peru . Ec* Colomha Thailand Tunisia Turkey Jordan chk Poland Mexicn Malaysia Argentina Algeria VenePrela South Africa Braid Hungary Yugoslavia Gabon Trinidad and Tobago Oman Libya Greece ban baq Romania

Sources: World Bank and Cedigaz

2 3 Economics of Nanval Gas Production in Developing Cowries

h a i t s having large rtsavcs of nand gas have a good chance of dcvehping the rtso\mx in an economic way, but couatries with small ~ t s can have.di&culty justrfying the initial hurdle investmu f a building a produdon facility and installing the ncccssq gas

transmission and distribution network.

A good guideline for the smallest size production facllity that is sensible em-y,

is for a gas rtserve of peahaps 5 Bcm, which, for a twenty year project, is large enough to fuel a 150 MWe power starion. Almost a l l the developing countries listed above have gas resenre greater than this amount

The cost of production would vary according to circumstances. Studies carried out by the World Bank estimated that the marginal cost of natural gas, delivered into the munay's gas

uansmission system , was in a range from $0.24 to $1.29/mcf across ten developing countries with diverse geological location, market, and gas qualities. Table 2.5 gives the estimate of margmal coats for the individual counaies examined, together with the proved gas reseryes fa the country:

Table 2 5 Estimated Marginal Cost of Natural Gas

country Natural Gas Reserves Margmal Cost (Bm) 0 ($/me)

Nigeria India Bangladesh Pakistan Egypt Thailand Tanzania Camamon Tunisia

Sources: World B& and Cedigaz

An hportant conclusion of the World Bank study was that the total cconOmic cost for

supply of natural gas, including this marginal cost as well as a depletion value b a d on the prict of

fuels it would replace, is below the economic cost of al-c fuels. Tbe cost of ahmathe fuels

vary acuxding to the individual circums- of the country, but it has bcumc aarmal d c

practice, in garual gdancc to developing counaics, regarding long tam policy da5shs on energy i n v e t , to compm those costs with the txmk prices of in-nal trade.

Tbe following Table 2.6 gives, rhcrefo~c, for comparison, the energy prices for

imported fuels which are typical of present &y international trade. For the cross reference, fuel

prices arc converted in the last column of the table, to the common unit of $/mmBtu.

Table 2.6 Equivalents for Representative International Fuel Prices

Fuel

Oil 20 3.4 Steam Coal 50 1.2 Pipeline Natural Gas 2.5 2.5 LNG 3.5 3.5

The broad conclusion of the comparison is is that natural gas can be producedfrom

indigenous sources at costs which are much lower than the cost of importing oil and gas and, in many cases, lower than the cost of importing coaL

2.4 Furtkr Resources of Natural Gas

Besides proved reserves and additional, as yet undiscovered, reserves, there are several other "unconventional" sources of methane. Some of these sources of gas are being produced

commercially in some counmes but much of them await improved technology, or an increase in fuel price, to permit economic production on a large scale. Some of these resources arc huge,

vastly greater than conventional reserves in some countries, and while most of the attention to date

has been in North America, slrmlar geological foxmaions are known to exist elsewhere in the

world but have not yet been appraised.

The " u n c o n v ~ gas resaves arc:

coolbcd mchme whicR is a substantial resource associated with the wodd's coal deposits rud which is being incrutsingly used eitha by sapping the mthanc vented fmm deep coal mints or being psoduccd b m wells drilled ttmugh multiple scams of a coal field ( the US m a L c s s i ~ ~ t u s e d t h i s ~ a a d k i s a n a i ~ t h a t P o l a n d a a d ~ w i l l a l s s develop substantial gas pmduction from similar resources in the near future ),

tight gar formationr where the gas is held in rocks of low permeability and requires rock hcturing techniques to encourage useful production,

shalt gar deposits which arc the Devonian shales, ricR in organic matter, but very reluctant to release their natural gas,

gas hydrares which arc present in permafrost or in seabeds, with huge estimates of reserves, but an economic production which has to be highly speculative,

geopressured aquifers where gas is dissolved in water at the very high pressures

found deep in the ground, again with huge restrve estimates, but again regarded as highly speculative as a useable resource.

Gas Qualities

Natural gas resources range in quality from being "dry", containing mostly methane, through being "wet", when they have signficant amounts of higher hydrocarbons - ethane,

propane, butanes, pentanes - to being fully "associated" with crudt oil and, in which case the gas emerges from the well at the samc time as oil is produced.

The higher hydrmubons in "wet" gas can be physically condensed out and can be a useful source for commercial Liquefied Petroleum Gas (LPG) and gasoline fuels. Some typical

compositions of n a n d gases and of LPG which an being produced are shown in Table 2.7. Also

shown are examples of a low calorific value gas which has significant amounts of nimgen, and a

sour gas which has high amounts of sulphur in the form of the highly toxic hydrogen sulphide.

Table 2.7 Natural Gas / LPG Qualities

Component Analysis Natural Gases (volume %)

Dry Wet Low CV Sour Propane But- LPG

Mtthane Ethane Propane Butants Pcntancs + Hydrogen Sulphidc Carbon Dioxide Nitrogen

Total

Net Calaific Value 906 1,109 898 1,359 2,358 2,961 2,759 ( B tu/cf gas )

The sour gas has to be processed so that the hydrogen sulphide can be removed to produce a nanrral gas with levels of sulphur typically below 3 ppm. The sulphur is burnt off as S@, or is, where local pollution problems require it, trapped chemically as a sulphate and

disposed of safely. Sour gas wells obviously have lower value, although sometimes.the hydrogen

sulphide content is high enough to make it to be a commercial source of sulphur.

2.6 T k Practice of Gas Flaring

Often the associated gas, which is produced at the same time as the oil, Can find an

economic use as fuel for local marisets, or alternatively can be n-injected back into the oil fidd to

maintain the field press=. Sometimes it is not commercially or technically feasible to do either and the gas is then best flared

The practice of gas flaring is always under scrutiny. Governments prefer to see the country's gas resources used in better ways, than just being flared off, and many force the producing oil companies to use or conserve the resource as a condition of oil production. Recently

the i n m m i d community has become mcn intaestcd in the practice, partly in con- wa

unnecessary wasting of the world's rtsourcts, and partly o v a the recognition of the harm that

e x d v c &om of C02, a major component of burning the gas, can have on global w d g .

Theextmtofgasf lar inginthew~iss i~ inth isnspect . Itcanalsob regarded as an already available and hcxpsivc source of tnaw for the country concerned. The following Table 2 8 identifies the countries which currently flare large amounts of gas.

Table 2.8 Top Ten Countries for Gas Flaring

(1990)

Guntry Amount of Gas Flared and Vented

(% of total gas produced)

Nigeria USSR Algeria Venezuela Saudi Arabia India Libya Indonesia lraq USA

Others

Total World 107 4

Source: Cedigaz

Of the developing counaies, Nigeria. India, Libya and Iraq arc outstanding in the

proportion of gas which they flare. Programs for utilization of flared gas in these and other developing counaies are being promoted with technical and financial assistance through thc World

Bank. Those programs have been a part of the normal energy sector lending work of the Bank and have been reinforced recently by the establishment of the Global Environmental Facility which is aimed, in part, at reducing unnecessary emissions of Greenhouse Gases.

3. Natural Gas Use and Environmental Emissions

Many studies and reports have detailed the en-tal benefits of naaaal gas. It has three majar benefits:

it con- no solid particles tx inorganic mamiah, and so does not give rist to

particulate emissions, or to the production of ash;

it contains normally only trace amounts of sulphur and so Qoes not give rise to the kinds of SQ emissions which arc characteristic of the burning of coal and fuel ok,

and*

it contains less carbon and more hydrogen than coal and oil, and so gives lower amounts of CQ per unit of useful energy output

These arc sigruficant advantages for industries and governments concerned with national and international environmental issues. The only significant air pollutant produced from burning natural gas remains that of the nitrogen oxides (NOx) formed from the simultaneous

oxidation of the nitrogen in the air. New burner designs can minimize these emissions so that in

most bulk applications they are smaller than the emissions from the burning of coal and oil, but

they cannot be ignored and can still be sigdicant in the pollution problems of smog and acid rain.

The alternative clean energy supplies of hydroelectric power, geothermal, the renewables (wind, waves, solar) and of nuclear have the advantage of also producing no N4( an&

with the exception of som geothermal somes, no CQ. Hydroelectric power and g e o t h d

sources arc used wherever possible, and should be used wherever it is c o m m m y and

environmentally sensible to do so. Renewable forms of energy have also a real part to play in

attacking the problems of air pollution, but, as yet, have rather limited application, awaiting

breakthroughs in technology which can lower their costs substantially. Nuclear energy also has an

important and large contribution to make, but there, investment in new nucleq power plants in

many countries is delayed by problems, which are not solved yet, of the disposal of radioactive waste, and of regaining full public confidence over opentionid safety issues.

Natural gas can be described as a fuel which is relatively benign to the environmca It is a very acceptable rccbnicaly as a fuel far power genemion and far mdeatial ammrckd

indusuial applications. It has long been used as a chemical feedstock and is also being considered

as a possible fuel for wider use in vehicles. T b fobwing Sections 3.2 - 3.5. examines in grew detail the cnvimmcmd aspects of these applkam11~ The two Sections 3.6 and 3.7 a h that,

considas the emrironmtntal impact of the supply chain which dclivas natural gas to the coimmae That will provide a good g m d g fm thc discussion of the evaluation of the environmntal benefits of natural gas to be developed in Section 4.

32 Use of Nanual Gas in Power Generation

The devclopmcnt over the last two decades of large (150 MWe) efficient (35%) gas

turbines means that developing counmes with natural gas reserves can benefit from relatively low cost electricity supply using gas-fucled combined cycle units which arc formed of two or more gas

turbines exhausting into heat recovery boilers supplying steam to a steam turbine. The efficiency

of the gas-fired combined cycle power station can now approach 50% and tk costs arc relatively

low at about $600/kw of installed electrical capacity. Using natural gas for electricity production

instead of oil or coal has the advantage of minimizing the environmental impact of power

generation from fossil fuels. Combined cycle technology has the potential for providing cheaper elecmcity for developing countries with access to natural gas nsexves while also improving the atmospheric environment

Coal-firing dominates power generation in developing countries, providing 45% of their elecmcity, a position which wdl be maintained in the next decade when the total electricity

production in developing counmes is expected to double (see "Capital Expenditure for Electrical

Power in Developing Countries in the 1990's ", World Bank IEN Paper No. 21, February 1990)

The share of natural gas in the power generation market in developing counmes is expected to

grow from 5.9% to 8.6% in that period.

R e n t analysis (see "Prospects for Gas-Fueled Combined-Cycle Power Generation in the Developing Counmes", World Bank EN Report No. xx, March 1991) shows that for base- load power generation, and in competition with coal at $40/ton and residual oil at $15/bbl, gas-

fired combined cycle is the least cost solution for gas prices up to $3.30/mmBtu for large systems (450 MWe) and up to $4.10/mrnBtu for small systems (90 MWe).

To indicatt the cnviromtal advantages of naaPai gas in pow= generation, the following Table 3.1 shows the physical activities on the new 450 MWe power station

depending on whether it is fueled by coal, oil or natural gas

Table 3.1 Daily Activity of a 450 MWe Power Station

Fuel M ' Z L p e E=QY Wrr~re Waoe Soy NO, c@ Uged Solids Hcar Emitted Emitted E m i d

(-) (GWH) (toas) (toas) (toas)

CaalL Coaventional 38% 3,600 17 75 1@35 9,000 17 with 90% E D 375% 3.650 590 8 1@35 9,100

OilL Convartional 39% 2250 1 17 170 7-15 7.500 withW% FGD 385% 2280 300 17 17 7-15 7600

Gas Conventional 40% 2,100 0 16 0 3-15 6,000 Combined Cycle 48% 1 *750 0 13 0 2-10 4500

Sulphur conrent taken as 1 % for coal and 3 5% for oil

In comparison to conventional coal-firing, the 450 MWe natural gas-fired combincd

cycle plant.

avoids the disposal problems and costs of about 500 tons of solid waste per doy reduces the waste h a t by 25% eliminates the S @ emissions

halves the C@ emissions

Coal-fd power stations, in some countries, which arc limited by legislation on pollution emissions, find it to their advantage to c e f m the boilers with up to 30% of natural gas. This market for gas, recognizing its environmental value* is expected to grow in coming years in developing counmes as it has done elsewhert.

3 3 Use of Nawd Gas in Residential, Commercial and I n d ~ a i a l M L U ~ S S

Naturalgashaslongsinccestablisheditselfinmatlln~ncrgy~~ a p p ~ ~ where clcanliacss is imptanf Far residential and colnmacial mukc&, it has pd* for d k t heating in cooking and, in countries with cold c l h t ~ ~ , in spacc heating app- In cities of high population density whert air pollution is a problem, it is chasm m g l y 8s the preferred fuel and its usc enforced by legdamn to deny cons- the use of the mcm~ *ting fuels of fmwocd, coal and high sulphur fuel oils Thm are a number of camtries whar: natural gas has played a major role in helping to solve the problem of high pollution loads emitted to the atmosphcn from thc rcsidentlal scctur especially. This factor can be easily recognized in the

cases sndies to be described later in Section 4.

The cost of dismbution of n a d gas to a large number of small consumers can be expensive. The developments of such markets often depends on the proximity of gas transmission

pipelines which have been financed already through major gas supply projects to the power and industrial sectors. Even so, the commercial pria that has to be considered for natural gas supplied

to the residential market is sall high on a $/mmBtu basis. That pria can be justified where air

pollution loads art too high and the cost of altrrnative means to reduce pollution emissions becomes equally high.

The emissions h r n small gas-fired h e m or boilers art much lower than for those

fired by firewood, coal, or fuel oil. The following Table 3.2 gives an indication of these relative

emissions in terms of kg of matenal emitted from the flue stack per unit of energy in thefuel . A

calculation of emissions per urri t r.4 energy wed, involves an analysis of the technology employed

and the practice of the consruner. Some of the older coal burning grates. for example. can give much higher emissions per unit of useful energy than indicated in this table.

Table 3 3 Combustion Emission Indices for Residential and Commercial Applications

(am*

Plant System SO2 NOx a

Residential - hard coal** - gas oil** - natural gas

*Co- - hardcoal** - gas oil** - natural gas

1 mmSru =!.OH GJ ** Sulphur cotuctu - 1% for hard coal and 0.2% for gas oil

Source: Wcsr German &a from rk IGU

For large commercial applications and in smaller industrial boilers also, n a d gas can

be the fuel of choice on economic grounds, competing successfully with coal and oil fuels for

which applications are burdened with the exm cost of installing combustion emission controls.

For Large indusaial applications, however, coal-firing and oil-firing is cheaper more often than not.

This follows because at some point in the cost-versus-size curve the unit cost of emission control

becomes economically tolerable.

Just as in the case of combined cycle power generation where gas can be consumed at

high thermal efficiency, so, in s o m indusaial and commercial applications, higher efficiencies of combined systems and technologies arc having an important impact

Cogeneration is one such technology which is the sequential production of power (electrical or mechanical) and thennal energy (as steam or heat) within one system Cogeneration

processes make use of the waste heat produced in a conventional power station, so that the overall process becomes more thermally efficient Natural gas cogeneration, with either gas or steam

turbines, is also better than coal-fired steam turbine cogeneration which have to be fitted with

additional flue gas cquipmnt to reduce the emissions of parti- and SOZ. Thc following

Table 3.3 cornparts the annual emissions of the example of a cogenemtiion plant producing 1 1 MWe of el- and 9 tons of stcam pa hour at a 70% capacity u ~ ~ , with those b r n the co~lventional, separated, system.

