Q&A: CONSOL ENERGY’S STEVE WINBERG ON CCS R&D AND FUTUREGEN 2.0

05/11/12

The following interview with Steve Winberg, vice president of Research & Development for CONSOL Energy and chairman of the board of the FutureGen Alliance, was conducted by GHG Monitor Reporter Tamar Hallerman.

CONSOL Energy is one of the few major coal companies that is funding carbon capture and storage R&D work on its own. Why has CONSOL Energy chosen to invest in this work at a time like this, particularly when budgets are tight?

It’s important because CONSOL Energy has long held the belief that whatever problems we have—whether they’re real or not—generally can be solved by technology. CONSOL Energy has historically been on the front end of technology development by having an R&D facility, which was founded in 1947. If we’re going to ever get down to the greenhouse gas levels that are being contemplated around the globe, it simply can’t be done without CCS. Now, one could question whether we’re ever going to reach some of those goals and we could spend hours talking about that. But if you make the assumption that eventually the world may end up mandating significant reductions in greenhouse gases, then CCS or CCUS will play a major role in that. We cannot do it with just efficiency or renewables—the numbers just don’t work. We can’t get down to the level some people are talking about—450 parts per million—without CCS or CCUS. 

In particular, I see CCUS as the first step towards CCS because you can get some revenue from enhanced oil recovery by injecting the CO2 into existing oil fields, producing more domestic oil. Of course, there’s an energy security benefit there and you reduce CO2 at the same time. So for those reasons CONSOL Energy has been active in developing CCS.

Is it discouraging to see that other coal companies aren’t making the same kinds of investments?

No, I wouldn’t say it’s discouraging. We have partners in FutureGen and major coal companies that are making those investments. So no, I don’t see it as discouraging. I guess I feel grateful that CONSOL Energy recognizes the value of having R&D.

Currently governments are funding the lion’s share of CCS R&D work across the world, often relying heavily on industry to pick up a portion of the risk as well. Over the last year, we have seen several demonstration-scale CCS projects shutter or come to a halt due to divisions in what government and industry are willing or able to fund in terms of those projects, especially when capital costs unexpectedly increase. Do you see any sort of concrete line when it comes to government versus industry funding of first-generation commercial-scale projects? At what point should industry step up and when should government be willing to pay for cost increases?

I think it depends upon the project. I don’t look at it as a concrete line where government should fund this and the industry should fund the balance. Most of this probably has to be done on a project-by-project basis. However, one thing is for certain in industry and that is that we are in business to make money. Our shareholders require it. If we don’t get a return on investment, we’re not going to do it. It’s pretty straightforward. In the context of CCS, with power markets in this area being $35 or $40 per megawatt-hour, you can’t make money by doing a project with CCS. It’s out of the market. Therefore, if government wants to reduce greenhouse gas emissions, government has to make up that difference. And what is that difference? I think it depends on the project.

If, however, we can start moving CO2 into enhanced oil recovery, then you have another source of revenue, which arguably will offset both government- and industry-side investments. But I don’t see it as a bright line.

How much does CONSOL Energy try to align its R&D work with the activities governments are pursuing? Given the U.S. Department of Energy’s renewed emphasis on CO2 utilization, has CONSOL Energy shifted its own R&D efforts to focus on that area?

No. You can’t switch goals every couple of years and still have an effective R&D program. So we don’t. We have been focusing more of our attention on our own coal and gas operations like reducing methane emissions. So that is a bit of a shift in focus.

For a long time—I’d say probably the last 20 years—CONSOL Energy’s R&D has been focused on coal combustion issues, and primarily coal because that’s been our asset base. As we’re getting into the gas business, we’re still looking at end-use applications for coal and gas. But we’re also looking at our operations because there are more EPA regulations that are beginning to affect our operations on both the coal and the gas side. So if you believe that technology can solve our problem, it’s incumbent on us to go out and find those technologies, or if need be, develop those technologies that reduce our environmental footprint and allow us to comply with both existing as well as future regulations.

How has the boom in shale gas development shifted the way CONSOL Energy looks at R&D and the future of coal in general?

