Former Research Scientist with the National Coal Board Speaks Out Against Cumbrian Coal Mine

Logo of the National Coal Board – National Coal Board (NCB), former British public corporation, created on January 1, 1947, which operated previously private coal mines, manufactured coke and smokeless fuels, and distributed coal, heating instruments, and other supplies. It was renamed the British Coal Corporation in 1987. The British coal industry was privatized under the Coal Industry Act 1994, which also created a Coal Authority to license coal mining operations and to manage the environmental effects of past mining.   Info from Encyclopaedia Britannica


The following letter is reproduced here with kind permission of the author.

3 June 2020

Dear Sir

Woodhouse Colliery, Application Number 4/17/9007 West Cumbria Mining (WCM)

I wish to object to the application

Why I am writing this letter

I was educated at Kendal Grammar School and then graduated in economics from the London School of Economics.  My first job, from 1967 to 1973 was as an operational research scientist with the National Coal Board.  Most of my work was on improving the transport of coal from the coal face to the surface and also on the surface.  I then worked as a transport consultant with the Economist Intelligence Unit and as an industrial economist with an engineering consultancy in the Middle East.  For thirty years up to my retirement I worked in the management consultancy practice of KPMG.  At KPMG I was often involved in advising clients on the viability of investment projects.

I am writing because I was astonished to see a proposal to open a deep coal mine in a coalfield which had high costs of production and at a time when the climate emergency demands the phasing out of coal.      

The market envisaged by WCM

WCM propose to sell coking quality coal to steel producers who use the blast furnace/basic oxygen furnace process in the UK and Europe.  This market is currently served mainly by coal from the United States.  WCM argue that their product would have a competitive advantage in Europe because of shorter transport distances and lower transport costs.  WCM argues that this leads to an advantage in terms of greenhouse gas emissions because of less fuel used in shipping.

There are other steel processes which do not require coking coal.  The scrap-based electric arc furnace process accounts for about 40% of EU production.  The direct reduction process usually uses natural gas and is widely used in the Middle East.

Getting finance for the project

WCM have already raised funding for project development (exploratory drilling, initial design and obtaining planning permission).  The company would next need to find investors willing to commit much greater sums to:

  • develop the access drifts to coal seam level;
  • equip the ventilation system; 
  • equip mine drainage systems;
  • equip the underground transport systems for coal extraction, and taking in workers and supplies;
  • provide the coal cutting and loading equipment;
  • build the coal preparation plant and other surface installations. 

This would be a major project.  The investors would spend several years paying out money in capital investment before there was any income from sales of coal.  The last big drift mine project in the UK was the Selby complex where development took four years before any coal was produced.  Deep mining has always been financially risky because, although you may have borehole information, you do not know for certain what lies underground.  

 In this case there are major market risks.  What will be the market for metallurgical coal in Europe when this project comes on stream, perhaps in the mid to late 2020s and, over the long operating life that WCM envisages?  Investors would do due diligence on:

  • potential customers in the United Kingdom and Europe (customers being steel producers using the blast furnace process) ;
  • competition for the market in Europe, and in particular steel imports from elsewhere (China, Russia, Turkey);
  • the impact of the coronavirus recession on steel demand;
  • technology in the steel industry;
  • environmental regulation in the UK and the European Union.  Investment institutions are increasingly concerned that climate change could undermine what now appear to be profitable activities and are under pressure to avoid investments in fossil fuels.

Investors would have to look very carefully at all these risks.  Would any serious investor put money into the WCM project?

Overall steel production in the Europe Union (EU28)

I refer to market conditions before the coronavirus pandemic.  The market prospects for most major industrial investments will be worse post-pandemic.

The Statistical Yearbook of the World Steel Association shows that steel production in the EU(28) fell at the time of the 2008 financial crisis and has not fully recovered.  Crude steel production was 199 million tonnes in 2008 and was down to 168 million tonnes in 2017.  This is not a growing market.  

Within this overall total UK crude steel output fell steeply from 13.5 million tonnes in 2008 to 7.5 million tonnes in 2017.  The major producing countries in the EU are Germany, followed by Italy, France and Spain.