Table 3.3 Atmospheric Emissions from a Cogeneration Rant

(tow=)

Plant Systan s o 2 N q r cot

Conventional System - oil-fired steam + coal-fired electricity* 90 1,060 410 206,000

Cogeneration Systems - stcamturbine-coal* - steam turbine - gas - gas m i n e

+ inclnding flue gas desdphrvization and electrostatic precipitalors Source: N.Hay. American Gas Association

In comparison to the conventional system, the gas-fired cogeneration gas turbine system:

virtually eliminates the particulate and SO2 emissions

reduces NOx emissions by a factor of three halves the CO;! emissions

Other more recent technologies may became important for commend and residential

markets. T h a t arc current R&D programs to be found in Japan and the USA on fuel cells

designed to produce electricity from natural gas. There have also been developments in the USA in . . .

mhzir~g new air conditioning units fuelled by natural gas. Both applications arc too expensive and uncompttitive currently, when compared with the nonnal methods of elccaicitty generation and traditional electric air conditioning units, to be considered for active promotion in developing counaies at p e n t .

3.4 Use as a Fuel for Vehicles

Of the 500 million motor vehicles on thc world's mads, only 600,000 or 0.1% me

fuelled by naturaI gas That statistic is wawhelnsing in confirming that traditionalliquidfuclsof gasol iatandditSClmethemorrccon~and~coavenicntm~buteanduse . Nataualgas for vehicle use is a Coxxqmwd Naanal Gas (CNG) which is stared in high pressure cyhdcrs an the vehicles. The extra costs of such tanks and thc extra costs of distribution and installing filling

stations throughout a counay have btar major disincentives for developing this market.

And yet natural gas has technical advantages in its cleanliness and can offer cities suffering from air pollution s o m relief. It can result in:

a 50 - 80 % reduction in carbon monoxide emissions

a 40 - 90 % reduction in the emissions of reactive hydrocarbons

Both of which are beneficial to the air quality of urban areas.

The most economic application is as a fuel for fleet vehicles and city transport buses

which have a home depot and a relatively short range of operation. Several cities in developing

counmes have mal activities, the following have programs which. have involved the World Bank:

Argentina, Bangladesh, Bolivia, Brad , Colombia, Indonesia, Malaysia, Mexico,

Pakistan, Thdand, and Trinidad

For such counmes, the objectives are partly for environmental reasons but mostly relate

to making strategic use of their own natural gas resources, while avoiding imports of oil products

or allowing their own oil to earn foreign currency through export. The extent of the market for

natural gas is quite small in total but needs to be facilitated where it is strategically and

economically sensible to do so.

Use as a Chemicai Feedstock

Uan than 70% of the world producaon of ammonia deptnds oa natlaal gas and alm,st

al l this amtxmh goes into the production of fcreiliza. Its high hydrogen content makc natural gas '

an idcal feedstock for this industry, and the c k a n k s s of the fuel give it additional advantages

ova COaL

Naturai gas also finds its way into methanol production, gasolint production, and most recently, with the dtvclapment of Shell's ttchdogy, in the produmoa of d i d hels and aviation fuels. An bpmtant advance in the Shell work is that the diesel hcls derived f h n the prootss

uniquely clean in being frtt of sulphur and having much lower tendency to furm soot fmm dicscl

engines. While these fuels derived from gas art morc expensive than their oil product umpetitofs,

they have an environmental benefit which imparts a premium value as a blend component as well as a stand-alone fuel

3.6 Gas Leakage

Thert arc two environmental issues, that have been the subject of recent active

investigadon and discussion, over the atmospheric emissions that take place as part of the normal

way of producing and transporting natural gas. Both relate to the global concern over e x d v e

emissions of Greenhouse Gases: the first concerns-the extent of leakage of methane or the amount vented in normal safety and maintenance operations, the second concerns the amount of C02

produced during natural gas production and nansport operations.

Publicity in 1989, on {fie issue of methane leakage from gas pipelines, had advertised

an average industry figure i;i loss rates as high as 1096, but closer analysis of existing systems

and more detailed reporting by the gas industry has been able to confirm much lower figures. The data is still not complete, but the latest intcmational expert committees arc nporting average figures

for natural gas leaks arc between 0.2% and 2% depending on the country of operation.

The problem is that methane is a very active Greenhouse Gas, being reported as 21

times morc active than C02 on a relative molecular basis ( see the report of the Intergovesnmental

Panel on Climate Change published in 1990 ). As demonstrated earlier, an advantage of using

natural gas as a fuel for a power station, in preference to coal, is that it emits only half the amount of CO2. It can be calculated that this advantage of helping with the global warming problem would

be lost if methane leaked from the system supplying gas to the power station, at ratcs ova about 3%.

Tbc h h g c f b m a pipelint system depends on whether it is a larg- tmmision line or whether it is a actwork of smaller mta multi-joint d b i b u h pi- It also dcpcnds on age and the statc of -air. Gas leaks art rcpairtd quickly, for safety as well as cammrcial reasons, but the aamunt of money spent on maintenance of pipelines is not always as high as it should be. As a guidance, which is by necessity a broad one, the following Table 3.4 gives the leak rates that can be expected in the various gas pipclinc systems.

Table 3.4 Leakage from Natural Gas Pipeline Systems (representative n u m b for % of throughput)

New Transmission Lines < 0.1% Existing Transmission Lines 0.01% - 2%

New Dismbution Networks < 0.5% Existing Dismbution Networks 0.2% - 6%

Sources: Skl l , World Bank. AlphcMicr and t k IPCC Worliing Group

There are two messages for natural gas projects in developing countries. Firstly is a reemphasis of the importance of maintenance and replacement programs for leaking pipework, not only for safety reasons but, now, also for global warming reasons. Secondly is that for new

natural ,gas supply system, constructed accading to good modern enginee~g stimdards, natural gas leak rates rates of less than 0.1% of throughput can be expected and, if achieved, present no demment to the advantages of natural gas in helping with the global warming issue.

3.7 C02 Emissions during Production and Transport

G a s ~ s y s t c m s ~ ~ ~ t h ~ ~ t ~ i n t h e p n > c e s s o f m o v i n g g a s f r o m

tht production weU to the C O ~ . Tbe anmunt of energy used obviously depends on c i h a ~ ~ ~ -

F a v a y l a t g e d i s u w x s , t h t ~ t ~ o f c n e r g y n q ~ c a n b e s i ~ t . Thisgivesrisemtwo

amcm~: firstly as a cost item, because ltss gas is d c l i d as a result, and secondly as a source of CO.2 which is of COLLCQP to global warming. A pip& of 4000 Irm. using its own gas as a

fuel f a its CO-, could consume 10% of its throughput, and emit a companding amount of Q. For Liquefied Natural Gas (LNG) projaxs, the consumption is higher, about 20% of the

delivered gas, made up from pahaps 3% used upsauun of the LNG plant, about 10% in the liquefaction step and a furtha 5% in the shipping and downstream systems. These figures compare (Table 3.5) with those for the long distance bulk supply of coal of perhaps betwecn 5 and - 10% of the energy being consumd in its production (mining) and transport link.

Table 3.5 Energy Consumed in Fuel Production and Supply

(representative numbers for % of energy delivered)

Fuel Short Distance Supply (e.g. <100 km)

Long Distance Supply (e.g. >4,000 km)

Gas by pipeline 1% 10%

Gas by LNG x - 20%

Source: Shell

The comparison of tht amount of C02 ern id from gas supply chains has been

questioned because it detracts from the,advantages danonstrated earlier of its ability in a powa station to produce 5096 less C02 than coal, per unit of produced electricity. Over short distances

the above Table 3.3 shows gas to emit less than coal, but for the other extreme, where imported

LNG is compared with locally produced coal, the overall gains for natural gas are less.

Many commercial gas fields produce gas containing a small amount of C02, but

generally of no significant consequence to the global environment It has to be considered though

in another context of avoiding camsion of the pipe walls and often has to be exaaacd by chemical means be fw tmmmbioa Somt gas fields have very high levels which usually makes them

uneconomic, and, in the aa of concerns over global warming, even less favoured as a fuel source. -

Someof~natraalgasesuscdasf~kstotheLNGtradcintheFarEasthave5%andinooe casc. 1 4 9 b l e v e l s o f ~ b y v 0 1 ~ ~ ; t h i s ~ i s s c p a r a t e d o u t a n d ~ y v c n t e d b c f ~ t b e p is fed to the liquefaction plaat The eff- of this on pnstnting LNG as a fuel which can reduce the ~~acdfrompowtrs~11~co~~undaqutstion,butcan~bwntobenotallthat

sigdicanc hen a calculatim comparing coal and LNG as fuels Mportcd to pioducc eltctricity: it can be shown that the content of the natural gas feeding into the LNG plant would have to be

greater than 50% by volume befort the LNG supply system and the g a s - f d power station combined, produces more CO;! than the cmcsponding coal-fuelled route.

Assessment of Environmental Benefits

Concerns over Air Pollution

A review of the last two dtcadcs can identify enormous, quite radical, changes in government thinking on environmental issues especially o v a air pollution. In the 1970 '~~ the main focus of environmental attention was on k d pollution problems. During the early 1 9 8 0 ' ~ ~ this

broadened to encompass regional air pollution problems, especially associated with acid rain, and

so extended the debate to include transboundary pollution . Transnational discussion led to full

in&-onal debate as the 1980's unfolded. A new threat to the world's environment arose in

the form of the Greenhouse Effect, which was confirmed by a growing consensus of opinion from

the scientific communities. The threat came from the ever increasing emissions of Greenhouse

Gases, in pan from the burning of fossil fuels, which could trigger a serious change in the balance

of the world's climate, including that of a global warming.

Section 3 previously identified how natural gas clearly has something to offer the environment in all three spatial aspects: local, regional and international. Its non-polluting properties regarding SO;! and particulate emissions, gives natural gas the role of helping to solve

local and regional air pollution problems. Its lower C02 emissions are now recognized as offering

immediate help to the international problem of global warming.

Environmental benefits equate to economic value. Natural gas has an economic value which is higher than a competing, but more polluting, fuel, by an amount which is equal to the

in- economic environmental bentfit of changing to naturai gas. In d e ~ , where natural gas is already the low cost fuel, the tnviro11~ntal bendit is a bonus and is not a subject for much d y s i s , but in d c s where its cost is higher than an zhmative futl, then that cxtxa cost ~ybtwathpayin&ifitcanbeshownthattbe~~gainsanqui~tovdbcnefit -

fromlowaleve l sofea~ta ldamage . Thatisanimpatantequalityfagovcnxmit~ ~to~,ffosit~dstiollalfactortothequatioaofaptimumfuelmix,which,fff the long turn, can steer a Govanmcnt t o w d differu.~ approaches in energy pricing and can, in the short tam, give confidence to a Govammt intducing r t ~ n s which hasten changes in f d use.

4 2 Cmts of Air Pollruion Damage

What arc the costs of damage from air pollution from energy use and how easily can avoidance of environmental damage be equated to the use of one fuel or another?

Surprisingly that question is difficult to answer. There is remarkably little data to link

air pollution from energy sources to the cost of the actual damage that it causes. The wards arc

there about cause and effect, but the extent of the damage, in economic terms, is not well defined. Environmental damage from energy use is compounded often with more prominent factars rekited to poverty, other industrial pollution or service indusrry problems. In the absence of local country data, developing counmes arc generally advised to adopt the guidelines of more experienced cwnmes, and to aim their pollution control laws towards lowering combustion pollution emissions and air qualities to terrain measurable levels, those levels gurded by international agencies with reference to the air quality standards indicated by the World Health Organization. Even amongst the indusaialized counaies. therr arc only a few which have researched into a complete W h g the economic cost of air poAition control. In developing countries it is suggested that much more work needs to be done to investigate the special factors for the country concerned

Even for the few countries with good data, the correlation between cause and damage is not clear-cut and the economic quantification of damage well known to be subject to divergent value judgements.

Anaiysis of Environmental Benefits from the Use of Natural Gas

It is insuwive to examine two xzcnt cascs of countries in which the World Bank has - been involved in assessing the environmntal barefits of i n d natural gas use.

In the first cast, South Korca, the study was limited to analyzing the changes in poh-0 emissions from replacing coal and firewood by mpmcd LNG and low sulphur fucl ail, and infezring the price that the urban communities w a t willing to pay for an improvemat in air quality.

In the second case, Poland, the study went into much greater depth in evaluating the environmental benefit of using natural gas in certain markets, in order to be able to advise the Polish

Government on the optimum investment program in natural gas in the next few years.

But before those two studies arc described, it is interesting to examine, in the light of the passage of 35 years, the story of the British Clean Air Act of 1956 and the role which natural gas eventually played in helping to solve especially the major air pollution problems of London.

Case Study I . London

Petrr Brimblccombc's book rZw: Big Smoken pawidcs fascinating reading of the history of air pollution in London. It is a of a &doping city, with its history of changing fuels, changing industry, increasing popuhtion ciamy and hcmshg pmpaity. Wood fllClS were always used, charcoal used increasingly as a "smokld* industrial fuel, and coal beaming the major fuel in the ninctecnth century.

It is the history of the London smog. The peculiar weather pattan over the Thams River Basin ensurcd that, on special days, the smoke from the chimneys of industry and home

fires did not disperse but was contained over London. In cold winter days, when coal was burnt

in every home's open grates, the sulphurous smoke f h m London's chimneys mixed with the

natural fog to give extremely low visibility and a choking air. The smog of Victorian London was

made famous by novels written at that time.

Analysis of the smogs, as rcumkd by the m u r i n g technologies available then, show frighteningly high figures. The major smogs were espccialiy bad. They wen the events which

lasted several days and caused a recognisable, increase in deaths by s e v d hundred. The air quality was appallingly bad by the standards of today. The worst came in November 1952, when

a particularly thick smog settled over London and lasted for five days. In the middle of one day the

light from the sun was so obscured that the light intensity at street level was measured as 0.01 8 c

the light intensity of a normal winter's day. Particulate concentrations exceeded a 24 hour average of 4 . 0 0 ugh?, which is over ten times the 24 hour air quality standard of the EC today. SO2

emissions peaked at 3,700 ug/d . The total amount of smoke emissions into the London air in

1953 wen estimated at 2 5 million tons, of which over half ca& from residential coal grates. ' m e Great Smog" of 1952 was ataibutcd to be the cause of 4,1XX) deuzhs that winter.

The consequence of the strong public and political reaction to the 1952 smog was the British Clean Air Act of 1956. The most important provisions of the Act were to:

establish smoke emission standards for all emission sources

quirt filters to be fitted to the larger industrial plants burning coal

inmduce smokch mcs and give grants fop the C O ~ V ~ O L I snol;eless fuels

makc new industrial plants use the best available technology fa swke

control

Tht costs of the change was high and depended on tht availability and cost of

introducing smaLeless fuels instead of cod Thc expectation then was that the leastcost solution

would be to produce smokeless fwls from coal and that domestic coke fuel would be the majoa fuel for the future. Coke production had its own pollution problems and to some extent the solution moved the source of pollution from the domestic grate to the industrial coke plant. AS it

turned out, while coke fuels found an incnascd market as a result of the Clean Air Act, they were

shortly to be replaced by low cost oil and then by natural gas. As a result, it can be said that the

cost of the change was lower than the initial willingness to pay that was implied by the Act By the

end of the 1950's, the lower cost fuel oil was available, and coal-based gas also started to bt replaced by cheaper oil-based gas. Natural gas, as LNG, was imported h m Algeria, starting in

1964 and then in a major conversion program, starting in 1967, natuxal gas became available to

consumers in abundance from the newly discovered gas fields in the UK North Sea

With the lower prices and increased availability of fuel oil and natural gas, and with the

passing of the Clean Air Act, the air quality over London improved dramatically. By 1972, twenty years after the great smog of 1952, smoke emissions had fallen by a factor of four, from 2.5

million tons to 0.6 million tons per year, and the number of days per year, on which tht activities

of London were ~ i ~ c a n t l y affected by smog, fell h m 45 to 5.

The Clean Air Act of 1956 was aimed spedically at controlling smoke emissions and did not d a y legislate against SO;! emissions, even though SO;! was a leading pollutant

contributing to the environmental problems in London. But by reducing smoke emissions, the Governmtnt, and the Local Authorities which implementing the Act, effected a reduction in SO;!,

In this respect, the replacement of coal-based fuels by fuel oil, gave immediate relief to the paraculate emission problem, but as the intensity of fuel use continued to grow in the city, the SO2

'

problan was not solved. It was then necessary to impose restkticms on the sulphur content of futl oils, and a combination of smokeless coke fuels, low-sulphur fuel oil and of natural gas was able cvcatuaUy bo contain the pro61cm. Natuml gas became the major futl for &rial heating, as a result of the relatively high cost of prodwing sm&&ss fuels fiom coal, of an aggressive marketing program by the G o v m m c ~ ~ conuoIlcd Gas Council and of the availability of natural gas from the Nonh Sea, which, despite being h m offshore wells, was still relatively low in cost.