Right now we’re in a period of very low gas prices, but I wouldn’t say that they are uncharacteristically low. I remind people that back in 1987 we had gas prices at $1 per million BTU at the wellhead, so this isn’t the first time we’ve seen low gas prices and it won’t be the last time. But we are in a period of time now where natural gas is at a low price. So it has chewed into the coal market a little bit, as well as renewables and nuclear. We think that’s probably going to continue for a while for a number of reasons, one of them being the EPA regulations that are impacting our coal customers. And so we’ll see more natural gas for power generation..

As a practical matter in the end-use side of natural gas, there are very big players out there—GE, Siemens—that are doing a lot of necessary and good R&D work on the power-generation side. So on the gas side, our focus is more on our operations and how we can improve efficiencies and reduce emissions. We’re also looking at the natural gas vehicles markets and converting drilling rigs to co-fire natural gas and diesel. So our natural gas focus is in the types of things where we can use the natural gas that we produce to reduce our operating cost and improve our efficiency.

How is CONSOL Energy balancing projections by groups like the International Energy Agency that highlight low price of gas but also estimate a continued large future for coal generation around the world? 

I don’t know that we need to balance, and I don’t think of it in those terms. IEA is right—coal is going to continue to play a huge role globally. There’s no question about that, and we see that with the build-outs that are going on in China and India. Even Germany is now talking about building coal-fired power plants again, so globally coal will continue to grow. We are also going to see more megawatt-hours generated with natural gas than we have in the past. I think it’s also fair to say that we’re going to see less nuclear than we might have projected. 

What is also going to happen as we claw our way out of this recession that we’re in is that we’re going to have much higher energy demand. We talk about how 2 billion people out of 7 billion currently don’t have access to electricity. They want it, they can get it and we should want them to have it. So energy is going to grow and mostly it’s going to be fossil energy. 

In terms of R&D, we’re not looking out and saying, okay, we need to spend ‘x’ percent more on coal research versus gas. Rather, we look at our business and we try and look out 10 years and see where our business is going and then we adjust our projects based on that. But you don’t run an R&D program and then change direction every year depending on what the political winds are doing or where the forecasters think energy might be going.

Concerning your role as the chairman of the FutureGen Alliance’s board, looking at DOE’s major demonstration portfolio, FutureGen is one of the only large-scale projects left that does not have some sort of EOR or utilization component. Do you see that as an issue going forward given the increased emphasis on CCUS?

No, I don’t think it’s an issue. The project has been through a couple different iterations since it was originally conceived, but the basic rationale for doing the project is still there. I absolutely agree that if we’re going to try and move carbon capture forward, we need to have a revenue source for that CO2 because projects like FutureGen cannot stand alone commercially. That’s why there’s government money involved. With a project like FutureGen where $1 billion has been appropriated, we can and we should build it. And that’s for a number of reasons. 

First, FutureGen will benefit EOR. We’re going to learn a lot about how to use oxy-combustion, get it to a point where it’s commercially deployable for new-builds. For EOR, I think oxy-combustion makes a lot of sense. It’s a lot less expensive than some of the other technologies available. So there’s going to be a lot of learning that can be applied on the power plant side.  In addition there will be a lot of learning on, pipeline right-of-ways, and safety issues associated with CO2 pipelines both of which will be applicable to CCUS. What we are going to learn with the injection of CO2 is different because we’re going into a deep saline reservoir, but the monitoring, verification and accounting are very similar to what will be needed if we do EOR or CCUS on a broader scale.

So I think there are a lot of overlaps between the two. I also believe that the billion dollars that Congress appropriated for FutureGen is a once-in-a-lifetime opportunity. It’s not going to come around again, and so we better make the best use of it that we can.

FutureGen 2.0 is currently about six-to-eight months behind schedule. Are you concerned about being able to use all of the approximately $1 billion the project has received in federal stimulus funds by the Sept. 30, 215 deadline by which that money has to be spent?

Having been a project manager, I’m always concerned about project schedules. If your question is whether I think we’re going to have trouble meeting that schedule and the stimulus spending deadline, the answer is no. We can meet it. Next month we will submit an application to DOE requesting approval to move to Phase II of the project. During Phase II, we’ll prepare a 90 percent design and cost estimate. At that time we’ll be in a position to go out and buy long lead-time pieces of equipment and keep the project on schedule that will meet the stimulus deadline.  

