BP, Rio Tinto Venture to Develop Clean Coal Energy

By Stephen Voss

May 17 (Bloomberg) -- BP Plc and Rio Tinto Plc formed a joint venture, Hydrogen Energy, to develop technology for producing power from coal, oil and natural gas without emitting the gases blamed for global warming.

Rio will pay $32 million to BP to form the equally owned venture, which includes two planned BP hydrogen-fuel projects in Scotland and California that will cost at least $1 billion each.

``Projects such as these have the potential to help deliver the carbon emission reductions which companies and countries around the world are now seeking,'' BP Chief Executive Officer Tony Hayward said in a statement today.

The U.S. and China, the world's two largest energy consumers and carbon dioxide emitters, are unlikely to abandon coal for power generation, since they have large domestic reserves of the mineral. The U.S. says it wants cleaner technologies that will allow it to use coal while also reducing emissions.

BP, the world's third-largest non-state-owned oil company, and Rio, the world's third-largest mining company, have previously formed a partnership on coal-mining in Indonesia, before selling that business in 2003. Ten years ago, BP was the first major oil company to acknowledge man-made carbon dioxide emissions could affect the climate.

Clean Power Plant

BP has spent two years developing an industrial-scale, 475- megawatt power plant in Peterhead, Scotland, that emits less greenhouse gas. Using natural gas as a feedstock, the plant will separate hydrogen, which will be used to make clean power, from carbon dioxide, which will be piped to the North Sea and buried in an oil field 2.5 miles below the seabed.

Carbon dioxide would remain buried ``literally forever,'' or for hundreds of years, Steve Westwell, BP's group vice president for alternative energy, said on a conference call from Houston.

BP has also announced plans for a second experimental plant at its Carson refinery in California, where it will make hydrogen from coke, a low-value refinery byproduct.

``Although initial projects may be based on non-coal feedstocks, they will be significant building blocks in the development of coal gasification on an industrial scale,'' Rio's chief executive officer, Tom Albanese, said in today's statement.

Rio is among the world's largest coal producers, along with Xstrata Plc., BHP Billiton Ltd. and Peabody Energy Corp. A venture with BP will enable Rio to offer technology for coal-fired plants without producing large quantities of greenhouse gases. BP is not planning to re-enter the coal business through the joint venture, Westwell said.

BP's Projects

The Peterhead project has completed its engineering design work and is awaiting a decision on financial support from the U.K. government, BP said. If a decision to proceed with the project is made next year, it could start operation in 2011.

Gordon Brown, who will become U.K. Prime Minister next month, said earlier this year companies will need to compete for government funding for carbon-capture and storage projects. More details are expected in a government policy paper on May 23.

Westwell said economic ``incentives'' are needed for carbon, capture and storage projects because of the added expense in creating clean electricity.

The Carson, California, project could be operational by the end of 2012 ``subject to the successful outcome of engineering studies and appropriate policy being in place,'' BP said.

Project Leaders

Hydrogen Energy will be based in Weybridge, in southeastern England, and led by Chief Executive Officer Lewis Gillies, the former head of BP's hydrogen-power business. Its chief financial officer will be Peter Cunningham, formerly the head of business evaluation at Rio.

BP and Rio are both headquartered at St. James's Square in central London and new chief executive officers started at both companies on May 1.

They also have management links: BP's executive vice president for gas, power and renewables, Vivienne Cox, who runs the company's alternative energy business, is also a non-executive director on Rio's board. Andrew Mackenzie joined Rio as the head of its industrial minerals division in 2003, after two decades in exploration at BP.

Rio Tinto chairman Paul Skinner is the former head of oil refining at BP's arch rival, Royal Dutch Shell Plc.

To contact the reporter on this story: Stephen Voss in London at sev@bloomberg.net