The most recent data for air quality over London show annual average concentrations of S Q to be 55 ug/m3.

--

It is important to note that although the British Clean Air Act was passed without reference to the concerns over Greenhouse Gases - concerns which would emerge in smn@ some

h t y years later - the consequences of the Act, in effect, replaced inefficient coal-based fuels by efficient nanual gas use, which could well have reduced CO;! emissions, per unit of useful energy in that sector of the UK energy market, by as much as a factor of three.

The UK nowadays consumes 55 Bcm of nanud gas per year, representing 20% of its total energy consumption.

I

Case Study 2. Korea

One of the key objectives of the plau of the South Krnan Govanmnt to mrrt

LNG is to reduce air pollution in urban and idwmhzd . . ams Natural gas, which is free of most

pollutants v t in liquid and solid fucls, and genuatcs less Cm, is destined thedare to play an

inmasingly imptant role in South Kcma's emission control strategies.

A cumparison of Korea with other industzialkd countries now shows that the level of urban air pollution is high, with S@ and total suspended particulates (TSP) being the most serious

pollutants. Conanaarions of carbon monoxide (CO) are also high in residential areas where

anthracite briquettes continue to be used, Progress was made some time ago by moving away

from a reliance on local finwood and increasing the importation of coal and oil, but, as energy

consumption continued to rise, the sulphur contained in these fuels led to an increasing problem f h n the S Q emitted to the atmosphere. S Q emissions w m subsequently reduced, by

inducing regulations in 1981 which lowered the sulphur concentrations in heavy fuel oil. The levels of S@ in the air over the large cities-decmsed immediately, but not to a sufficient extent,

so that today, the concentrations of S@ still exceed the prescribed annual air quality standads of

1 10 ugrn3. The average annual level of S@ over Seoul, for example, dropped from 220 ugm3

in 1980 (which made Seoul then to be the fourth highest S Q polluted city in the UNEP lists ) to

about 130 ugm3 in 1982, but has stayed at around that level ever since. Winter seasons see much

higher average monthly levels, at around 300 u-3.

TSP emissions also remain high. Average annual TSP concentrations over Seoul were

about 200 u-3 in 1985, reducing to about 150 u-3 in 1989, but still are greater than the

targeted prescribed level of 100 ug/m3.

The South Korean Government is committed to curbing the deterioration of the

environment caused by these air pollutants. A main policy, in an urgent response, is one of fuel allocation, involving regulations which specify minimum fuel qualities or barring altogether the use

of certain fuels in specific areas or specific applications. To accelerate SO2 control, the major oil

refineries in South Korea are constructing new desulphurization facilities which will allow them to

supply fuel oils with a much lower sulphur conmt. By 1993, when the program is compW it will be possble for thc Gwtmmcnt to reduce the pmmssible sulphur limit of heavy fuel d h u 1.6% to 1.0% (it was 4.0% in 1980). and of light oils fmm 0.4% to 0.2%. Imparted steam coal wil l remain at similnr low sulphur levcis of about 0.7% ( ic. 1% sulphur on an oil e q m t basis ). The qccmicm of tht peaple in the South K o m n Minis;ay of the Environment is that they will be able to achieve tbc air quahty mga of being below 110 ugh113 for S 4 in 1993. If the

incnase in fuel consumption in South Korea grows as fast as pl.esently farecasted though, then this success will be rather short lived and it will be necessary to plan for additional controls in the =-

coming years. A careful choice of the various options has to be made, including a decision on the extent of natural gas from imported LNG in the fuel supply mix.

I

Power Sector and Large Scale Industrial Energy Users

For large scale boilers, there arc a number of control technologies which are available to

South Korea to reduce atmospheric e&ons, from cod and oil firing, to levels which suit the environmental c-ticsof thc location. An assessment which includes least cost analysis can

d e W e which combinations of fuel quality, fuel price, and user technology arc best to achieve the required rcgional targets for air quality.

Natural gas can be shown to be a preferred fuel for power generation because of the lower capital costs together with the higher thennal efficiency which arc avadable in new combinedcycle gas-fued power plant, as well as the benefits of low pollution emissions. This can be the case even where the costs of gas supply is relatively high as is the case with s o e g it from imponed LNG.

F a power generation, South Korca plans on a strategic move away from a reliana on oil where possible, while increasing the use of low-sulphur coal, natural gas, and nuclear fuels. Natuxal gas will be a sipficant component in its fuel supply mix. Current plans arc to imgort

LNG at a level where it will provide 10% of the energy demand for electricity generation by the year 20 10.

Sm4ucr ScrJc Energy Users

For a number of fuel-usas which arc smaller in scale than electricity gacmth ,

gas from LNG can be expsive when canpared with altunative available fucls. Howcva, where environmental factas arc cmsided to be tsptcially iqcmw, and polluticm emissions have to be constrained, the cost of pollution control for small scale plants burning coal or high sulphur fucl oils can become unacceptably high. 'Ihcn, very low sulphur fuel oils, LPG, nanual gas, and electkity can be economically prefemd. In urban environments, natural gas has distinct

advantages in this respect and the South Korean Government has decided to hasten the change to this fuel in urban residential and small scale fuel markets.

A decree issued in 1990 by the Minister of the Environment will require residential apartments of above certain sizt to use only natural gas as a space heating fuel, with a designated timetable for change constrained within a Mod of the next three years. It is first being appkd to Seoul, and then to another founcen metropolitan areas throughout South Korea. By 2010, the plans arc for the residential and c- markets to consume 6.5 Bcm of natural gas annually, which w-dl be about 20% of the primary fwl consumed in that market sector. By then, the total

annual nanual gas consumption in South Korea is expected to be 16.2 Bcm.

Calcularion of Pollution Emissions

Data on the energy used in Korea in 1989 can be compared with estimates for the year 20 10 compiled by the Korean Energy Economics Institute (KEEI). From this data, broken down

by fuel type and by market sector, can be derived h a d estimates of the the changes over the nen twenty years in the pollution loading of the atmosphere from a calculation of appropriate factors for combustion emissions. This calculation does not immediately predict the atmospheric concentrations of the various pollutants, since that depends strongly on the intensity of the source locations and the regional climatic conditions, but it does give an indication of the overall size of forthcoming possible problems and gives useful indicators for the focus of future controls.

Using the KEEI data. estimates of the potential pollution emissions in South Korea

have been calculated and are summarized in Table 4.1 for 1989 and Table 4.2 for 2010.

Table 4.1 Fuel Combustion Emissions - Korea 1989 (mcm tons)

Fuel E=QY used Emissions

(PO sot TSP NOx al cot

Firewood 43 0.05 0.01 0.09 5 Hard Coal 1,029 0.42 0.15 0.28 1.19 % Natural Gas 110 * 0.02 6 L i d Fuels 1,446 0.33 0.04 0.49 0.7 1 106 Nuclear 497 H Y ~ 48 Others 22

T d 3,195 0.75 0.24 0.80 -1.99 213

110PJ =2.6mil l ionu~= 3.1 Bcrnnanrraigas

Table 4.2 Fuel Combustion Emissions - Korea 2010

(million tons)

Fuel Energy Used Emissions

(PJ) so2 TSP N% CO CO;!

Firewood 20 0.02 0.0 1 0.04 2 Hard Coal 1,804 0.59 0.1 1 0.53 0.56 170 N a n d Gas 572 * 0.06 3 1 Liquid Fuels 3.926 0.63 0.12 1.48 2.18 292 Nuclear 1.358 H Y ~ 38 Others 105

T d 7,823 1.22 0.25 2.07 2.78 495

572 PJ = 13.6 mlllion toe = 16.2 Bcm natural gas

The fuel qualitits and mission factas uscd in these calculatiwrs arc av- fhcmm estimated f a Koa#m fuel uribrion. Thc emission factors take into account thc hstalUo11 of particub tmission control from powa and large scale inrlrllftrinl.plants which burn coal of

flue gas desulphurization in powa plants which burn coal a oiL All other factors assume uncomlled emissions of standard combustion technology. To enable dirtct c m n p r b ~ ~ s to bc made, the same earission factors arc applied to the 2010 data as to the 1989 data AS ntw technology is installed and as emission control equipment becomes dkd, the emisi011s will decrease, but this development has not been included in the calculations so as to allow a view of the policy options open to Korea.

Reduced Pollution Emissions from Using Nawal Gas

Two broad changes to the pollution emissions relate to the use of natural gas in Korea.

The changes arc intenwoven with the increased use of low sulfur fuel oil which will happen at the

same time, and it is not possible to segregate the two. Both arc part of the continuing move away from extensive use of anthracite briquettes and firewood.

firstly, as much as 380 PJ ( 13 million tons coal equivalent ) per year of anthracite

briquettes and firewood will be taken out of the residential and commercial markets, and, as a

result, the TSP emissions will be lowered by an estimated 0.1 million tons per year, and the CO emissions lowered by 0.9 million tons per year. Both amounts represent a substantial 8Wo reduction in the current pollution loadings from these sectors.

Secondly, taking the total amount of coal, including the anthracite, which will bc effectively displaced from al l market sectors, then the i n d use of natural gas and low sulfur fuel oils can bc shown to elimhate the production, every year, of about 0.3 million tons of SO2 and about 30 million tons of C@. These figures arc 25% and 6% respectively of the expected

emissions from all sectors in 2010.

Natural gas conmbutes towards the benefits of these improvements to the future air quality of Korean cities. The substantial reductions in TSP and CO especially, wn be credited to

the anticipated improvements in the health of urban populations.

Cosu of Natural Ga Supply

A n ~ ~ ) ~ ~ ) m i c ~ n a f t b t p l a n s o i n c n a s e t & a t ~ a f u s e o f n a t l l r a l g a s i n ~ h a s o ~ ~ t b e i n v ~ i a ~ L N G ~ ~ i a t h e g a s t r a n s m i s s i w lines to the power stations and in the city gas companies, togetha with the ~ I W ~ S ~ ~ C N in the gas

dismbution systems within the cities. The ccoaomic costs thuefm include the CIF price of imported LNG as well as the capital and o p a h g expe- incumd by the tmmmhio11 ad dstxibution companies. Netback values of the gas for the power sector are based on a comparison

of gas-fueled generation with the most likely coal-firtd alternative. The result of this evaluation -

establishes that the invesanents are commrcially acceptable with LNG CIF prices of tht international trade which were quoted earlier in Table 2.6 as being typically $3.SlmmBtu.

The environmental benefits of gas are recognized, in this evaluation, in the higher

thermal efficiency of the gas-fired plant and the lower costs of pollution emission control inhmnt

in gas-fued power generation as compared with coal. The cost of supply of natural gas to the

smaller industrial, commercial and rcsidcntial customer arc higher of course, and will be covered

by higher prices offered to those cons-. Whcn the new restrictions in the cities force

customas to use gas in preference to oil and coal, the extra price reflects effectively, the

willingness of the community (of which the individual customer is only a part ) to pay for lower

levels of air pollution. D e U of those price schedules arc not available but suffice it to say, that

they are palatable, s b l l based on the $3.5/mmBtu price saucture for sourcing the gas.

The economic acceptance of the value of natural gas by the South Korean Government

I is the same as that by the Japanese who, having installed extremely tight controls on air pollution

emissions have proved, over the past twenty years, that impurtcd LNG as commercially

competitive with other imported fuels such as coal and oil and have established LNG in playing a strong part in controlling air pollution.

Case Study 3. Poland

Potandis in the midstofamajaprogtamof imanaircfbnndesigncd~addrws~ muaty's~cvaccconomicproblcmr '~bc~s&taisoncofmClsrgaaaplrrintbtPolish amrmy and is a major focus of attention Within the o v d energy rramvlusing a g u ~ a h i 8 priority has been placed on the prcparasicm of a Gas Development Plan.

Poland facts scvm problems from air, soil and water polluti011. A Govunmcnt d y in 1983 led to 27 arcas of Poland being officially designated as "arcas of ccologi~al hazardn- Togetha, these areas constitute approximately 11% of the total area of the country and have n d y

13 million inhabitants - 35% of the total population. The areas of Upper Silesia, Rybnik and Krakow have tspeclally severe problems associated with heavy industry and overexploitation of

coal resources, compounded by congested urban development

Many of Poland's environmental pmblems result from energy supply and use. Use of coal in power generation, dismct heating, horn cooking and heating, and coke production

generates great quantities of particulates (TSP) and gaseous pollutants. Energy supply and use accounts for virtually all emissions of S@, N h, TSP and C@ in Poland. Coal is the SOUICC of

between two thirds of the emissions of TSP, thrtt quarters of the emission of S@, a third of the

NOx emissions and over a half of the emissions of C02.

The effects of these emissions arc diverse and include damage to buildings and structures, damage to human health, destruction of forests, loss of agricultural production and loss

of heritage. .The seriousness of the situation and the precise mle of emissions in causing these

types of damage is unclear, in part due to a lack of systematic measurement of tiophysid changes and their economic and human health consequences.

Ambient air concentrations of S@ in parts of Krakow exceed 100 ug/m3 as an annual

average, rising to 150 ugh3 during the winter heating season. Average TSP concenwrions in the

heating Jeason exceed 150 ug/m3, peak levels reaching 500 u@3. h Upper Siksian, the town of

Chnanow sees annual average concentrations of TSP of 300 ug/m3. WHO gdelines recommend annual average exposures below 40-60 ug/m3 for SO2 and below 60-90 ug/m3 for TSP.

In the heavily polluted region of Upper Silcsia the iocldence of mgenital ckmscs, - cancer and chronic biollchitis is vcry high. mllfl.-o include various types of poilution, including smddng, di# and o k sociological factors Some dietary factous tuc itdircctly linlml to air pollution since toxic elancnts including heavy maals nrmrmltah in the soil and conmnhu~ tbc

food Howcva it is nu possible to tstablish the relationship bctwtczl the occrartnce of health

p r o b b aod ~vironmtntal factors, let alone individual pollutants.

Evidence exists which links energy-related air pollution with otha types of damage. Many historic buildings and monuments in the city of Krakow are soiled and c0mxie.d as a result of air pollution. Ambient wncenaations of S@ arc well above the level at which harmful effects -

r to stonework an likely to occur. In some regions of Poland, sulphur deposition exceeds 1000

I ton/s@m per year, exceeding, by 3 or 4 orders of tUagnitu&, the levels at which harmful effects to forests, soils and lakes are likely to occur.

The Role of Nanual Gas

The Polish Govemmtnt's planned initiatives towards i n d production a . use of n a n d gas, in part, arc dktctcd towards helping to solve Poland's critical environmental problem,

and in part aimed at making optimum economic use of Poland's own gas reserves. Poland's gas

reserves are estimated (see Table 2.4) at 175 Bcm, to which has now to be added Poland's

substantial resource of coal-bed methane (see Section 2.4) which is placed between 380 Bcm and

1,300 Bcm. Poland now produces its own nanual gas at a rate of 5 Bcm per year, which,

combined with imports fro- the USSR of 8 Bcm per year to give a total consumption of 13 Bcm -

per year which conmbuus 9% of Poland's energy needs in 1989. Poland is heavily dependent on

coal, and substitution of natural gas fur coal in selected projects of power generation, industry and

residential heating, if well integrated with other possible changes in industry and hh~h~ctun,

could realize substantial improvements in air quality. A Gas Development Plan, conceived as one

of three scenarios, would increase the percentage of natural gas used to 1796, while energy intensity decreases by 37% and economic growth is assumed as 5% per year. Calculations using

the scenarios of this plan and the models developed by the Institute of Technological R e m h in

Warsaw, show the consequences of the proposed change to decrease the total annual air pollution loads in Poland as shown by Table 4.3 for the year 1988 and Table 4.4 for 2010.

