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Determining the economic consequences of natural gas substitution

Rimos, Shaun, Hoadley, Andrew F.A., Brennan, David J.
Energy conversion and management 2014 v.85 pp. 709-717
ammonia, capital, coal, coalbed methane, economic impact, electricity, environmental indicators, exergy, feedstocks, hydrogen, operating costs, prices, risk
Resource depletion is a key aspect of sustainability, because the consumption of finite resources impacts on their availability for future generations. There are many proposed methods for accounting for the depletion of a particular resource, amongst which include the proportion of the resource depleted, the rate of resource depletion, and the energy, exergy, or monetary cost of extraction as the resource becomes harder to find or extract.This paper is part of a wider study to measure resource depletion using its environmental and economic impacts for the case of natural gas, where depletion of natural gas requires substitution by black coal or coal seam gas. The capital and operating costs are estimated both for upstream fuel extraction and purification and downstream use of the fuel to produce electricity, hydrogen and ammonia. These costs are based on a commercial scale of operation, using the same basis for economic modelling in each case. Black coal was found to have the lowest transfer price from upstream to downstream processing among the three feedstocks, but the highest capital and operating costs in the downstream processes. Conventional gas produced slightly higher transfer prices and downstream processing costs compared to coal seam gas.The favourable economic and environmental indicators for natural gas and coal seam gas are expected to lead to increased demand for these resources over coal, running the risk of a gas shortage. The economic consequence of a scarcity of either gas resource will be a penalty in capital and operating costs to produce the three products should gas be substituted with black coal.