The USA has taken anti-dumping action against imports of steel from China.  EU countries have not taken anti-dumping action.  The policy argument has been won by those who say that the benefits of cheap steel for steel-using industries outweigh any gains from protecting the domestic steel industry.  The UK, when a member of the EU, was against anti-dumping action.  So the steel industry is unlikely to be sheltered by protectionist policies.

Potential customers for coking coal in the UK

The UK has two steelworks with blast furnaces, at Scunthorpe and Port Talbot.  Until 2016 both were owned by Tata Steel of India.  In March 2016 Tata, facing financial losses, proposed to sell all or part of its UK steel assets.  The Scunthorpe plant and units making “long products” were sold for £1 to a private equity company Greybull Capital which renamed the business “British Steel”.  After the sale Tata  underwent a change of management and a change of heart.  In December 2016 Tata agreed to invest in Port Talbot and continue to operate blast furnaces there for five years.

In May 2019 British Steel went into insolvency.  The business was kept going by the Official Receiver until it was sold in March 2020 to a Chinese company, Jingye Group.  Commentators have suggested that the attractive part of the business with a longer-term future is not the blast furnace operation but the well-equipped rolling mills. The rolling mills could keep working using semi-finished steel brought in from elsewhere.

Tata Steel continued to make losses.  In January 2020 Nataranjan Chandrasekaran, Chairman of Tata Sons Group told the Sunday Times that “the company can’t have a situation where India keeps funding losses” at Port Talbot.  In April 2020 the BBC reported that Tata was seeking £500 millions in government support for the Port Talbot operations.

Both UK blast furnace operations were in a financially precarious state even before the coronavirus recession.  Jingye and Tata Steel are likely to need to restructure, possibly by ceasing the blast furnace operations and concentrating on downstream processing of semi-finished steel from elsewhere.  No potential investor in Woodhouse Colliery could safely assume that they would be customers for coking coal by the time the mine opened.  The mine operator would need to seek customers in mainland Europe.  

The documents submitted by WCM envisage hauling some of the output by rail to Teesside for shipment.  This might still have cost advantages over US coal, but these would be less profitable than for the UK market because of port-related costs and costs of shipping coal to European ports.

The market in the EU – Environmental policy issues

In December 2019 the incoming European Commission published “The European Green Deal” which sets out a broad strategy for accelerating progress towards meeting a target of no net emissions of greenhouse gases by 2050.  It proposes increasing the EU’s climate ambition for 2030.  It describes a range of policy measures which can be used to achieve this, including:

  • the emissions trading system (ETS) which raises the financial costs of activities which emit greenhouse gases;
  • an emphasis on recycling, the “circular economy”;
  • co-ordinated action with other countries;
  • a “carbon border adjustment mechanism” which would penalize those who simply move polluting activity offshore to places with lax regulation;
  • the use of the EU budget to promote the reduction of emissions, including specifically “research and innovation on low-carbon steelmaking”.

Emissions from steel making are about 6% – 7% of total EU CO2 emissions, so the industry is a target for regulatory change.  The Commission published with “The European Green Deal” a brief related document entitled “Sustainable Industry” which has a highlighted statement “The Commission will make a proposal to support zero-carbon steel making by 2030.”  

There is ambiguity about whether this means the Commission means steel making to be actually zero-carbon by 2030, or whether by 2030  the Commission means to have a set of programmes to get to zero-carbon steelmaking.  Probably the latter because it would be unrealistic to make such rapid changes to production processes.  However, the EU steelmakers need to take this objective seriously, and potential investors would realise that a new investment in coking coal production would be swimming against the regulatory tide.

The major users of coking coal in the EU

 I have reviewed the climate change strategies of the three biggest steel producers in the EU (Arcelormittal, ThyssenKrupp and Tata Steel).  It is clear that they take seriously the need to reduce greenhouse gas emissions in line with internationally agreed targets.  Arcelormittal says “Our most substantial climate related policy risk is the EU ETS which applies to all our European plants.”  EU policy is pushing the producers to cut greenhouse gas emissions.  Arcelormittal stresses that the EU needs also to help the producers towards this objective by introducing a carbon border adjustment mechanism.  

Improved steelmaking technology can help. In recent years producers have made efficiencies by improving the tensile strength of steel, so that less steel is needed to achieve a given result (and therefore less coke needed).