Table 4 3 Fuel Combustion Emissions - Poland 1988 (MilJim tons)

Futl Energy Used Emissions

0 soz TSP NOx (302

Iignik 592 0.7 0.2 0.1 57 Hard Coal & Coke 3,548 2.7 1.6 0.5 1 294 Natural Gas 406* 0.03 16 muid Fuels 740 0.2 0.55 47 Nuclear 0 Others 100 0.2 0.3 0.16 46

Total 5.3 87 3.8 2.1 1.35 460

406 PJ = 9.7 rmllion toe = 1 1.5 Bun naarral gas

Table 4.4. Fuel Combustion Emissions - Poland 2010 - High-Gas Scenario (million tons)

Fuel Energy Used Emissions

(PJ) SO;! TSP NO, c@

Lignite 440 0.1 0.1 41 Hard Coal 2,965 1.3 0.6 0.4 243 Natural Gas 1,610 * 0.2 8 1 Liquid Fuels 1,205 0.3 0.8 74 Nuclear 0 Others 135 0.1 0.3 0.1 35

Total 6,355 1.8 0.9 1.6 474

1.610 PI = 38.3 million toe = 45.5 Bcm natural gas

The High-Gas scenario underlying Tablt 4.4 is the lowest cost sccnario of thne scenarios which were explored and which could d s f j r the n a t i d emimmmtal targets of a 30% . reduction in SCQ by the year 2000 and a 50% redmi011 by 2010, and a 5096 nductiorr in TSP emissions by ZXlO aad a 70% Man by 2010, both compared with 1980 lcvek The other two

sceaarios that would meet thcse targets include the xme expensive options of nuclear pawa irn one scenario and m m coal-frrcd, flue gas clamcd, power stations, in the other. The High-Gas scenario implies a tripling of gas consumption by 2010 to 455 Bcm per year.

The estimates of emission nxiuctions relatc to average levels of emission for Poland as a whole. The situation will differ for individual locations. For example, in the case of Krakow town, estimates arc that three quarters of the deposition of S@ originates from sources in or close

to the town, the remainder originating from further afield, largely from Upper Silesia, but also from across the border in Czechoslovakia. Lf the national target for S@ reduction of 30% is achieved by the year 2000, then the level of S@ deposition in Krakow would fall to perhaps 75%

of recent levels. But the complete substitution of coal use in and around Krakow by natural gas

could reduce deposition to as low as 20% of recent levels. Again, these assessments arc for average rates. In practice, excursion episodes of very high concenaations and depositions, do

occur, and arc strongly associated with low-stack emissions. Substitution of natural gas for coal would have an even greater proportionate impact on the visual, and health consequences of these emissions.

Environmental Value of Naturai Gas

An aim of the environmental gas study for Poland was to attempt to establish an appropriate "environmental credit" for natural gas measured in monetary terms. The credit would be specific to the application in which n d gas is used and would therefore affect the dative "value in use" of n a n d gas among different applications, potentially changing the priorities for allocation of natural gas within a set of options being considend in Poland.

The approach adopted followed merit work in OECD countries and laid emphasis on the establishment of critical loads for air pollution, below which no detectable damage occurs and above which incremental damage is treated as if it varies linearly with load. This assumption is

not fully justified, because it implies that the marpal benefit of a reduction in pollution load is

uxkpncknt of the level of pollution, but it is a convenient one for analysis.

The benefit of a reduction in emissions from a particular source is assessed will be tfie lesser of:

a) the chapst alternative approach for achieving the sam level of emissions duction

that would be achieved by gas substitution in that particular application, and

b) the monetary valuation of the benefit of reduced emissions caused by natural gas

substitution.

Cleariy, natural gas cannot be crcdited with the full value of b) if it is cheaper to reduce

the emissions by another means, such as the installation of pollution abatement technology.

Similarly, natural gas cannot be credited with the benefit of avoiding the cost of abating emissions

from the source in question if the monetary value of the damage by emissions being abated is less.

The mar@ value of changes in pollution level will be set by the lower of the marginal cost of abatement and the rnarglnal damage caused. A direct comparison can be made then of the

marginal cost of abating a ton of emission, on the one hand, and the value of marginal damage ( in

another location ) related to the emissions from a particular source on the other. As guided by the

experience of Western European countries, the setting of strict emission targets irnpiies a

willingness to pay for pollution abatement which is often higher than the cost of measurable

environmental damage, which in turn implies a very high amenity value placed on environmental

cleanliness. The marginal damage assessed in Poland was weighted accordingly.

The value of natural gas in reducing emissions will depend, in part, on the cost of

achieving comparable emission reductions by other means. The cost will depend on the target leveis of emission reduction, the more severe the reduction the higher the cost of the technical option to achieve it. For example, a S@ reduction of IS%, achieved principally by moving away

from high sulphur lignite to high quality hard coal in power generation, would have an associated m g l n a l abatement cost esnrnated at $600/ton of S02, while a SO;! reduction of 30% would

require, in addition, i n v m t in flue gas desulphurizarion cquipmw on the powa stations, at a higher margirrnl abatemexu axst of $1 1Wton of S02. Since naturai gas coxuaius virarally no

sulphur,thcvalucof Daaaal gasas aNinpowcrscationscantbdae bemuckdagainsttbc COSf~fusingc~dwiththtweasharmrcnr~~~~~ EImsxm . . OfTSPcanbeaatedinthcsame way aad tbexruguul cmisbn-tcost will simikiyiafftaseas t h e l c v e l d m o f TSP art rapmi to decnasc. The environmcnral crcdit f a a reduction in SQ and 'LSP*

assignable in this way to the value of nawal gas, as is the w d cost of pollution conuoI strongly depends on the sevcxity of the emission duction targets which the Polish Govenrmnt sets for the lmga term.

The result of the analysis is s e in Table 4.5. It shows the environmental credit attributable to natural gas in the various h a d end-use market sectors, as a combination essentially of duced SO2 and TSP emissions:

Table 4 5 Estimates of Environmental Credits for Natural Gas in Poland

($/mmB tu)

Market Sector Cndit

Residential 3.5 - 5.0 3.5 - 4.0

Industry - coal 3.5 - 4.0 - heavy fuel oil 1 .O

Power & Dismct Heating - existing, 2.3%S coal 1.5 - new, 1.2%S coal 0.2

It should be pointed out that thcst environmental credits arc very dependent on two key -

policy decisions one concerning abatcmtnt of TSP emissions from high stacks, the other

concerning enfaring the use of smokeless fuel instcad of coal in urban areas. It should also be emphasized that the environmental credits represent the benefit of displaced emissions at the

margin. This is very appropriate for assessing the priorities to be adopted for allocation of natural gas and for marpal changes in the volume of gas consumption, but it is not valid to impute an overall environmental benefit of the gas develobnt plan by multiplying the total volume of gas . use by the marginal values of displaced emissions given in Table 4.5.

Allocation of Nanud Gar Swp&

Thc plans of the Polish Govcmma~t include bringing the @a of n?rlrrrat gas up to a

level where it equates to mid-Empean border @as by 1993, which means establishing ex-

transmission pipcline prices of around $25/1IlmBtu (reference Table 2.6). Those prices would be

suffcient to suppart furtha investmat in Poland's own natural gas production and to enlarge

where possible imports from other sources including possibly Norway as well as the USSR In the case of Poland, natural gas can displace coal and oil use on a competitive basis at such

prices without resorting to netting back the environmental credits tabled above to makc the commercial justification.

What is useful in the Poland case is to incorporate the concept of environmental credits to justlfy choices made in pnority allocation and investment in appropriately placed gas

transmission and distribution networks. With marginal environmental credits estimated to be in the

order of $1 to $S/mmBtu, several key markets can be seen to bc of high priority for natural gas, as

being c o r n m ~ y sensible for the community at large. This valuation encourages, and can bc

used to jusafy, moves towards replacing coal by natural gas in urban arcas especially.

The Government and local authorities in Poland arc considering these changes at the

moment Poland is well awarc that other counmes have moved quickly on solving their air pollution problems by restricting coal burning and selecting certain markets for the lower polluting

fuels. As witnessed by the case studies above, the UK enacted such laws in the 1950's and South

Korea in the 1990's. The expectation is that Poland may move in a similar direction in the near future.

Future Trends and Issuea

Narraal gas presents oppmmities which are highly si@cant for the fum enagy pokks of developing couatrics This paper has a t t a q t d to summarize the building blocks of

technical a d cumxnic oppommity on which those policies can be established Scvcral main thema have bcen pursued.

Fmtly was the encouraging resoume podon what, as a general rule, t h a arc substantial nsaves of natlnal gas in developing countries. Tbc future will undoubtedly see marc of these nserves being used, and mart rimes discovcrtd as more commrcial opportunities for natural gas become establish&. Marginal costs, again as a general rule, appear to be sufficient,

pmvided that a sufficiently large market for the gas is developed. While thert art vast amounts of "unconventional" reserves of natural gas, their costs m generally too high, with the one exception

of coalbed methane which is expected to be used in small but increasingly sigdicant volumes in som countries in the future.

Secondly was the availability of large scale, highly effiient, gas-fired power generetion k c h l o g y , which, for xeasons of lower capital cost and higher spetd of consuuction

are amacting a new wave-of invesanent in the elecuicity industry of developing countries, For those countries which have a natural gas resource, but have yet to exploit it , the developmnt of a

gas-fired power station project can provide the commercially justified starting point for the

development of a widespread gas industry. The experience of other countries has shown that,

above a certain critical size, the natural gas market can expand quite readily into industry, commercial and residential sectors in a &factory way.

Thirdly wen the environmental benefits of nanual gas. While, in competition with other fuels such as coal, nanrral gas can be the mapc expensive fuel on the basis of thermal value

alone, it can be credited justifibly, with additional economic vaiues, by h e of its benefits to the environment Communities suffering from, or even those communities wise enough to anticipate, the problems of sevm air pollution, are willing to pay an environmental premium for a clean fuel. If that premium is high, it may be enough to cover the extra costs of transmitting the gas from the production well or the extra costs of extending a gas distribution system into a city. This happened in the past, as in the case of London, and also in more recent times an several other countries inchding the case considered here of South Korea In the derailed analysis of the case study of

Poland, the emhnmcntal credit for natural gas was assessed as being subs- being at least s e v d S/mmBtu, and being of the same ordtr as the cost of supply. The en-l cndit for

a clean fuel and related tncrgy policy decisions by govemmcnnts, is so dcpcndmt cm the t- -

agreed on f a air quality and for emission standards. The 7 of h t c m a h d ad* emissioll staodards for developing coda have to be thought through quite d y in this

regard-

Tht question of thc real cost of environmental -ge from air pollution has to remain open. Insufficiwt rtsurrch has been dane to establish the value of the damage in m y of the developing countries of inteatst Marc often pollution is described as "bad" without r c f m c t

to the real tconomic, including social damage, to the community. Then arc indications that caTah

publics value amenity and cleanliness very highly, higher than the physical economic damage to

matenal things, and higher than others believe they can afford. The subject has been debated very

usefully under the title of "sustained development", but it is a subject which needs to be encouraged by marc research into quantitative economics than seems to have been done so far.

As to global envwnmentrrl issues, natural gas is now well recognized as having an

essential rok in funue energy policies towads helping to &uce Greenhouse Gas emissioas. It is clear that natural gas can easily halve the emissions of C@ compared to coal-based fuels for thc

same amount of useful energy. Developing countries, with natural gas, can thereby increase their

energy consumption as part of an economic development program, with less global loading of C@. Developing counaies, which place natural gas highly on their energy policy agenda, will

find that the international development agencies arc increasingly in a position to support investment

in natural gas, as part of an international program aimed at the global warming problem.

Footnote on rutirs used in the paper

A paper of this kind coven, by design, a wide range of technical, tcoaomic .d aspccis and has tk problem of rclacing in a nco- way to the variety of units

usad I n t c r P a t i o n a l g a s ~ n s a n d i n ~ n a i a ~ h a v e g ~ y adoptcdk cotlvcntions af the intcrdonal system based an muic units, but the petroleum dust ry of the US and the cr lmeractsoftkintanational~~crgytradearca~nginfl~onntaining traditional units in discusbns on the business of gas. In this papa, where those uaditional units art used, mvasion faMoes art also shown to allow thc reader to relate always to the units of the international umic system T o clarify funher ( and perhaps to perpetuate tht confusion ) p h note the following:

1 Bcm = 109 cubic mcm 1 Tcm = 1012 cubic metres 1 mcf = 1000 cubic feet 1 mmBtu = 106 British Thermal Units = 1.055 GJ

1 ton = 1 memc ton.

Paper 2

Natural Gas in an International Context: International Enthusiasm and

Industry Structures

Paper presented to the Seminar on the Institutional Organization of the Gas Sector

Santa Marta, Colombia December 1991

John Homer Natural Gas Development Unit

Energy Sector Management Assistance Programme The World Bank

Washington, D.C.

Natural Gas in an International Context: International Enthusiasm and

Industry Structures

1. Natural Gas Resource

The demand for energy calls for energy sowes which are both available at reasonable

cost and are perceived to be relatively gentle on the environment. Natural gas is such a source and

is enjoying a current period of considerable enthusiasm and growth. Counties, especially those

which have their own natural gas sowes, are enthusiastic about using their reserves at a much

more rapid rate and the international agencies, such as The World Bank, find themselves to be in a

good position to suppon and indeed encourage that enthusiasm.

To start with, let me refer to the big numbers: worldwide reserves of natural gas are

substantial and the size of proven reserves grew 1% in the last year, with discoveries in 1991

sufficient to more than replace the reserves which were consumed. The world now has as a usable

energy resource of some 130 tnllion (1012) cubic metres of gas distributed widely across 85 countries. In energy terms, natural gas reserves are the same as the world's oil reserves, both at

about 700 billion (109) barrels of oil equivalent. The world has sufficient proven resemes to last

60 years at c m n t consumption rates.

[ Slide 1 - Growth in World Roven Reserves of Natural Gas ]

Half of those gas reserves are in 58 developing countries, for which the ratio of total reserves to total current production is as much as 160 years. In comparison, international data

show a ratio of 30 years fAr Colombia and one of 90 years for the whole of South America Even on forecasts which were developed a year or two ago, natural gas consumption in developing

countries is expected to grow at 6% per year up to the year 2005, compared with 3% per year for

oil and 4% for hydroelectricity. Gas consumption may be favoured even mare in the next ten years

than these figures would indiwe, as the potential of Ranual gas becorns m a fully rcalircd by governments in helping to solve, sirnultanwusly, several of their very real energy and

environmental problems.

2. Enthusiasm for Natural Gas

The enthusiasm for natural gas projects is due to a number of factors.

[ Slide 2 - Enthusiasm Factors for Natural Gas]

Firstly is the strategic advantage of using a.country's own energy resources. The

importance of being mon self reliant in energy tcims is an obvious benefit in helping to protect a

country's economic development limn international interruptions in energy supply and from unpredicted increases in international oil prices. Savings in foreign currency arc also attractive.

Using more of a country's own natural gas can often release the country's own crude oil or its oil

products for export so gaining a substantial incorn fran the great difference in the intenrational price of oil and its cost of production.

Secondly, it is r e c o g d that there is a relatively low cost of production of

narural gas. The cost of production varies according to circumstances but the marginal cost of

natural gas, delivered into a country's gas transmission system; for a number of counaies studied

by The World Bank, fell into a vnge between $0.25 to $1.30/GJ across countries with diverse-

geological location, market, grrd gas qualities. Thc total economic cost for supply of natural gas,

including this m a r w cost as well as a depletion value based on the pria of fuels it would

replace, generally falls below the economic cost of altanative fuels International fuel prices in

comparison, are in the range of about $1.2O/GJ fcm steam coal to about $3.5/GJ for oil or LNG

(Liquefied Natural Gas). The h a d conclusion must be that natural gas can be produced from indigenous somes at costs which an lower than the cost of importing oil and gas and, in many cases, lower than the cost of importing coal.

The third enthusiasm factor is the development of new technology which is making available luge-scale, hghly efficient, gas-fired power generation plants. The development over the last two decades of large (1 50 MWe) efficient (35%) gas turbines meam that developing

countries with nanual gas resaves can benefit from rclarively low cost electricity supply using gas-

fueled combined cycle units (which are formed of two or more gas turbines exhausting into heat recovery boilers supplying steam m a steam turbine). The efficiency of thc gas-fired combined

cycle power station can now approach 50%. Costs arc relatively low, at abaut $$6001hv of installed electrical capacity, a . the tim for ccmmmion shorter than for cod-find plants. Using niuurai gas for eknicity production instcad of oil or coal, has thc advantage of minimizing thc environmental impact of power generation from fossil fuels.

