Using small modular reactors to liquefy Britain’s coal
A cheap, domestic source of oil and natural gas
This is a submission to the TxP Progress Prize, a blog prize for early/mid-career contributors with original solutions to the question: “Britain is stuck. How can we get it moving again?”
Britain is stuck. How can we get it moving again? Much of the answer lies in fixing our energy situation.
Industrial electricity prices have nominally risen by >420% since 2004, or 240% in real terms.
OECD modelling suggests a 5% rise in energy prices causes a 0.4% drop in productivity the following year. Assuming (crudely) that we can generalise this relationship across post-2004 Britain, real energy price rises have cut British industrial productivity by 19.2%.
Why is electricity so expensive? The answer lies with Britain now being a net energy importer – mostly of oil and gas.
Since the most expensive provider sets the price in wholesale electricity markets, a net importer’s energy costs will depend on global oil and gas prices. In total, these imports cost Britain £117Bn in 2022.
In this article, I’ll introduce a process that can reverse Britain’s import dependence on oil and gas. It combines nuclear power with a cheap and virtually unused resource: Britain’s 3.9 billion tonnes of coal deposits.
Coal and fossil fuels
Coal dropped out of Britain’s energy mix because it’s less energy-dense than other fossil fuels. This means it produces less power per unit burned, and more by-products from burning.
These problems killed off the use of coal for transport fuel, while also eroding its value for power generation.
As a result, coal is of low value, even on a joule-by-joule basis. Next to gas or oil rigs, a coal mine must spend ~50-75% less per joule extracted to break even.
Even if Britain wanted to use its coal reserves, we would:
Struggle to make a mining operation competitive on the global market
Still need to import oil to power internal combustion engines
This is why most of Britain’s “coal joules” are going to waste, even before you throw in political opposition to coal mining and burning.
However, there is a way to transform coal joules into more valuable oil and gas joules.
Coal liquefaction
If you apply enough heat and pressure to coal, it’ll separate into a mix of oil, gas, and bitumen/impurities.
Here’s the output ratio for a type of one-step “direct conversion” coal liquefication process:
Generalising, liquefying coal roughly produces:
600kg of crude oil (60%), or ~4.4 barrels
200kg of natural gas (20%), or ~60.3 therms
200kg of bitumen (20%)
Here’s the value of the oil and gas, going by recent price data:
That’s £203.14 gross profit per tonne of coal, or a gross margin of 63.5%. That gross margin is incredibly competitive with the ~50% averaged by the energy sector.
Given these margins, why don’t we see coal liquefaction employed more often? Along with other operating costs, the problem is one of power: to provide the heat to liquefy a tonne of coal, you’d need to burn roughly the same amount. That kills the operation’s profitability.
For the most part, this energy problem has limited coal liquefaction to economies that were forced to do it because they literally couldn’t import oil and gas.
However, what if the power source for liquefaction was an order of magnitude cheaper than coal? Enter the aforementioned €0.47/GJ of nuclear.
The nuclear option
In 2008, Floridian engineer Bonne Posma proposed a nuclear-powered coal liquefaction plant to process 15,000 tonnes of coal a day. The power source was a 960MWth nuclear reactor, >40% smaller than Rolls Royce’s proposed Small Modular Reactors (SMRs).
Here’s the annual output of the original Posma plant proposal, and a 40% larger one to fully leverage the capacity of the Rolls Royce SMR:
Britain’s annual oil consumption was 480.7Mn barrels in 2022. This means a single liquefaction plant powered by a 960MWth reactor would produce enough oil to meet 5% of the country’s demand. For the 40% larger plant, this rises to 7.1%.
Plugging in our earlier price data at 63.5% gross margin for the process, we can see even the more modest plant produces £1Bn per annum in gross profit.
This calculus excludes non-input operational costs such as logistics, staffing, and the (very low) operational costs of the SMR. If we wanted to keep gross margins above the global energy sector average of 50%, these operational costs would need to stay at or below ~£235Mn for a Posma-scaled plant and ~£330Mn for the 40% larger facility.
Whether the gross margin is at 63.5% or 50%, the plant would rapidly pay off its largest likely fixed cost – the Rolls Royce SMR, assuming £1.8Bn per unit:
Recommendations
If we want to fix Britain’s productivity problem, we need to bring down the cost of energy. That means ending our dependence on global oil and gas markets.
In this context, nuclear-powered coal liquefaction is an ideal solution for Britain. It can:
Provide cheap oil and gas for domestic consumption
Turn our uncompetitive coal reserves into lucrative oil and gas exports
A network of just ten modest-sized plants could satisfy half of Britain’s oil demand – guaranteeing our energy independence, improving our trade balance, and turbocharging economic growth and productivity.
What can the government do to facilitate this? Either:
Create an “arms-length” state-owned corporation to finance, construct, and operate a fleet of nuclear-powered coal liquefaction plants, with outputs:
Sold at global market rates, with net profit going to the state, or
Sold domestically at below-market rates, to bring down energy prices.
Invite private concerns to finance, construct, and operate fleets of these plants at a profit, and provide assurances and fast-tracks around legal, planning, and logistical challenges.