Today’s Blog – Wednesday 8th June 2016

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Editorial

A week or so ago we noted the high level of media interest in an energy storage conference held in Sydney – but pointed out that all the attention was on emerging storage technologies, primarily batteries.  The long established and large scale energy storage mechanism of a depleted gas reservoir (let alone a FSRU) received no air-time.

Given this context, we noted with interest a recent media reports on the following battery based storage projects:

  • In South Australia, a company called Solastor (who it seems cannot afford to update their website) plans a A$1.2B solar power station – with a new storage mechanism storing heat in graphite blocks.  The capacity of the power station was said to be 110 MW (i.e. more than A$10,000 per MW – around ten times the cost of a higher capacity factor gas-fired power station).  The storage capacity and energy deliverability of the graphite blocks was not obvious.
  • A 800 MWh battery storage project planned for China is said to be world’s largest – more than double the current largest plant in Japan.

Let us undertake a simple comparison of the Chinese project with say the Iona Gas Storage asset in Victoria.  The latter is said to be able to deliver 500 TJ of gas per day.  If that gas was used in a modern combined cycle gas-fired power station, those TJ would deliver around 70,000 MWh.

So in simple power output terms, the proven technology of gas storage at Iona has an energy deliverability capability of nearly 100 times more than the on-the-drawing board stage largest battery project in the world.

Commodity prices

WTI joined Brent at the >US$50 party in overnight trading, closing at US$50.36.  Brent continued to rise as well, closing up 2% at US$51.51.

Drivers on the day were bullish crude inventory estimates by Bloomberg and the API a day ahead of the official EIA numbers.  The ongoing Nigerian supply problems – now around 1 mmbopd – helped as well.

Henry Hub inched up ~0.5% to close at US$2.48.

LNG and international gas

Saudi Arabia has just announced a change to its internal energy policy – a previous (very ambitious) target of having 50% of its electricity generated from solar sources by 2020 has been cut back to a more reasonable (but one still involving a lot of scarce investment dollars) of 10%.

Instead the Kingdom plans to rapidly increase its gas-fired power generator fleet.  Some observers are cynical about their ability to do so, given previous difficulties in this area (as evidenced by e.g. Shell pulling out of a KSA tight gas venture in recent years).

Could we therefore see the KSA importing LNG?  Likely this would be too embarrassing and the ongoing burning of valuable crude will continue.

Company news – Shell

Shell hosted a major investor briefing day yesterday – the first since it formally acquired BG.  A few snippets therefrom with relevance to Australia:

  • The country is clearly an important one for Shell in terms of existing assets – but it does not seem to be high up the list in attracting new investments.
  • The Australian un-developed LNG projects have been pushed back.
  • Further capex cuts and country exits will follow globally – but this should not really affect Australia given its maturity and materiality.
  • Unlike a number of the other Super-Majors, deepwater is still very much a key focus for Shell.  That being the case, success in Australian deepwater provinces like the South Australian Bight could attract it.

Company news – Woodside Petroleum (WPL)

As we noted yesterday, WPL’s CEO, Peter Coleman made a widely reported speech at the APPEA Conference.  Amongst other things, he highlighted the company’s growth options as follows:

“..we’re in Myanmar, we’re in Africa, we’re looking at our developments in Australia and what we can do with them, and we’re off in Canada. So we’ve got a pretty full plate at the moment of things to do.”

Our view is less rosy:

  • Myanmar is a relatively small dry gas offshore field, under a PSC, which will have to sell to China at a fairly low-ish well-head price.
  • Africa requires exploration success or asset/corporate purchases (hello FAR Ltd!).
  • Material developments in Australia at Browse and Sunrise would likely be 10 years away at best.
  • Canadian developments may edge in front of these – but are still ~1-2 CEOs away.

Quote of the day

At least Mr Coleman said some interesting things rather than come out with corporate waffle, including the following:

“They’re all sitting there thinking, life’s good because oil is at $US50 today. Life’s not good: whilst that means we survive another day that doesn’t mean we have a prosperous future.”

 

 

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