That leads m to the fourth enthusiasm factor, perhaps the most imporcant of all, in the envimnmenlal benem of natural gas. There is strong i n d o n a l reaction to the growing problems of environmental pollution, and the strengthening realization that natural gas can help solve those problems of an immdiate as well as long tcrm future. Strongly intertwined with energy strategy issues of the last decade arc the enormous changes in govenunent thinking on environmental issues especially of air pollution In earlier days, the main focus of environmental aacntion was on local pollution problems. Mort recently, this broadened to encompass air pollution problems, especially associated with acid rain, and so extended the debate to include transboundary pollution . Transnational discussion has led m full international debate as a new threat the world's environment arose in the form of the Greenhouse Effect, which was confirmed by a growing consensus of opinion from the scientific communities. The threat came from the ever increasing emissions of Grtenhouse Gases, in part from the burning of fossil fuels, which could trigger a serious change in the balance of the world's climate, including that of a global wanning.

In the environmental context, natural gas offers several advantages at once. It

eliminates the emissions of partic~dates and sulphur dioxide; it avoids the disposal problems of solid waste, of the ash from -d and of the sulphu~ous waste from flue gas desulphurisation; it

reduces waste heat; and it halves the emissions of carbon dioxide. With the global warming issue in high focus, international agencies are encouraging ductions in Greenhouse Gas emissions especially emissions of carbon dioxide. A change fiom cod and oil to natural gas reduces the emissions of carbon dioxide per useful tconomic product and is therefore to be encouraged. The recently installed Global Environmental Facility, which is an international fund aimed at tackling international global environmental problems, is supporting several pilot projects concerned with increased utilization of natural gas.

3. Historic Development of Natural Gas Markets

In response to the opportunity pmcntcd by natural gas, governments around the world arc developing their energy makc& and many arc adjusting their policies to encourage grcata

commrcial investment in thcir nand gas industry. For thcir guidance, counrrks draw on thc

encxm,us experha of som 70 other countries around the w d which operate gas industries. But thac is no standaxd mode1 for the market Markas vary considerably 6rom country to country.

The competitive position of gas varies from counay to country. The extent of market penetration varies accardingly.

[ Slide 3 - Market Penetration of Natural Gas as 8 of Primary Energy Demand ]

Historically, local natural gas markets grew in counuies around local gas production, in many cases based on natural gas associated with oil production. Increases in the oil price in the

late 1970s and early 1980s allowed gas prices to increase and cover gas transport costs so that gas

market opened up to regions more remote from the source. Natural gas replaced gas which was

manufactured from coal, in some instances in a slow add-on program, in others in a massive and rapid conversion financed with public funds. Mure recently, international trade in gas has grown

and enabled countries with negligible or small indigenous production to import gas and develop

substantial gas markets.

Several gas markets art very old. The Chinese developed their natural gas markets a

very long time ago, over 2,000 years ago. North America had to wait patiently until the end of the

last century for its natural gas market to develop . Once started, and particularly during the 1920s.

there was a rapid expansion and by 1970 natural gas provided a third of its energy need in the

USA. In the USSR, natural gas became a significant energy source in the 1940s and provides

today, not far short of a half of its energy nccds. In Western Europe, the natural gas industry

started in a small way in the 1950s with Italy and France, but the discovery of the large Groningen

field in the etherl lands and the subscqucnt expom which flowed fkom it gave the real impems to

the development of the nannal gas market thcrt, now standing at 18% of the energy market of EEC countxies and expected to expand further. Further discoveries in the North Sea opened up supplies for the UK and for Norway.

The sector of the fuel market favoured by gas follows from its competitive position

compared with other fuels such as oil, coal and elecmcity, but is also sa-ongly influenced by the strategic energy policies which governments adopt and the structural design of the industry.

[ Slide 4 - Markets for Natural Gas ]

By way of example the markets in the USA, the UK, Germany, and Japan arc shown

hue to have strikingly diffuent pattam. The UK govmmm& until vcry -tly, did not allow

naaPal gas to be used in power genedon. Japan, on the other hand, whose market rclics mainly

on imported energy including the higher priced LNG, uses gas in power g c n d o n and the residentiaVcommcrcia1 market but finds gas to be uncampetitive in the industrial sector.

[ Slick 5 - Natural Gas Trade ]

Most oil is uaded internationally but most gas is consumed in the country of origin. With the higher oil prices, international tradc in n a n d gas increased, and now represents about

15% of the total world consumption of natuxal gas. Most of the trade is by major transmission

pipeline mutes in and into Westem and Central Europe, and into the USA. But a significant

3112% of the total trade is in Liquefied Natural Gas (LNG) which developed as a shipping business

in the 1960s to move gas from the USA and Algeria, to the UK and France and expanded greatly

in the Pacific basin in major energy supply routes into the Japanese market. Japan now takes about two thirds of the LNG trade of 72 Bcm of gas per year.

[ Slide 6 - Gas Industry Structure: Source and Supply of Gas ]

The different roles which countries have in the international trade is emphasized here. To a large extent these irnpon/expon balances and of course the volume of gas which they handle,

establishes the primary differences in s t rucm of a country's gas industry. The size of the gas

industry in USSR is very impressive. The USSR is the largest natural gas producer and the largest

exporter. It exports a massive 1 10 Bcm per year which even so represents only 1 3% of its

production. As examples of smaller but nevertheless sigmficant exporters, Malaysia exports about

half its production into Japan as LNG, Canada exparts 40% into the USA as pipeline gas and Algeria exports 60% both as LNG and pipline gas. The USA and the UK art characterized by

being almost self reliant in gas with only about 10% imports, while others rely strongly on imports, West Germany importing three quarters of its gas, France 90% and Japan 95% .

4. General Organization and Structure of the Gas Industry

In the 70 countries in the world which have their own gas industries, we would also like to be able to draw some conclusions as to how best to promote devclopnnts in n d gas -

and how best to organize the gas industry. While there are general rules, they often fail to have the clarity that we would wish, for as outlined so far, there is a p a t variety of situations which an o h unique in themselves and nflcct as they do not only the market for the gas and the self

sufficiency of gas resource, but also the historical invesmmt programs of the industry and a legacy of technical and political change.

Gas differs from oil and coal in having the cost of transport as such a large @on of

its price to the consumer. In the case of long distance gas supply, via pipeline or LNG carrier, the -

costs of transport can be over 80%. Accordingly, the ownership and cost management of the transport link in the chain is a major consideration. Open access for new vennrres to established gas transmission systems also becomes an issue.

[ Slide 7 - Gas Industry Strucnrre: Simple Supply and Marketing Model]

In a simple gas mdustry, gas projects consist of a single supply source (often one field) tied by a pipeline to a single consumer (oftcn a single industry or a power plant). As the market matures. however, gas pipeline systems become morc interconnected, and multiple supply sources become tied physically to multiple consumen.

As the market matures and the control of components in the gas chain becomes mart diverse, interwoven patterns develop to allow a measure of joint management and joint sharing of

the financial risks and a joks csponsibility towards the commitment to guarantee supplies to the .

customer. In supply chains which transcend national boundaries, as in LNG shipping or in

international transmission pipelines, joint venture ownaship both upstream and downstream of the gas transfer point has become a normal part of business these days. The industry inside the country also becomes more complex as markets btcom morc rnaturc and sales contracts become mart sophisticated.

5. Private and Public Ownership

Traditionally, outside of North Amjica, the public sector has tended to play a major role in the gas industries of many counaics and a daminant one in those of Central and Eastan Europe. In most countries both the state and the private sector have their roles to play. In thost

countries when the private sector has played a major role in making investments and in apaating a

gas industry, the state would have, nonetheless, a vital role to play in fostering gas dcvelopmcnts

and in regulating the industry.

In new gas markets, the public sector may need to take a large part of the initial risk of

constructing the basic transmission system and developing the market. As the industry develops,

the necessity for the public sector to be the motive force of the industry tends to decline and the role

of the private company increases. That change - the movement towards increased private

involvement in gas indusmes - is accelerating today. Why is this happening?

Fi t ly , because of the widespread economic and political restructuring underway in

many counmes, the economic role of the state, as an investor and owner of assets, is being

examined. Privatization of gas and otha utilities also has its political attractions as a one time

means of raising revenues for the state without inmasing the burden of taxes.

The second reason is the very rapid growth of gas production and utilization

worldwide, which requires mobilization of enormous amounts of capital, just at the time of

concern about the adequacy of global capital availability. The capital requirements for the

reconstruction of Central and Eastern Europe and for the basic infrastructure of developing

counmes, including a great i n m s e in the needs of the power sector, places enormous strains on

international finance syster Moreover in many counmes, the availability of public capital for

investment is constrained by the need to reduce fiscal deficits and to repay foreign debt, so that

private sourcing of funds appear as more attractive

A third and final factor in raising the question of the private sector in gas investment has

been the increasingly close relationship between the power and the gas industries. Most of the

projected increased demand for gas worldwide comes from the power sector, where the adoption

by the indusny of combined cycle power plants as base load options, has l e d to natural gas being the fuel of choice in most counmes where it is available. Saucnual changes in the power sector,

with increasing privatization and competition challengmg the dominance of traditional public sector

utilities, arc therefore also having a direct impact on the thinking behind the develop~nt of the gas

industry. .

I would like to illustmtc the ownadup question further by refercna to selected gas

industries in North America, Europc and Asia. The ownership pattems of the gas industries in

Some of thC 0 l k 1-a gaS ~ I K ~ I ~ c s &OW V-Y.

[ Slide 8 - Gas Industry Strucm: Owncrsip of the Links in the Chain 1

As to the overall position, the gas industry is vertically integrated in the United Kingdom and in France but not in the other examples. Also, in most other countries there is a national transmission company, and local companies with public interest to distribute the gas The onc exception to this is Westan Gennany.

As to the ownership of production licences, there is more often than not a strong private

involvement. In West Europe, t h m arc around 80 individual companies, mostly private,

participating in the production of n d gas, including the major international oil companies such

as Shell, Esso and BP. In most counmes, governments are involved in the allocation of

exploration and production licences and, in som cases, in production through government-owned companies and expodimport controls.

Governments are involved in transmission companies in all European countries except

Germany and now the UK. In some counmes, transmission companies have the right of fvst refusal for gas produced within the country. In France, Gaz de France has almost a full import

monopoly.

Local government-owned distribution companies usually have the right to install and

operate the distribution grid and the sale of gas to smaller custotners in countries where transmission and distribution are separated.

The German gas industry is characterized by its complex structure and only a small involvement of the govenunent - the Western German gas production is mainly private, thm arc 13 regional transmission companies and 13 other high pressure grids operating between the importing companies and 500 dismbution companies. Ruhrgas is a shareholder in five regional

transmission companies and in joint venture pipelines within Germany, and before reunification with East Germany, 70% of the gas flow in Germany went through pipelines owned by Ruhrgas.

In the USA, more than 10,000 small producers supply around one-third of the gas production and the major oil and gas companies supply the rest There arc 23 major intematt

pipelines bringing gas from the producing ateas, mainly in Texas and ~~ to the markets.

Most of the industry is private, except for local governmnt interest in dhribution c o ~ t s .

The organization and structm of the gas market in the USA changed in the 1980s from the traditional gas chain to a rmrc complex and dynamic structure. In the traditional gas chain, producers sold gas to pipelines, which in sold it on to distribution companies. F d y ,

distribution companies delivered gas to end-users. The use of market forces and open access have resulted in an unbundling of servias to separate the pipelines' merchant and transportation roles.

Reducers sell gas k t l y to all levels except residential and C O ~ c u s t o m and have the right to transport their gas through existing pipelines at a predetermined fee. Pipeline companies

and gas marketersbrokers compete in selling gas to the same customers.

In Central and Eastern Europe, there arc major changes underway at the moment. In wunaies such as Poland arid Hungary, the combined oil and gas industries have been wholly statcavned enterprises with full vextical integration, embracing the whole of the gas industry

fhm wellhead to burner tip. Changes which have been proposed, arc aimed at simplifying the relationships with government, at strengthening management accountability and creating a framework for greater efficiency and opening the industry to commercial investment. Upstream exploration and production will most likely be opened to private investment, downstream activities restructured with major changes in gas pricing to reflect economic values. In the USSR, where

the gas industry is such an important part of the energy economy, major changes can also be

expected in the coming few years.

In the Far East there arc also changes. Taking Malaysia as an example, upstream activities arc continuing to be carried out by private oil and gas companies and main pipeline distribution managed by the national company, but the downstream organization is being developed with a joint venture formed with Japanese interests which will create the future gas distribution networks in Malaysia's major cities.

6. Regulatory Frameworks

The issue ova regulahon is an impcnant arm for rtsolution. An appropriate regulatory framework is seen to be essential if natural ~ndustry monopolies, such as gas or electxicity, are to -

h a i o n efficiently. The objectives of regulation with regard to gas will be to (i) ensure safe o@on with prupcr adherence to proven a~gincaing standards, (ii) reliable and cost effective supply of gas to the consumer, and (iii) achieve a ccnrcct balance between the conflicting intaesrs

of the production companies, the aansmission and distribution companies and the customers. Rcgulmons should be designed to allow new gas industries to grow but they should also c W y establish the ground rules when and if the industry grows to bc very successful. In the most successful cases of fiee market economics, regulation ensrats that the private or public monopoly in the industry functions as if they wert in a competitive market and ensures that conditions far

competition exist where there is more than one company involved. Experience shows that these art difficult goals to achieve because a balance must be struck between excessive complexity with a reliance upon legal action and common sense compromise. It is seen as important that regulation, in this context, should not dictate what the industry does, nor what prices should be charged, but it should set the framework and guidelines for the decisions of private investors and consumes. It is of great value thenfon to &bate the various possibilities and settle on an appropriate framework at an early stage of development of the industry .

7. In Conclusion

I have relayed to you today the general enthusiasm for natural gas projects in the international scene and have also attempted to review, in too brief a way I am afraid, the great variety of structures and changes that art happening in the gas indusmes around the world. I hope that the information will hay e ;mprcssed you, if not with its complexity, with the richness and flexibility of the gas industry as it is developing today. I trust that it proves to be a useful backdrop to the discussions which will occupy the seminar in the next few days.

Acknowledgements

Many sources of experience have been drawn on in writing this paper. I especially acknowledge fhe help of my colleagues in the Gas and Oil group of The World Bank in Washington. I would acknowledge the contribution of Cedigaz in providing the main

rtlference for data on gas volumes and markets.

I Slide 1 I

Growth in World Proven Reserves of

Natural Gas

I Slide 2 (

Enthusiasm Factors for

Natural Gas

I. strategic advantage m of . own source ot supply

2. low marginal cost of production

3. new technology -. for power generation

4. environmental benefits

Market Penetration of Natural Gas as % of

Primary Energy Demand 1990

500 Bcm

1970 1980 1990

USA

50 Bcm

81 5 Bcm

USSR

3 Bcm

UK Denmark

Markets for Natural Gas 1988

USA

Japan 45

West Germany

493 Bcm

53 Bcm

Bcm 52 Bcm

I Slide 5 1

Natural Gas Trade 1990

1 0 3 I 2 / o Pipeline 1 1112%

I Slide 6 (

Gas Industry Structure: Source and Supply of Gas

1990

exports 62%

Overall Size

(Bcm)

Algeria 51

Malaysia 19

Canada 108

USSR 817

8 USA 541

95% imports

Poland 12

W.Germany 66

France 32

Japan

1 Slide 7 1

Gas Industry Stucture: Simple Supply and Marketing Model

\

Producers

\ 1

7 f \

Pipeline Transmission Companies

\ /

v f \

Local Distribution Companies

\ J

\ f \

Industrial Commercial Customers

Residential Customers

/ \ /

Gas Industry Structure: Ownership of the Links in the Chain

USA France W.Germany I I

I I I - - - - - - - I - - - Production - - - - I - - - - - - - -

I I I

oil and gas I British Gas, I oil and gas majors + oil & gas 1 state 40% 1 majors + 10,000 majors + I private 60% , few others others 30 others I I

I I I

I I 13 transmission 32 major I I companies

transmission British Gas I state I I I I (mainly companies +

I Ru hrgas) a few others ' I 1 I + regional grids

I I I private I I state

and British Gas + 1 municipal municipal I I a few I companies

companies I I

I

I municipal I

I companies I I I

18 mllllon 9 mllllon I 50 milllon 10 million customers I customers I customers I customers

I I I

Paper 3

The Environmental Value of Natural Gas

A Contribution to the Symposium on Gas and the Environment

18th World Gas Conference Berlin

July 1991

John Homer Natural Gas Development Unit

Energy Sector Management Assistance Programme The World Bank

Washington, D.C.

