The Dumb Dream of Turning Coal to Gas Just Won’t Die

The Dumb Dream of Turning Coal to Gas Just Won’t Die

The process of turning coal — possibly the most carbon-intensive and environmentally harmful fossil fuel — into a liquid gas fell out of favour after World War II, due to its high cost, pollution footprint, and readily available alternatives like natural gas and petroleum. But as coal for electricity and industrial use falls, the industry is trying to revive this old technology under a modern veneer.

That push has largely failed in the U.S., but Indonesia — the world’s largest coal exporter — is now taking the lead, with state and coal interests planning to spend billions on what might be a costly and environmentally dangerous technology.

“The Indonesian coal industry is trying to secure their market domestically, and the government is doing all they can to support the coal industry,” Andri Prasetiyo, a Program Manager at Trend Asia, an NGO based in the capital Jakartam said.

Before the Indonesian government pumps money into gasification, they might want to take a look at what happened in the U.S. not so long ago. Back in the 2000s, the American coal industry was pushing to build gasification plants to turn coal into a liquid gas that, they claimed, could be used in chemicals and even for transportation as an alternative to imported oil and then-expensive natural gas.

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At the peak, there were 64 gasification plants in various planning stages across the country. The idea was to replace lost demand for domestic coal from retiring and closing coal-fired power plants by increasing the amount of coal used as liquid fuel.

“The coal industry was desperate to save itself at any costs,” Wendy Bredhold, a senior representative for the Sierra Club’s Beyond Coal Campaign, said. “They were looking for different ways to burn coal and make it appear cleaner and greener.”

However, environmental concerns, financing issues, and the rise of cheaper fracked natural gas meant these plans were nearly all abandoned. Only two are operating now: the Polk Power Station in Florida and Duke Energy’s Edwardsport plant in Indiana. Even these plants paint a worrying picture about gasification’s viability from an economic standpoint.

“Edwardsport went over budget by billions of dollars, with all kinds of problems with construction, and a major scandal involving Duke and state regulators,” said Bredhold, who is based in Indiana. “This plant is a boondoggle, losing customers money on a regular basis.”

A 2017 report from the Institute for Energy Economics and Financial Analysis, a think-tank showed that the Duke facility and a former coal-to-gas facility in Kemper, Mississippi (which has since been converted to burn natural gas instead of coal) were “economic disasters for consumers and investors alike,” and concluded that coal gasification is an especially poor bet, especially as the costs of renewables decline.

Apparently, the memo never reached Indonesia. In fact, some of the same players behind the gasification push in the U.S. are looking to build plants there, such as Pennsylvania based Air Products, which announced in July that it was investing $US2 ($3) billion in one Indonesian project.

The covid-19 pandemic has ravaged the global coal industry, accelerating a decade-long trend. The International Energy Agency estimates that demand will fall an astounding 8% in 2020, the largest drop since World War II. And there might be no rebound, as countries such as China, Bangladesh, Pakistan, and Vietnam expected to be drivers of coal demand abandon plans to build coal-fired power plants due to their high cost, lower-than-expected electricity demand, and climate concerns from major financiers.

No country will be hit as hard by this shift away from coal power than Indonesia, the largest thermal coal exporter in the world. It’s also the archipelago nation’s top export, accounting for about 5% of GDP.

To address the growing gap in coal demand, the country is planning to increase local demand. If it sounds like what the U.S. coal industry wanted, well, that’s because it is.

The difference, though, is Indonesia’s government is backing gasification at a far greater level than the U.S. ever did. Recently passed laws will remove royalties for coal mined domestically and destined for so-called “value-added” downstream domestic use, including gasification. The decision is essentially designed to incentivise more domestic consumption. State-owned coal miner PT Bukit Asam gasification plant is expected to start operation in 2023-24, with an estimated $US2 ($3) billion state-supported investment. The government will also take the lead in investing in downstream infrastructure to ensure that chemical plants, factories, and vehicles can accept coal-derived methanol and dimethyl ether in place of imported liquid petroleum gas currently used as an industrial refrigerant and for plastics production and agricultural drying processes.