When a decision is made to start construction 100 percent of the private and federal dollars will be firmly allocated to the project assuring its completion. During construction, we can stage and complete stimulus-funded activities in the upfront years during the construction. We’ll have money from the Alliance members, money from Illinois to manage the operation and reporting requirements and all those things that come with a project of this size. So I’m conscious of the stimulus deadline but I’m not concerned about it.

The Alliance and Ameren’s Phase I cost estimates for FutureGen put the cost of the project at more than $300 million above DOE’s original budget estimate. Has the Alliance found any preferred methods of cost-savings at this point as you move into Phase II?

The estimates you are referring to were interim, not final, Phase I cost estimates. We are in the process of finalizing the Phase I cost estimates and have identified about $100 million in savings that we’re very certain about, and we know there’s probably additional saving that will be uncovered or detailed out in Phase II.

Over the last six months the Alliance has been in the process of purchasing a unit from Ameren’s Meredosia plant in order to keep the project going. If that deal goes through, the Alliance will be at the helm at the capture, transport and storage sides of the project. What do you think are the benefits and drawbacks of having one entity in control of the entire value chain of the project?

There are several benefits. First, you have a truly integrated project. Number two, the FutureGen Alliance is a 501c(3), so the return on investment requirement isn’t as stringent as it is with a for-profit and that will reduce the costs. Number three is that when members join the Alliance, they’re going to get both parts of it and so there aren’t any unnecessary walls. They’re going to understand the oxy-combustion technology, the pipeline, the injection, the monitoring, verification and accounting, so a member has access to all that information and they have it through the Alliance rather than the Alliance to a third party. It just makes it easier to manage membership needs.

Some of the criticisms of the project have focused on the fact that the design is on the smaller side and that oxy-combustion capture technology is already being actively tested elsewhere in the world. What is your response to that? What keeps FutureGen relevant all these years later? 

It’s relevant because if the world ever hopes to reach any kind of climate goals that are anywhere near that 450 parts per million range, CCS is an absolute necessary technology that will have to be employed. Sit down and do the math. It will not work any other way. EOR is a great step forward, but we need deep saline storage in order to reach those goals. That’s just the way it is. You can go look at the amount of coal that’s being built and forecast out; you can figure it out. So that’s why the project is still relevant after all these years because this is a long-term effort.

The project’s been going on for about the last six years. We’re talking about 40 or 50 or 60 years out in order to get anywhere close to reaching those goals. In fact, it’s probably more like 100 years. So if a project takes seven or eight years to get built and we’re talking about a 100-year future, that’s a reasonable amount of time.

Regarding the scale-up issue, a project has to balance size with cost. I think this is a nice step-up from where Babock & Wilcox was in terms of scale-up. It is of a commercial scale that will allow us to understand the technology, allow us to put over a million tonnes a year of CO2 into the ground. The next step after that is probably somewhere in the 500 to 600 MW size range and as an R&D person and a project manager, that’s a natural-step progression in terms of size. People that think the size makes it irrelevant really don’t understand technology build-out.

Do you think the patience is there politically in the U.S. to get CCS to that 500-600 MW range? Is the support still there to the level that we saw in 2009 when DOE got the stimulus grant for CCS, or is it a concern for you that after a while patience will wear thin?

In 33 years, what I’ve learned is that it depends on whose patience you’re talking about, number one. Number two, the conventional wisdom in energy tends to swing pretty widely every couple of years. So right now with natural gas prices being where there are, having a difficult economy, and electricity prices being low, this isn’t an easy project to build, but no power project is easy to build, not wind, not solar, not nuclear, not gas, not coal. None of them are easy because we’re in a low-price market. That will change. It always does, and if natural gas prices eventually work their way up, and I think they will, then it will be a project that to the general public will start to make more sense. That doesn’t mean it doesn’t make sense now, it’s just people think in short blocks of time, and this is not a short-duration project. It’s a long-duration project.