The Environmental Value of Natural Gas.

Mr Resident, Ladies and Gentkmca

The World Bank is in a very active phase in encouraging the greater use of natural gas

in developing countries. One of the mm impartant rtasons is the extraordinary opportunity that

natural gas has now, to help solve their present and future environmental problems. The needs of

the developing countries will be &bated in the special session at this conference planned for the

marning of Thursday, July 1 1, and I c o m m d it to you for your attendance.

As a contribution to today's symposium, though, I would like to enlarge on the

question of the v& of natural gas. Not so much by saying again how wonderful the product is. Nor by just saying how easily it reduces emissions of air pollutants. I want to talk about its real value in avoiding environmntal damage. In $, or in &utsche marks.

I want to talk about " environmental credit ".

[ Slide 1 - Concept of Environmental Credit for Clean Fuels ]

Every fuel we use has two components of costs

- the cost of buying and consuming the fuel, and

- the cost of the damage to the environment.

We can reduce both components by improving the technology of use. We can reduce the environm~ltal damage by changing to a cleaner fuel, which, even if the cost-in-use increases,

lowers the o v d cost of the fuel to the community.

The difference in the damage cost can be seen as an environmental credit which we can

ascribe to the cleaner fuel. In some circumstances it can easily offset the extra cost of providing the cleaner fueL

In thc World Bank we are working on the evaluation of this credit. I want to take as the

example the wak we arc doing in Poland. There, we are advising the Polish Government on several

aspects with regard to restructuring its energy sector.

[ Slide 2 - Poland - Emrgy Consumption and Atmospheric Emissions ]

h of the prhm aims there, is to reduce the emissions of SO2 and particulates to pre- set targets, whilc at the sam tim pressing fix significant economic growth. This, Poland can do by

invesanent to improve the energy e8kiency, helped by switching to cleaner technology and to

cleaner fuels.

[ Slide 3 - Poland - Energy Consumption - High Gas Scenario ]

One such scenario is for a substantial increase in natural gas consumption. It is the

lowest cost scenario, allowing Poland to meet their emission targets without resorting to the more

expensive options of nuclear energy or of a massive investment in FGD.

But how much does it cost them and what is the r e ~ l cost of the damage from air

polldon in Pohnd? Indeed, is the cost of emission control, set by current targets, higher than

the damage which the air pollutants arc causing?

[ Slide 4 - Poland - Cost of Emission Reduction from High Stacks ]

Exploring this on the one side, we can judge the marginal cost of abatement per ton of

pollutant emitted That increases of course as the target level for emission reduction becomes more

severe. It is relatively easy to establish. It is also specific for the application in question.

[ Slide 5 - Poland - Published Studies on the Cost of Environmental Damage from Air pollution ]

What is mon difficult to derive is the cost of environment damage. We were in a good

position because the Institutes in Poland had &ne some good work on assessing the environment darnage from air pollution, analyzing between the damage categories of - health, - agriculture, - forests and - buildings & materials. You can see that total damage costs range into billions of $ per year, which is of the order of several 8 of Poland's GNP.

A careful review of this work and of the physical f&tors which relate the source of the

pollutant to its contribution to this damage, allowed us to correlate and compare the damage cost

with the abataacnt cost, Som major assumptions have to be made, but the conclusions, we think,

are realistic. T h e is no time to go into detail h a , but I would like to share with you two

conclusioIls.

Firstfy that the marginal costs of abammt are si@cantly higher than the related

costs of envimmmtal damage which were deduced from the analysis of the loss of economic

productivity . This implies, that if Poland goes ahead with investing in abatement control to achieve

the emission reduction targets which they have set, them a justification for the extra cost, over and

above that which can be mxnrered from lower environmental damage, has to be sought in the value

which Poland ( and its neighbouring countries ) places on very clean air and the perceived benefits

to its quality of lifc.

[ Slides 6 & 7 - Poland - Estimates of Environmental Credits foe Natural Gas ]

Secondly that the environment credit for gas is substantial for certain applications,

not surprisingly in the smaller applications where emissions are close to the ground and the costs of

pollution control technology for coal arc high. In the residential market, credits for natural gas

appear to be of the order of 3 to 5 $ per GJ. These arc sufficient to offset the higher cost of a

distribution system for the gas to residential customers and can be used to justify high priority

investment in that market

This is not to say that the price to the consumer rises by this amount - pricing is a

separate issue. But it does recognize that the community at large benefits by this amount from the

use a natural gas.

This work is under active discussion with the Polish Oil and Gas Company and with the

Ministries of the Polish Government.

Details of the work will become more generally available, when the review reports are

issued by the World Bank at the end of this year.

Thank you for your attention.

Slide 1

Total Unit Cost of Fuel - Concept of Environmental Credit

for Clean Fuels

Existing Alternative e.g. Cleaner

situation coal with Fuel e-g improved e.g. coal technology natural gas

Slide 2

Poland - Enerav Consum~tion and V I

Atmospheric ~missibns

Energy Consumed

Emissions 7 25%

CQ Emissions

SOr Emissions

50%

Particulate Emissions

30%

Slide 3

Poland - Energy Consumption - High Gas Scenario

Others

Natural Gas 8%

(= 12 Bcm)

Natural Gas 25%

(= 45 Bcrn)

Slide 4

Poland - Cost of Emission Reduction from High Stacks

Marginal Abatement Cost

per ton

Target Reduction - Relative to 1980 Level

Slide 5

Poland - Published Studies on the Cost of Environmental Damage

from Air Pollution

Number Damage of category studies

Health

Agriculture 3

Forests

Buildings & 4 Materials

Range of estimates for years in the period 1980-8

( $ billion per year )

Slide 6

Poland - Estimates of Environmental Credits

for Natural Gas

a) Large Scale Applications

S.0, Particulates NO, Total

Power & Large District Heating

existing 2.3% S coal 1.5 0.1 c 0.1 1.2% S coal 1 0.1 c 0.1 0.6% S lignite 0.5 0.1 c 0.1

new 1.2% S coal 0.2 cO. 1 c 0.1

Industrial

coal 2 1.5 < 0.1 heavy fuel oil 1 - c 0.1 gas oil 0.5 - c 0.1

Slide 7

Poland - Estimates of Environmental Credits

for Natural Gas

b) Smaller scale applications

SO, Particulates NOx Total

Commercial

Residential -

st0 ves 2.5 new consumers 2 small district heating 2

Paper 4

Methane Emissions from

Natural Gas Supply Systems

July 1990

John Homer Natural Gas Development Unit

Energy Sector Management Assistance Programme The World Bank

Washington, D .C.

Methane Emissions from

Natural Gas Supply Systems

Background

The potential for new natural gas projects is very high. As a cleaner fuel than coal or oil, natural gas helps solve environmental problems related to air pollution and waste disposal. Also, because of the availability of new combined cycle gas-fired power plant technology, n a t d gas is being promoted as an energy efficient fuel. Furthermore, a gas-fired plant yields only half of the carbon dioxide emissions of a coal-fired plant of comparablesize, so that natural gas contributes towards solving the problems of an enhanced Greenhouse Effect and the threat of global warming.

Against this background, there has been a great deal of publicity and debate in the last year on emissions to the world's atmosphere, of methane, which, like carbon dioxide, also contributes to the Greenhouse Effect. One of the fbcuses of this publicity has been the amount of natural gas which is being vented or released from the natural gas supply systems of the world, an activity which runs counter to the advantages of decreased carbon dioxide emissions from the use of natural gas.

To highlight the case, several organizations have chosen to quote actual or hearsay examples of very high losses of natural gas, the favorite example being the (hearsay) high leakage rates from the Soviet gas supply pipelines. An unfortunate consequence is that other organizations have accepted the implication that all gas pipeline systems leak horrendous amounts of methane, and that all new natural gas projects are therefore suspect

It is true that, natural gas is vented as a standard practice in normal gas production and maintenance activities. In some situations it is safer to vent than to flare, the presence of a flame presenting the greater hazard. It is also true that those leaks, which do not present a safety hazard, are often allowed to continue, since repairs cost money. However, the amounts vented and leaked from well-engineered gas supply systems are much lower than those implied by the recent public commentary.

2. New Systems

A new natural gas supply system, constructed according to good modem engineering standards, would be expected to have methane emission rates of less than 0.1% of throughput. Such a percentage figure would be characteristic of a large pipeline transmission system feeding, for example, a gas-fired power station, and there are good examples of this.

New gas distribution systems which feed gas to smaller industrial, commercial or household customers should also be able to achieve this percentage figure, although experience shows that xcontinuous and diligent monitoring and maintenance program is necessary (and possibly costly) to ensure that all pipeline joints and metering points are essentially leak free.

Safety is the main issue for leakage fiom distribution systems. Methane concentrations between 5 and 15% by volume in the air are flammable and have to be avoided. In modern dismbution networks a small amount of a distinctively smelling chemical is added, and the public is trained to note this and report leakages. The amount of chemical added is set so that leaks are detected well below the lower flammability limit, Repairs are enacted generally when the gas concentrations are detected at least a factor of ten below that limit. This says very little about the amount leaked of course: in an open space, methane would disperse far more quickly than in an enclosed channel or room, but it gives an indication of the care which responsible gas uanslnission companies take over the subject of leakage.

3. Old Systems

Many older gas transmission and dismbution pipeline systems have leakage rates much higher than 0.1 %.

In some industrialized countries, there are still the remnants of cast-iron pipework, which was laid down in the nineteenth century. Old cast-iron pipework, particularly in areas of earth movement, is notorious for causing leakage problems, as is the consequence of the changeover from old towns gas to new (dry) natural gas.

These older systems are slowly being replaced. In some, the old cast-iron pipework is being retained but repaired with an inner plastic linings can offer extended leak-free operations for many more years.

In many developing countries the transmission and dismbution pipelines are largely new, outside some of the old town systems.

Irrespective of the age of the system, in countries where monitoring and maintenance programs are deficient and where the price of gas is low, then has been less attention paid to leakage. There, leak rates have been reported to be as high as 6% in specific town systems. Even so, those numbers should not be used necessarily to reflect the complete overall country supply network.

4. Emissions from existing systems

Earlier publicity on tb .: issue of methane leakage from gas pipelines had advertised an average industry figure for loss rates as high as lo%, but closer analysis of existing systems and more detailed reporting by the gas industry has been able to c o n f i i much lower figures. The reason for the original disparity was a misquote of industry figures in equating "unaccounted for loss" to "leakage", when in fact the term includes, as well as leaks, and operational venting, metering inaccuracies, gas use in pipeline compressors, and disposal to customers for which there were no accounting records. An international forum of experts was organized in April 1990 in Washington, D.C. by the US EPA to bring together infonnation on methane emissions. For the gas industry there was a confirmation that average figures for natural gas leaks are between 0.2% and 2% depending on the country of operation. Data from the USSR was not presented at the meeting, but other reports quote for the USSR, an overall figure of 2% (while implying that it was higher in recent years).

The overall world table indicates an annual methane leak rate from natural gas supply systems of around 20 d o n tonnes:

Estimate of Annual Leakage from Natural Gas Supply Systems:

% of Gas Annual Gas m g e Region Production (million tomes)

USSR USA W. Europe Others

TOTAL WORLD 1-2 20

This total amount represents about 4% of the world's atmospheric methane emissions, falling in importance behind other sources of methane emissions such as natural wetlands, rice paddies, animals, landfills and coal mining.

With the issue of gas pipeline leakage having been raised, counmes are now re- examining their gas operations to see whether the latest numbers for methane leak rates are indeed murate. A complete audit is difficult without investment in more accurate metering. Uncertainties still surround upstream leakages from old production wells and downstream leakages beyond the customers' meters, and more work needs to be done to arrive at well-documented data.

5. Consequences for global warming

Of importance to the consequence of emitting methane is the relative impact on the Greenhuiae Effect and the resulting enhancement of global warming. World methane emissions, at about S 50 million tonnes per year total, are thought to conmbute about 20% to the warming effect: merhane leakage from natural gas supply systems, at 20 million tonnes per annum, therefore conmbute only 0.7%.

Such a figure could be regarded as insignificant to the overall problem of global warming. a n the other hand, such is the international concern over the problem, that reductions in any conmbutory source are being followed up and lower leakage rates are being encouraged whenever possible. Counmes whose old systems are demonstratably poor in containing the gas wlll find it hard to continue those pncrices and investment will be called upon to improve the situation.

What is especially useful to note is that ne.,v systems with leak rates less than 0.1% are an order of magnitude lower than the world average, and can be accepted as insign~ficant in this context.

One further point is that the importance of methane as a Greenhouse Gas depends on its spectral absorption efficiency relative to carbon dioxide. The above factors an calculated on the basis that methane is a factor of 30 more absorptive than carbon dioxide on a molecule-to-molecule basis. Recent research indicates that lower factors of 6-13 are perhaps more justifiable, and in which case, methane leakage becomes proportionally less of an issue. Then have been references though to a larger factor of 80 and to a discussion on the timescale of futun controls. Obviously mart research is needed to clanfy the position.

Even with this uncertainty, there is confidence that methane emissions from natural gas supply systems arc not as serious an issue as was suggested a year ago, and that the subject should not detract too much attention away from the significant environmental conaibutions that new natural gas projects have to offer.

Paper 5

CNG for Vehicles in

Developing Countries

Paper presented to the World Bank Seminar on Compressed Natural Gas: Use in Transport

Washington, D.C. June 1991

John Homer Natural Gas Development Unit

Energy Sector Management Assistance Programme The World Bank

Washington, D.C.

CNG FOR VEHICLES IN

DEVELOPING COUNTRIES

1. Introduction

The rapid pace of urbanization and our ongoing addiction to individual motorized transport alarm us with the prospect of worsening urban air pollution. By the end of this century, almost half of the world's population will be town dwellers and will be breathing air of deteriorating quality unless we adopt different motoring habits.

There are several ways open to urban planners to organize transport systems so as to control air pollution. A pursuit for many, in helping the planners to solve the problem, is to seek technical solutions which reduce the rate of emission of pollutants from the vehicle engines. Promoting cleaner fuels is one such way, which really means establishing alternatives to the present gasoline and diesel fuels powering almost all of the world's motor vehicles.

The gasoline and diesel fuels of today are good low cost fuels, developed over many years, to match the requirements of highly developed vehicle engines. Much experience and a great deal of investment has gone into the present situation. More efficient and less polluting engines are being developed as a result of the tougher legislation on pollutant emissions, but the developments still revolve around better gasoline and diesel fuelled engines which continue to reinforce our ongoing commitment to these fuels. Any move away from those fuels has to mean an extensive public promotional program as well as substantial investment and possibly an increase in fuel price.

The main contenders for alternatives to gasoline and diesel fuels are:

a) Compressed Natural Gas (CNG) b) Liquetied Petroleum Gas (LPG) C) Methanol d) Synthetic Gasoline and Diesel Fuels produced from Natural Gas e) Elecmcity

In a recent World Bank report, Rene Moreno and D.G. Fallen Bailey considered these alternatives and concluded that CNG is the most economically amactive of the natural gas based fuels. While the other alternatives show promise, especially the synthetic fuels produced from natural gas, CNG is an option which is relatively easy to install wherever natural gas supplies exist and is regarded by many governments as one which should, at least, be explored.

CNG is of special interest to those developing counmes which are rich in natural gas. The experiences to date of some 10 developing counmes in CNG projects is reviewed later in this paper.