The steel producers have participated in research and development projects partly funded by the EU.  Technologies proposed by the steel producers include:

  • in the short term modifying blast furnaces by injecting hydrogen as a reducing agent.  This would reduce the tonnage of coke required and reduce the CO2 emissions.  Arcelormittal has plants in operation;
  • Arcelormittal’s Torero progammme using waste carbon (for example, wood waste that would be unsuitable for burning in other circumstances) as a reducing agent.  A demonstration plant is being built in Belgium;
  • Modifications to the blast furnace process to produce an exhaust gas which is purer CO2.  This might be transformed into syngas and recycled into the furnace, reducing the need for coke.  Alternatively the purer  exhaust gas might be captured, pumped into underground reservoirs where these are available;
  • The use of hydrogen (rather than a hydrogen/carbon monoxide mix) as a reducing agent in a direct reduction plant.  Arcelormittal proposes to build a test installation in Hamburg;
  • Tata Steel has built pilot plants to test the Hlsarna concept.  This is a furnace operating at very high temperatures fueled by coal rather than coke;
  • In the longer term there are schemes for producing steel by electrolysis, similar to the way that aluminium has been produced since the nineteenth century. 

Hydrogen can be produced by electrolysis of water.  Improvements which require “green” hydrogen depend on the greater availability of electricity from solar or wind power.  These power sources are developing fast but it will take years before there is regular surplus electric power available for large scale electrolysis plants.  

There are few quick easy wins, but regulatory pressure will tend to reduce the demand for coke.

An example of a plant in transformation to lower carbon technology

The ILVA plant in Taranto, Italy, claimed to be the biggest iron and steel plant in the EU with a capacity of over 10 million tonnes of steel per year (though for some years it appears to have operated at well below full capacity).  There were concerns that emissions of dioxins were the cause of a high incidence of cancer in the area.  In 2012 there was an official investigation of environmental crimes.  The coke making plant has been blamed for the toxic emissions.  At one stage court ordered the blast furnaces to be closed down.  Government commissioners took over the plant from the private owners.  There are political tensions between local people concerned about health and those concerned about jobs.

The government sought a private company to take a lease on the plant and operate it.  Arcelormittal was selected as the operator.  The deal has still not been finalised because Arcelormittal will not take responsibility for lawsuits arising from the legacy operations.  In March 2020 Reuters reported that negotiations had progressed and there was a conditional agreement for Arcelormittal to take over and invest in steel production using direct reduction/electric arc furnace technology.  If this agreement is finalized there will no longer be a requirement for coal.

The impact of the coronavirus recession

The financial crisis of 2008 resulted in a reduction in steel output in Europe. Some steel producers are in a weak financial position.  The signs are that the coronovirus recession will be deeper and long lasting.  Marginal steel plants could close.

Potential investors in WCM may therefore hesitate until the outcome is clearer.  

Observations on methane drainage

I note that WCM’s consultants, AECOM, estimate that methane emissions from the mine would constitute 74% of the local greenhouse gas emissions.  In some comments there has been an assumption that methane drainage would solve this problem.  I also note that AECOM make no assumption about a reduction as a result of methane drainage.

When I worked for the National Coal Board fifty years ago the risks of climate change and the problems of methane in the atmosphere were not widely understood.  Mine operators were, however, very concerned about the risk of methane explosions underground. When coal is exposed it leaks methane. The NCB used methane drainage in a few particularly gassy mines in order to reduce the risk of underground explosions.  The technique involved drilling holes into the pillars of coal which were left to support the strata alongside access tunnels.  The holes were connected to pipework and the methane sucked out and used as fuel at the surface.

I understand from the WCM submissions that the coal will be worked by a partial extraction method, which involves leaving a high proportion of coal in pillars to support the roof.  Methane drainage could reduce leakage from these pillars.  I have never heard of it being used at the coalface where the coal is being broken up by coal cutting machinery (and thus emitting most).  Nor could it stop emissions from the broken coal being transported to the surface and onward to the customer.  Methane drainage would only be a partial solution to atmospheric pollution.

Local implications of a project that failed

I understand the need for jobs.  But job creation efforts should be directed towards projects with a better potential for success.  In my career I have seen too many cases where local authority efforts and money have been sucked into promoting ill-conceived projects. 

I would like to speak at the planning meeting.

Yours sincerely

Robert Wharton

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