Wanted: Cheap Energy At Any Cost

Reddit

Last year while traveling in Europe, I flew through Berlin. As the airplane was landing, I looked out the window and saw huge strip mine operations southeast of the city.

I was curious about this, because I thought Germany was a very ‘green’ country full of environmental hard-liners. So what’s with the strip mine? Let’s have a look…

There’s ‘green’ and there’s money. Germany has a strong economy, which is the anchor for the euro. Germany boasts many superb industrial firms across a wide array of business sectors. Think of Mercedes-Benz, BMW, Siemens and innumerable others.

Still, for as great as many German firms are at what they do, the German economy requires competitive-priced energy. Energy costs matter to all businesses.

The need for affordable energy has led to a revival of strip mining in Germany to provide relatively low-cost fuel to generate electricity. So despite what you might hear about German environmentalism – like closing nuclear plants, building windmills and installing solar panels – the fact is that Germany digs a lot of coal.

In many ways, the German mining revival is not pretty. Giant machines carve out rock formations that yield some of the world’s dirtiest coal – lignite, aka ‘brown coal’. As you can see in this graph, Germany produces and uses large volumes of coal – especially low-grade lignite – to generate electric power.

b
click to enlarge

The problem with lignite is that it’s filled with moisture and all manner of impurities besides carbon. Every ton of German lignite delivers less energy and more overall pollution than higher-grade forms of coal (‘hard’ coal in the graph above), let alone natural gas, carbon-free nuclear or wind or solar – not that there’s much sunshine in Germany in the winter.

The new ‘lignite’ mining trend extends beyond Germany’s borders, into Poland and the Czech Republic. Major European utilities – like Swedish-owned Vattenfall AB, for example – are expanding open-pit mines to deliver more lignite to power plants.

East of Berlin, for example, Vattenfall operates the Welzow-Sued lignite mine. Over the years, mine operations have moved close to the edge of property lines. Now Vattenfall has filed papers with the state government of Brandenburg to seize adjacent lands and continue mining. This includes foreclosing on the 700-year-old village of Proschim, which is destined for complete destruction under Vattenfall’s mine plan.

According to a Vattenfall spokesperson, ‘Lignite is the only traditional energy source that is, in the long run, domestically available in sufficient amounts and at affordable prices. All the alternatives foreseeable today are more expensive, strengthen import dependency or drive away investments, value-creation and jobs.

This comment from Vattenfall pretty much sums up the debate for Germans. Burn lignite or pay more, import more, invest less and lose jobs. Clearly, Germany is faced with economic, social and environmental trade-offs in its quest for energy.

Thus, Germany is leaning toward strip mining. For now, German power plants burn ‘dirty’ lignite to keep the lines powered, industry humming, cities lit and homes warm. Considering the environmental politics of Germany, the strip-mined land will eventually be restored. But Germany has made its decisions, and the energy policy is clear even from the window of an airplane flying into Berlin.

It’s Different in North America

While Germans move entire towns to dig lignite, things are different in, say, Canada and the oil sands operations of Alberta. For example, if an oil sands operation affects land connected to First Nations people, the permitting and approval process comes to a grinding halt until the legalities are thoroughly sorted out.

Meanwhile, what’s the effect on the landscape? Mining oil sands is impactful, to be sure. At the same time, since the 1970s, when oil sands surface mining commenced in Alberta, the total surface area excavated is less than 300 square miles. How big is that? By comparison, the built-up area of Greater Los Angeles covers 4,825 square miles.

How about so-called ‘green’ energy, such as hydropower? Well, the surface area – mostly former forest land – covered by the impoundment dams of Hydro-Québec measures approximately 11,500 square miles (the size of Belgium). That’s not quite 40 times the amount of land disturbed by surface mining operations for oil sands in Alberta.

Looking ahead 50 years or so, the master plan for Alberta is that nearly all surface-based oil sands operations will come to an end. Along the way, each mining operation must establish a ‘sinking fund’ dedicated to restoring land to near its original contour. Then the recovery plan calls for covering the dug-out areas with stockpiled original soil, replanted with native flora and restocked with native fauna.

Meanwhile, in 50 years, Greater Los Angeles and the Quebec hydro dams will doubtless still be there, and likely larger.

The tale of two countries and their respective quests for energy highlights how there are no easy answers when it comes to keeping the lights on and the economy running. That, and how pretty much everything is connected to everything else these days.

That’s all for now. Thanks for reading.

Regards,

Byron King
for The Daily Reckoning Australia

Ed Note: Wanted: Cheap Energy At Any Cost originally appeared in The Daily Reckoning USA

Join The Daily Reckoning on Google+

The Daily Reckoning
The Daily Reckoning offers an independent and critical perspective on the Australian and global investment markets. Slightly offbeat and far from institutional, The Daily Reckoning delivers you straight-forward, humorous, and useful investment insights from a world wide network of analysts, contrarians, and successful investors. Founded in 1999, The Daily Reckoning is published in 7 countries with a worldwide readership of almost 1 million people.
Reddit

Leave a Reply

3 Comments on "Wanted: Cheap Energy At Any Cost"

Notify of
avatar
Sort by:   newest | oldest | most voted
Jason
Guest

Unfortunatly there will be no more ‘cheap energy’ now that world oil production has reached its peak. Energy will become more expensive when oil production begins to decline (the ‘supply cliff side of the bell curve). We will be forced to face this problem wether we want to or not.

ram
Guest

Quite some time ago the major petroleum companies worked out (correctly) that most coal mining (especially for brown coal) and shale oil extraction was ENERGY NEGATIVE — that means more energy would be used in extracting the fuel (overburden removal, drilling, processing, transport, etc.) than one would get out of it. When they realized this they almost entirely divested of holdings in coal and oil shale properties.

There is a lesson here for investors as there are certainly plenty of shonky companies promoting “investments” in energy negative schemes today.
Even most “wind power” schemes are energy negative.

garry
Guest

Meanwhile, Australia is flogging off its future energy bank as if there is no tomorrow

wpDiscuz
Letters will be edited for clarity, punctuation, spelling and length. Abusive or off-topic comments will not be posted. We will not post all comments.
If you would prefer to email the editor, you can do so by sending an email to letters@dailyreckoning.com.au