2. CNG and its Advantages

To stand a good chance of success, an alternative fuel must have real advantages, either in technology, in economics or in smtegic issues. CNG has advantages in all three. What does it have to offer?

A Cleaner Fuel: Natural gas is certainly cleaner than gasoline and diesel. It contains virtually no sulfur, no metals, and none of the heavier hydrocarbons that can lead to soot and other particulate emissions. It can be burned with much less carbon monoxide emissions. Those are considerable advantages to communities suffering especially from the polluting exhaust emissions from uncontrolled diesel engines. Natural gas fuel does not cure the problem of emissions of nitrogen oxides (NOx) - that is a characteristic of all combustion engines using air. Emissions of carbon dioxide are lower though, which gives it an appeal to the international communities concerned with Gmnhouse Gas emissions and global warming, but in truth, it is doubtful whether the advantage is significant. Methane is itself a Greenhouse Gas and leakages from a CNG filling and vehicle tank systems, are likely to be higher than normal natural gas utilization systems. Leakages have to be very carefully controlled so that they do not substantially remove the advantage of lower emissions of carbon dioxide.

A Readily Available Fuel:. Natural gas is available in great quantities in the world. It is as abundant as oil, and, even better, has a production life of around 60 years, twice that of oil at current production rates.

Stralegically sensible:. Yes, if a country is endowed with its own natural gas resource, it makes good sense to use it. There are strong strategic advantages to counmes either devoid of oil or wishing to increase their overseas earnings by exporting more of its oil.

A Cheap Fuel: No, generaily CNG is more expensive than gasoline or diesel fuels. The problem for gas of course is transportation is more expensive than oil. Long distance transport, either overseas as liquefied natural gas (LNG) or by land as a high pressure gas through thousands of kilometers of pipeline, makes CNG to be much more expensive than gasoline or diesel. Where a gas production well is located close by though, or where transportation costs are lowered by combination with gas supplies to large gas-fueledprojects such as for power stations, CNG can become competitive. Processing costs are less expensive of course. To produce a high- octane gasoline or a smoke-free diesel fuel, the crude oil needs to be distilled, the relevant fraction mod5ed chemically and its performance improved with additives. In comparison, most raw natural gases require little or no processing for use as a automobile fuel. That is especially true of low sulphur gas wells. For low cost gas transported to a local market of large volumes and with efficient vehicle filling and distribution systems installed, CNG can compete with gasoline or diesel fuels but only under the combination of all those factors. The point will be enlarged on later.

An Easily Handled Fuel: CNG is a cleaner fuel to handle, with none of the smells or the small toxicity effects of gasoline or diesel fuels. It is also safer because it blows away quickly if it leaks and needs a much higher temperature ignition source to make it catch fire. So saying, it is still a high pressure flammable gas and standards of engineering have to be established carefully to ensure safe operation. The safety record for existing pilot and commercial projects has been very good. A CNG vehicle can be refuelled fairly easily by connection with a high pressure storage tank at a filling station. Alternatively it can be filled over a period of several horn, by a trickle till pump from a low pressure gas supply, rather like overnight charging of an electric battery car. As less equipment is required for trickle fill systems they are relatively easier to operate and maintain and are less costly than fast till systems. CNG is therefore more attractive for fleets of commercial vehicles which return to a central depot every night for refuelling, than for general private use where free movement patterns have to be accommodated

High Energy Content: Per ton of fuel, natural gas contains 10 to 20% more fuel energy than gasoline, but tonnage is not so relevant when comparing a gas with a liquid. We need to compare instead the energy that is contained in a fuel tank in a vehicle. For CNG, where the gas is compressed to a high pressure to give it a smaller volume, we can find a CNG fuel tank of, for example, 70 liters (17 US gal) at a pressure of 200 times aanosphere, which would take the vehicle the same distance as a 20 liters (5 US gal) tank of gasoline. That comes out as a 3: 1 volume disadvantage. In reality, it is worse than that. CNG tanks are bulky and heavy, so that to retain the same range and the same carrying capacity, the CNG vehicle has to be both larger and heavier, with a lowering of fuel economy.

A High Efficiency Fuel: That depends on the vehicle type and its duty patterns. With CNG, as a gas, the carburetor of a gasoline engine can be bypassed, better air mixing is possible and lean-burn control of combustion is easier. This is one factor which makes CNG fuelling come out at about 10% more efficient than gasoline in a dual fuelled engine. Ideally, the spark ignition engine would be dedicated to CNG and have a higher compression ratio to take advantage of the higher octane quality of natural gas. Efficiency increases as a result There is no need for a choke of course in a CNG engine, which also helps. The story for the diesel engine though is not so good. While methane has a high octane number, it has a low cetane number and so is a poor diesel fuel. It needs to be injected along with diesel fuel to operate properly, and the inherent high efficiency of the engine suffers as a result. When CNG is to be used in large diesel engines of buses, for example, it is bener for the engne to be mcxAfied to include spark ignition, malung it a high compression Otto cycle (gasoline type) engine.

A Powerful Fuel: Not really. Drivers readily notice the power losses, in the range of 5-30%, when they switch from gasoline to CNG in dual fuelled vehicles. Purpose built vehicles which only operate on CNG can overcome this through the use of the higher compression engines, but the engines have to be larger and more powerful to match the full performance of the gasoline fuelled vehicle and fuel efficiency suffers as a result.

In Summary : CNG has advantages but it also has some disadvantages.

3. Experience with CNG

The world has 500 million motor vehicles on its roads, 85% of which are in North America Europe and Japan:

Table 1. Numbers of Motor Vehicles in the World

Country Numbers of Vehicles (millions)

USA and Canada 2 0 0 European Countries 1 7 5 Japan 5 5 Rest of Asia and the Middle East 3 3 Brazil 1 7 Rest of South America 1 3 Africa 8

Total 5 0 1

Of the 500 million vehicles only a small number, about 0.1 %, are convened to CNG. For the OECD counmes, figures for fuel used in vehicles shows that CNG has captured only 0.3% of the gasoline market. Six counmes are most advanced in CNG, having over 10,000 converted vehicles on the roads and there are twenty others with mal developments:

Table 2. Numbers of CNG Vehicles and Filling Stations in the World

Country CNG Vehicles O/o of Total Vehicles CNG Filling Stations

l taly 270 ,000 1 2 5 0 USSR 200 ,000 1 3 0 0 New Zealand 4 5 , 0 0 0 2 4 5 0 Argentina 35 ,000 0 .7 1 0 0 US9 30 .000 0.02 3 2 5 canda 15 ,000 0.1 1 3 0 20 other countries 4 , 0 0 0 5 0

Total 599.000 0.1 1 6 0 5

The "20 other counmes" are : Australia, Bangladesh, Belgium, Chile, China, Colombia, Czechoslovakia, Denmark, Finland, France, Hungary, Indonesia, Iran, Ireland, Japan, Malaysia, Myanmar, Pakistan, Thailand, and the UK.

Of the total number of 600,000 converted vehicles, only 400 are conversions of diesel -

engines - they are mostly buses. The rest are conversions of gasoline engines and almost all those are dual-fuelled for both gasoline and CNG. The amount of conversions even in the most enthusiastic of countries still remain small, only in Italy, the USSR and New Zealand exceeding 1 % of the total vehicle population.

In most countries government suppa has been necessary to promote the idea and establish the market in CNG. A few are being developed by local natural gas supply companies.

Italy has the greatest experience in CNG operations, starring back in the 1930 '~~ so it is not surprising that many of the conversion kits have been produced in that country. Conversion hardware can also be bought in Canada, Netherlands, New Zealand and USA . In all those counmes the technical experience is available to developing counmes through a number of consultant organizations.

5. Economics

Undoubtedly, the great moderator of the prospects for CNG in the past decade has been the international oil price and the related forecast price for gasoline and diesel fuels. Any enthusiasm for introducing CNG as a potentially lower polluting fuel is dampened quickly if its costs are significantly higher than traditional liquid fuels.

The cost of CNGconversion equipment is also crucial of course to the economics of establishing a substantial CNG market. An appreciation of those costs needs to cover designing and equipping the filling stations as well as the costs of conversion kits for vehicles. Costs are coming down as new technology becomes available, and a recent example is the new mckle-fill devices for home-fill or small fleet applications which uses technology from Switzerland.

There have been encouraging signs also in the greater interest recently shown by vehicle manufacturers in buildmg vehicles designed specifically for CNG. If this interest is sustained, it indicates that CNG engines will be available which will be of cheaper unit cost and of better performance than the kit-converted engines which can be found now in the main CNG counmes. General Motors has announced that it will begin making CNGfuelled light-duty trucks in 1991 for the US market, and Mercedes-Benz, MAN and Renault are preparing to offer CNG fuelled vehicles in their product range in Australia Initiatives like this will be taken provided that the manufacturers are convinced (by governments primarily) that there is a commitment to establishing large CNG distribution systems.

As summariixd earlier, CNG costs are generally higher than competing fuels, but by how mu&?

Reasonable figures to work with for the cost of vehicle conversion are $1,000 per unit for cars, $1,800 for taxis and light trucks and $4,500 for heavy aucks and buses. The cost of storage and filling stations depends on a number of technical features but a CNG filling station with a throughput of 50 thousand cubic feet (mcf) of gas per day can cost $150,000. For the cost of natural gas we can take US$2 /mcf and add the costs of gas nansmission over, for example, 300km to a CNG dismbution center.

An overall comparison of the economics of CNG use with those of other transportation fuels is outlined in Table 1. It comes from the work of Rene Moreno and D.G. Fallen Bailey in their 1990 World Bank report and the calculation takes the above costs of the hadware and combines them with gasoline and diesel fuels prices from a crude oil price of US$ZO/bbl.

Table 3. Economic Comparison of CNG with Other Fuels

Delivered Price Fuel Costs (@/km) Fuel ($/rnmBtu)

Cars Taxis Light Trucks Heavy Trucks Buses

Gasoline 5.4 1.4 1 .4 1.8 Diesel 5 .2 8.6 6.3 CNG - Fast Fill 8.5 3.4 2.5 4 .3 17.4 1 1 CNG - Trickle Fill 8 - 5 2.1 2.1 3 .7 14 .7 9.4

The figures shows (hat CNG, for the economic assumptions used and on the basis of vehicle fuel cost in cents per kilometer, is uncompetitive for all vehicle classes.

How can these economics be improved? There are four factors which can combine to help the economics:

(a) local natural gas is abundant and can be supplied at lower cost:

(b) the nansmission pipelines delivering the gas are short

(c) trickle fill CNG technology is used for fleet vehicles with a regular home base depot such as for taxis and buses,

(d) environmental emission standards are very stringent.

and of course there is a fifth one of:

(e) ;1 higher crude oil price

Table 3 shows the results for the breakeven price of crude oil, for the case where, for example, the cost of gas is $1 Imcf rather than $2 Imcf, the gas supply system is only 5 h away (local) rather than 300h (distant).

Table 4. Break-Even Crude Oil Price (US$/bbl) with a Gas Price of US$1 Imcf

Vehicles Fast Fill Trickle Fill

Local Distant Local Distant

Cars 4 5 5 5 3 6 4 6 Taxis 2 7 3 7 1 8 2 8 Light Trucks 4 4 5 4 3 5 4 5 Buses 2 7 3 8 1 8 2 9

Even with these favored circumstances, CNG is still uncompetitive for cars at crude oil prices below $45 bbl. CNG for heavy trucks would be competitive at $24 to $35 bbl. The most promising case is public msportation (taxis and buses) where gas is available locally and trickle fill systems are used. In that case break-even crude oil prices are $18 bbl.

If subsidies are given to lower the price of CNG or taxes are raised on gasoline fuelled cars to make CNG more attractive to the consumer in order to benefit the environment, then we are talking about an environmental credit of $25 /bbl on crude oil or $4 ImmBtu on natural gas. Such subsidies are high, Justification for them has to be sought in terms of a least-cost solution for avoiding further environmental damage.

6. CNC in Developing Countries and the World Bank

There are several developing counmes where the option of CNG has been seriously considered and several where active developments are taking place.

Discussions on CNG were very active in the first half of 1980s and several projects were started with suppon from the World Bank . However the fall in crude oil price in 1986 halted further investment. Pilot projects were initiated in ten developing countries in that period.

Argentina has been the most active. It has the special attractions of:

(a) substantial reserves of natural gas

(b) the practice of extensive flaring of associated gas which encouraged the Government to seek ways of utilizing the gas,

(c) a nahral gas dsmbution system which was already in place, so that investments were needed only in implementing a network of filling stations and retrofitting vehicles,

(d) the transport sector accounting for about one-third of the country's energy consumption and about 60% of petroleum consumption, and

(e) about half of the country's population lives in the Greater Buenos Aires metropolitan area which is an area of intensive economic activity and a large vehicle population.

An experimental program for 20 vehicles was implemented in 1983 which encouraged the Government in the following year to implement a national plan for CNG conversion. The plan called for the conversion of 135,000 vehicles over a ten-year period, initially to convert gasoline- fueled taxis and trucks and then, at a later stage, passenger cars and diesel trucks. To date some 30,000 to 40,000 vehicles have been converted The Government is now reviewing the success of the program with the intention of deciding on the appropriate course of future actions.

The World Bank played an active role in encouraging CNG use in Argentina. It provided financial support for approximately 20 new CNG filling stations and CNG dispensers for existing stations, as well as for consultancy services required for project planning and management. The World Bank also provided assistance in coordination among agencies in the energy sector as well as those in the aanspon and industry sectors of the country. It was essential to establish the right price signals in the energy sector and there was, in particular, a problem in relative prices of diesel versus gasoline. In Argentina, like many other developing counmes, the price of diesel oil was substantially below that of gasoline and the Government was encouraged to adjust gasoline and diesel prices on the basis of their economic value. With the implementation of this policy, conversion of diesel-powered vehicles to CNG would be possible at a later stage of the national CNG plan.

In Brazil, the national energy plan calls for increased use of natural gas in the transportation sector. The initial focus is on using CNG in urban -sit with the main target being diesel-powered buses and at later stage trucks and possibly lighter vehicles. Several cities have CNG powered buses but the mass conversion plan is still only under preparation. The World Bank has supported preparation of this program and has had extensive discussion on possibility of financing the plan under wider gas utilization project.

Among other Latin American counmes, Colombia, Mexico and Trinidad have launched pilot CNG conversion programs and Bolivia is investigating the feasibility of convemng taxis and minibuses to CNG. The World Bank support has been mostly i n the form of technical assistance. In Bolivia, the World Bank is financing the feasibility study.

In Asia, most cou.~mes with moderate and large reserves of natural gas have camed out either feasibility studies and/or pilot programs to assess the overall viability of using CNG for vehicles. A recent project has been announced in India, where the World Bank is helping to finance a plan to convert petrol-fueled taxis to CNG in the Bombay area. In Malaysia a test program comprising 21 vehicles and one refueling station was implemented in 1985 which resulted in an initial success and enthusiasm. However, after the fall in oil prices, the plans for widespread CNG conversion were shelved until recently when the Government studied it again in conjunction with the proposals for implementing a gas distribution system in major population centers of Peninsula Malaysia

Pakistan, Bangladesh, Thailand and Indonesia have had similar experiences, though in the case of Thadand the CNG use was more appealing and suitable for Bangkok area. Both in the case of Thailand and Pakistan, gas availability has now become an issue and authorities are very cautious not to over-commit the limited gas supplies. Again, in most of these countries the World Bank provided technical assistance to the Governments and implementing agencies. A notable case of technical and financial support was the CNG pilot program in Bangladesh. This was included in a gas development and utilization project which was implemented during 1982-85. The pilot program faced substantial administrative constraints and was halted before the targeted number of vehicles had been converted. Nevertheless, a World Bank financed consultancy study examined the experience based on the converted vehicles and recommended that the Government should proceed with a national program for CNG conversion. The Government agreed with the program and formed a CNG company to implement a master plan prepared by the study. Further financial support was provided in a follow-up gas utilization project.

7. Conclusions

There are a number of CNG projects in developing countries which are building experience for the future.