“A downstream coal gasification plant makes some sense,” Ghee Peh, an energy finance analyst at IEEFA, said. “You’re not importing LPG, using your own domestic resource, but the problem is that it comes at a financial and environmental price.”

A recently released IEEFA’s analysis of one Indonesian gasification plant found that it could lose $US377 ($498) million annually, and even in that scenario the cost of coal-derived dimethyl ether would be higher than imported liquid petroleum gas.

Factor in the high construction costs, and the economic cost of gasification is clearly high. The environmental cost remains uncertain, but it’s also likely steep. The industry argues that gasification technology has changed dramatically since the early 2000s, claiming it’s cleaner, more efficient, and can include carbon capture and sequestration, commonly referred to as CCS, to limit its climate impact.

“Carbon capture utilization and storage has become a key element to make coal competitive with other fossil fuels and renewable energy in terms of environmental impact, the technology has had some recent notable success,” said Ian Reid, with the IEA Clean Coal Centre, an industry-supported organisation.

But there’s ample reason to be sceptical about CCS, which despite being long promised as a game-changer in the coal electricity generation sector, is still more a dream than a reality. The technology remains both unproven and costly.

In Indonesia, it likely won’t matter what technology is used. Despite promises from entities like the World Coal Association that Southeast Asia would be utilising “clean coal” technologies, the reality is that nearly all the coal-fired plants built in the region in the past decade not only lack CCS, but even the latest pollution control. Indonesia is, unfortunately, the laggard, with standards far below those of the U.S., Europe, China, or India (and, not surprisingly, air pollution is becoming a concern).

The reality is that if government’s don’t require CCS, or even pollution control, the coal industry won’t spend extra money to build it voluntarily. There’s no reason to believe that gasification in Indonesia will be any different than its coal fired power plants: dirty and expensive.

In reality, the only difference between Indonesia today and the U.S. in the 2000s is that the government is willing to spend much more to support an industry looking for any way to keep selling coal. Many of Indonesia’s richest people are coal barons. While the argument is protecting jobs, the reality is that pushing coal gasification will protect the deep pockets of the elite.

The public could stop the gasification push, though; protesters took the streets in October over laws that gave handouts to the coal industry. Environmentalists are also challenging the legality of these pro-coal and gasification bills, including filing a court case in late April. In the U.S., too, it was grassroots opposition and legal challenges that played a key role in defeating gasification plants.

If the plants get built, Edwardsport has one final lesson for Indonesia: The people will pay. After losing billions and operating at a loss, Duke Energy wants ratepayers to pay for their mistake. According to Bredhold, the coal industry is even pushing for a bailout from the Indiana legislature. In Indonesia, similarly, it will be residents who will pay for more expensive coal-based liquid fuels, and see their tax money going to fund gasification plants.

“Even if gasification loses money, the one who will pay is the government,” said Prasetiyo. “The public funds from taxpayers will be used as a bail out.”

The sad part is that by putting so much legislative effort into promoting coal gasification, Indonesia is ignoring its vast renewable energy potential. As a tropical archipelago nation located along the Ring of Fire, Indonesia has large wind, solar, tidal, and geothermal resources, most of which remain untapped. Renewables outside of hydropower account for just 5% of electricity generation.

“Instead of promoting renewable energy, they are trying to make an old energy [in] coal new with coal gasification,” said Prasetiyo.

An energy the U.S. mostly rejected in the early 2000s and that is likely a dead end elsewhere as the world shifts to clean energy is, apparently, Indonesia’s future if the coal industry gets its way.

Nithin Coca is a freelance journalist who focuses on environment and economic issues in developing countries, and has specific expertise in Southeast Asia.

Editor’s Note: Release dates within this article are based in the U.S., but will be updated with local Australian dates as soon as we know more.

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