With crude oil prices in the xegion of $20 /bbl though, the economic case for large scale conversion of cars trucks and buses to CNG is not strong Public transport buses,taxis and local fleet vehicles have been converted with acceptable economics in cities where natural gas is available at low cost But an extension to cover a significant part of a country's car and truck population requires substantial extra investment and the justification for that requires bringing both strategic and environmental factors into the equation.

CNG has strategic advantages which appeals to those countries richer in natural gas than in oil. This has been a strong reason for several counmes to develop the option.

Its technical performance has been shown to be good but not quite as good as traditional fuels. Until technical performance is further improved and vehicles and CNG fuel supply systems are widely available, people will still need to be persuaded to adopt CNG as a fuel of choice. That means either a price to the customer which is attractively placed with regard to gasoline and diesel , or regulations which restrict fuel use to certain vehicle classes or urban areas.

CNG offers the promise of lower pollution and is already helping in the air pollution control strategies of some cities. The case for substituting the fueI in buses and taxis in those cities which have severe air pollution problems can be quite attractive to the public but there is a cost attached For individual projects where the cost of CNG is higher than gasoline or diesel, an economic justification has to be found in terms of a least-cost solution for avoiding further environmental damage.

Acknowledgement

I would like to thank Hamideh Keyhani and Blaine Dalby for help in the preparation of this paper.

Paper 6

Coal Gasification Technology: A Brief Guide for Future Prospects

August 1990

John Homer Natural Gas Development Unit

Energy Sector Management Assistance Programme The World Bank Washington, D.C.

Coal Gasification Technology: A Brief Guide for Future Prospects

1. Overview

Coal is mostly used as a solid fuel burning directly to give heat For certain applications though, coal can undergo distillation or partial combustion in a gasifier to produce a fuel gas, which can be used directly in a nearby plant or distributed through a pipeline grid to a number of consumers. -

It is possible to convert coal in this way into several different types of gas, by various technologies which are generally well proven. Indeed, some processes of coal g&cation have been a commercial reality for almost two hundred years, and have played an important part in the history of the world's industrial development. The gas was traditionally used in lighting, heating and certain industrial processes.

The technologies are not used so much these days. Their costs are relatively high, and the arrival on the energy scene in the 1950's and 1960's of abundant supplies of inexpensive natural gas and oil provided an attractive alternative. The new fuels were welcomed in reducing substantially the costs of indusnial manufacture and household fuel supply. Most of the old coal gasification plants have long since been shut down and dismantled, and new investment c o m m i d instead to natural gas and oil, and, of course, to the direct use of coal.

In countries where natural gas and oil arc not available, or other industrial activitcs produce gas anyway, coal gasification technology can still be viable. South Africa is the prime example, where a Lurgi-designed coal gasification process is relied on to produce synthetic hydrocarbon liquid fuels. In the iron and steel industry, of course, fuel gas continues to be made from coal as a normal by-product of coke making.

Where public and private organizations, as a matter of long term strategy, have sought to keep more open the coal gasification option, new technology continues to be developed. Investment in such R & D programs is on a more modest scale these days than in the past, and tends to concentrate on those technologies which are more successful in mitigating the pollution emissions. Large demonstration plants arc to be found in Germany, Holland, Japan, UK and the USA. In recent years demonstration projects have aimed at spcclfic applications such as electricity generation or chemical synthesis plants. Interestingly, new small demonstration projects aim at applying coal gasification technology to biomass feedstocks.

It is the general view that a widespread revival in the use of coal gasification technology will happen in funue only under scenarios where natural gas and oil supplies fall away, and where their pnces climb to high levels. That competitive position becomes quite clear when looking back over the last decade and comparing natural gas and oil prices with the costs of fuel gas produced from coal. Such an analysis is a useful guide to indicate how much the costs of coal gasification must decrease, or, alternatively, the price of oil arid gas have to increase, before coal gasification can be considered as a strong possibility.

This short paper reviews the types of g2s that can be produced from coal, the types of gasifiers that are commercially available, some of the environmental aspects, and the costs of the various gases produced as compared with the natural gas and oil prices which have typified the 1980's. It discusses the prospects for the future.

2. Types of gas derived from coal

Coal can be converted into the different types of gas shown in the following table:

Fuel Gas Types and Representative Properties

-

Fuel Type LCVG

-- ~ -

IFG Towns Gas SNG

- Gross Calorific Value (M ~ l m 3 ) 5 10 20 37

Composition (Volume %) Hydrogen 15 42 50 - Carbon Monoxide 29 34 10 - Methane 3 5 3 1 100 Carbon Dioxide 4 18 3 - Nitrogen 49 1 6 -

Low Calorific Value Gas

LCVG was produced widely in the period 1930-1950 from producer gasifiers, but was replaced by cheap oil and natural gas. The gas is known also as Low BN Gas or Producer Gas. It is manufactured at low pressure, so for economic reasons, gasifiers arc built close to the user and the gas is usually used untreated and preferably hot for industrial or c o m m d processes. Conversion efficiencies are high (80-go%), and, with the use of air as the oxidizer, costs arc low. The calorifk value of the gas though is low, only about 1045% of that of natural gas.

Industrial Fuel Gas

IFG is produced by the more expensive oxygen blown gasifiers. It is used untreated except for sulphur removal. It .is suitable as a fuel gas, supplied to large industrial sites, or piped through a small dedicated network to several industrial users. The gas is known also as Medium BN Gas when it is used as a fuel, and as Synthesis Gas when used in chemical synthesis plants. It is unsuitable as a fuel for household use because of its high carbon monoxide content. Conversion efficiencies arc in the range 7040% and the calorific value is about 3Wo that of natural gas.

Towns Gas

Towns gas has been the basis of many gas supply networks in the past. It has been generated traditionally by carbonization plants which produce metallurgical coke. It has a calorific value a half that of natural gas. Much of the towns gas networks have now been replaced by natural gas, and since towns gas contains carbon monoxide, even those networks remaining are unlikely to swive as providers of household fuel gas.

Substitute Natural Gas

SNG is a synthetic gas with a similar composition to natural gas and can be manufactured to blend readily into natural gas distribution networks to supplement existing supplies. For economic reasons, the plants are designed to be large and located close to a coal supplier. The process starts with an oxygen blown gasifier and is followed by a aain of three chemical processes of composition change, purification and methanation. Conversion ~ e n c i e s are around 60% and the costs are high

3. Types of Gasifiers

Then are many different designs of gasifiers. Nowadays the choice is between thnt main technologies: -

Fixed Bed

Fixed Bed gasifiers are typified by the Lurgi design, which, using oxygen, are available as standard commercial units with coal consumption up to 1,000 tonnes per day. They operate at high pressure (30 bar) and can be designed to produce IFG or Synthesis Gas. British Gas has invested in this type of technology, with the aim of producing SNG. Cheaper forms of fixed bed gasifiers are air blown, operate at low pressure, have capacities of 100 tomes per day, and produce LCVG.

Fluid Bed

Fluid Bed gasifiers rely on technology developed principally by Winkler, IGT, Westinghouse and Exxon and are aimed at producing LCVG, IFG and SNG. Low pressurt commercial units have been built up to 300 tomes coal per day. High pressure (30 bar) technology is in the course of development.

Entrained Flow

With this technology, large scale coal gasifiers operate at high pkssure (30 bar), and use oxygen/pulverized coal entrained-flow reactors. They are able to cope with a wider range of coal qualities. Koppers, Shell and Texaco a& the main companies to have developed the technology. While the earlier market for the technology was aimed at synthesis gas production, the new commercial and demonstration units are applied d y to combined cycle power generation plants. In such a mode, they are competitive with traditional pulverized coal-fired power generation plant complete with full environmental protection. The largest' units to date consumt 250-400 tonnes coal per day.

4. Environmen taI Considerations

The older types of coal gasifiers are notorious for their smell, smoke, ash and liquid wastes. and for the carcinogens that were in some of the coal-tar by-products. A major conmbution then of the switch to oil and natural gas was an immediate relief from these pollution problems.

Gasifier technology available today is designed to meet very much more stringent environmental emission standards. The more attractive developments are in those gasifiers which

arc be= in controlling the wastes from coal than alternative coal-firing techniques. Ash is transformed into a glassy slag material which is easier to dispose of than fly ash, and sulphur can be captured and disposed of as sulphates or even as pure sulphur. Enuained flow gasifiers are particularly good at environmental emission control.

5. Costs

The most recent and most reliable general comparison of costs of producing fuel gas from the various technical options was conducted by Foster Wheeler. Although the study was completed in the early 1980's and absolute costs would have increased since, the relative position is still vathi, and the numbers provide a useful base for consideration.

The graph shown here is an extract of their data and~ompares the cost of manufacturing LCVG, IFG and SNG as a function of the price of the coal feed.

Also shown is the range of narural gas and fuei oil prices against concurrent coal prices that has typified the 1980's in the OECD countries. This is enclosed within the shaded area shown on the graph. It represents the range of prices available internationally to large industrial cus tom~l~ in that period.

Cost of Fuel Gas ($/mmBtu) .

0

0 20 40 60 80 Price of Coal ($/tonne)

[Ref.: Foster Wheeler, Shell and others]

What is clear from the comparison is that natural gas and oil prices have been generally far too low to make investment in IFG and SNG a sensible option, at least for those countries which have easy access to international fuels. Only the LCVG option has been economic as an industrial fuel gas, and even that only in marginal circumstances.

6. Future Prospects

If, with some degree of license we apply theabove graph to the future, and if international coal prices should remain in the region of $5O/to~e, then gas and oil prices would have to climb to the following prices before the various fuel gas options b m viable:

Bnak4ven Competitive Fuel Gas Type Natural Gadoil Price

LCVG IFG SNG

At current farecasts of oil and gas prices, natural gas would seem to remain the chosen gas fuel by far. For those LCVG projects which will progress, it should be emphasized that because of its low heating value and its high carbon monoxide content, LCVG application is very limited.

There is, as indicated earlier, a good market potential for coal gasification technology in combination with other industrial processes such as power generation or chemical synthesis plants. This is especially so where environmental considerations arc important. Even then, natural.gas can have a competitive edge as a feedstock, a position which has been reinforced recently by the development of the new technologies of gas-fmd combined-cycle generation plants and of methane-based process technology for producing methanol and middle distillate fuels.

With a different l&al scenario, of course, of lower (mine-mouth) coal prices and higher (imported) gas prices, coal gasification technology can be more economically viable. For the circumstances of particular counmes the option needs to be considexed.

In several countries, large indigenous reserves of coal of useable quality can be mined at mine-mouth coal costs of below $20/tonne equivalent. With reference to the fuel gas cost graph, at that coal cost, LCVG would be attractive against competitive gas and oil costs of $3/mmbtu and could be feasible, but the alternatives of IFG and SNG would be attractive only if other fuels (and that includes coal itself) are not available at below $5-8/mrnbtu.

It is more tenuous to apply these general rules to countries where international fuel price diffenantials do not apply and arc distorted by intend coal price subsidies or selective trade barriers agains: alternative fuels. In counaies such as China, India and Indonesia, it is strategically attractwe to make good use of indigenous coal resources. The coal gasification option is always a possibility in that circumstance, but unless a country wishes to lock itself into a high price fuel gas structure, then it seems true also, that only the LCVG option is a realistic one for coal gasification tecr~~ology, and natural gas, if available, is the preferred fuel gas.

Paper 7

A Story about Choosing New Coal Utilization Technology

August 1991

John Homer Natural Gas Development Unit

Energy Sector Management Assistance Programme The World Bank Washington, D.C.

A Story about Choosing New Coal Utilization Technology

This story ofers some thoughts on the decisions that have to be made in adopting new technologies, and the risks that are taken in the commercial process of making new technology manue. It is a story from a visit I made to Denmark in the early 1980's when I was in Shell Inter~tional and we were promoting the market for international steam coal. It was at a rime when fluidized bed technology was the latest thing for coal-fired boilers.

The Danes have a lot to teach the world about district heating systems. A good example for a new town is to build a very smart looking district heating plant a few kilometers outside the main town. The underground hot water pipes have a long way to carry the water but, with good insulation, the system is very efficient. Building the plant outside the town gives an environmental advantage of keeping the large fuel delivery trucks off the streets of the town and means that, with reasonable height stacks, the pollutant emissions are dispersed away and acceptable ground level concentrarions easily achieved. The actual emissions are nevertheless controlled quite tightly by local environmental legislation and the permitted smoke emissions are low enough not to be visible to the casual eye. Sulphur levels are limited in the fuel as well, but not in the stack, so that the sulphur in the fuel ends up somewhere downwind. Future legislation on demasing the sulphur emissions was being mooted in Denmark at the time of my visit, although it would mean control of the sulphur emissions in the stack : that would be expensive and would have introduced other environmental problems of solid waste disposal.

There was a good healthy competition between dismct heating managers in the neighbouring towns. Regular communication between them kept the fuel suppliers on their toes and the fuel prices low. Because of their individual authorities, it also was a good testing ground for the success or otherwise of competitive boiler technologies. The decision xi to which boiler technology to choose for which fuel was an interesting one, some managers preferring to use proven technology, some leaning more towards the latest.

I remember two managers, quite distinctly. The first one, Jan, had installed alongside his old oil-fired boiler, a brand new coal-fired boiler. (Steam coal imported into Denmark was decidedly cheaper than fuel oil at that time, and coal was the p r e f d fuel.) The boiler was 15MW in size and consumed about a truck load of coal a week The plant was fantast call y clean. Coal came by road. was tipped in a covered area , gravity 'fed through a grid in he floor onto a moving belt and sent into the boiler house. That was the last time the coal was seen. From then on, it was automatically transported to a hopper and fed through a control gudotine onto the grate of the boiler. The design of the boiler used a travelling grate, with its basic technology tried and tested for many years, technical advances in steel having placed the technology on the market in the early 1930's It was of highly efficient design, self regulating for heat output, with control of the speed of the grate such that by the time the coal had burned, it had reached the end of the grate and fell as dead clinker into the ash disposal chute below into a waiting skip. It was all completely enclc,sed.

While the combustion technology itself was old and well tried, the engintering was modem and the instrumcntatim and data systems were the 1-t . The boiler opcmd 24 hours a day, 7 days a weck, carefully al-g the fuel supply and air feed to match the heat load taken up by the customtrs in the town. Perfinmawe data was recoded on a small computer w n n d to a telephone systcm. Out of curiosity, Jan could phone in to the computer from whuever he was, to check on the status of his boiler. Alternatively, if there was a malfunction, the wmput~ would page him and ask would should be done. The boiler was painted a biight red and was pafcctly clean. There wue no hammer scars to show the unit had any difficulties, no dust on the floor to show any pmbltms. By comparison thc old oil-firtd boiler alongside was clean, but not as sparkbg clean, as the coal one.

Tht boiler was run by only one and a half men, and of that, the one man was hardly needed. It was a beautiful day when we visited Jan and his boilcr. He was well, looking very much at ease, and delighted to sit in his small quiet office ind share a drink with us. Life could not be more pleasant for a disrrict heating manager.

The other site that I remtmber was run by Hans. He was the one who had been convinced to recommend the purchase and installation of new fluidized bed technology for coal burning, on the basis that, although it was marginally man expensive, it offered extra points of thermai efficiency, it could take some of the sulphur out of the flue gas if the legislation changed and perhaps, most importantly to him, it was t k latest technology.

He was in a mess. The boiler had been installed six months earlier and it still was not right There were two floars to the facility, one at boiler-tube level, the lower one on the level under the bottom of the combustion chamber. Sand was everywhere on the lower floor. There were sacks of the stuff around the walls. He had de-slaggcd the chamber the pnvious day and was trying out a different quality sand in the fluidized bed. The coal feed onto the bed above had also blocked. The phane was ringing. Hans was looking decidedly worn and womed and we did not was@ his timt with needless questions. It was pntty obvious what the answers would be. He did tell us that two maintenance men were on site most of the time .

So who should be applauded? Jan who chose the tried and tested combustion technology and used the advances in solid state elccoonics to makc his lift even easier. Or Hans who was courageous enough to try his hand at the latest combustion technology and would get there in the end but it was going to be a mighty stnrgglc with extra costs along the way.

The people in the town who wanted reliable hot water in the first year of operation, and every year thereafter, at a cost they had anticipated, would applaud Jan any day. They have probably made him the town's Borgmester by now.