The Missing Link to Security of Supply, Capital … conference 2009.pdf · Exports, Operational...

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The Missing Link to Security of Supply, Capital Efficiency, Capturing High Value

Exports, Operational Reliability & Operational Efficiency in E. Australia’s

Gas Industry

IRR Gas Pipeline & Infrastructure ConferenceFeb 18th 2009, Brisbane, Qld

Underground Gas Storage 2

Innovative Energy Consulting • MD Glen Gill has a track record of pioneering accomplishments in

Canada & Australia– 1st unregulated & producer owned UGS facility in Canada (divested by

Encana in 2006 for US $1.5 Billion, $150 million EBITDA per year)– 1st and largest gas trading hub in Canada (AECO hub)– 1st & 2nd major privately owned inter-state gas pipelines in Australia

(EGP & SEAP)• Co-founder of Canada based Moneta Energy

– Gas storage developer and holder of capacity in North America– BNP Parabas and Yorktown Energy Partners LLP are major shareholders

in Moneta• Holder of EPM 17010 over the Boree Salt Deposit in the Adavale

Basin, Qld (250 square km of world class domal salt)

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Infrastructure

• Major cost of UGS– Compression (50,000 HP)– Pipelines (24” flowlines, 34” laterals in Header system)– Cushion Gas

• Often developed and owned by Gas Pipeline & Reticulation Companies

• Key component of Gas Pipeline Network in North America & Europe


Today’s Objective• Historical Role of UGS in Australia;• Benchmarking UGS • De-Mystifying UGS; • UGS Deliverables;• Major UGS Development Barriers/Drivers

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Underground Hydrocarbon Storage

• Commenced in Australia utilizing depleted reservoirs in the 1980’s (Producer Driven);

• To date use has been restricted to gas, LPG and ethane (no oil);

• Only man made UGS facility is the Elgas LPG cavern storage facility near Botany Bay, NSW developed in 1999.

• Regulations are evolving with Victoria clearly leading the way

• The WUGS facility built in Victoria in response to the Longford gas plant explosion was the first and only open access non-discriminatory UGS facility

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Depleted Reservoir Storage

Used to manage Victoria winter gas demandExxon1971BarracoutaGippsland

Commercial storage developed by TXU in response to Longford explosion

Acquired 3 depleted reservoirs from Origin12 PJ capacity

TRUenergy1999Wallaby CkN. PaaratteGrumby

Otway

Load levelling of Ballera plantHutton SS, 13.7 Bcf OGIP

Santos1998ChookooEromanga

Stored ethane from 1984 to 1996;Sales gas cycled from 1993 to present;

Santos1981Lower Daralingie

Cooper

Evergreen formation, 10 Bcf OGIP

Converted in 1997Origin1998NewsteadSurat

Acquired from Origin in 2004BHP Billiton?TubridgiCarnarvon

Developed by WAGAcquired by CMS in 1997

Acquired by APA in 2004

APA1996MondarraPerth

commentsOperatorYear Dev

FieldBasin


Other Less Efficient Forms of Physical Gas Storage

• Surplus upstream capacity– Woodside’s NWS, ExxonMobil’s Longford &

Santos’ Moomba/Ballera gas plants

• Pipeline Pack– BHP’s Pilbara HBI pipeline– ERM’s 150km Braemar Power Plant pipeline– To a lesser degree on gas transmission pipelines

across Australia

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Future Underground Storage Major Domal Rock Salt Deposits Exist in the Lucky Country

Adavale BasinBoree Salt

Source: Solution Mining Society


Eastern Australia Gas Grid 2007

Source: R W Timmons of PriceWaterhouseCoopers

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Testing Ones Worldview


Transporting GasThird World Country Alaska Pipeline

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World Gas Demand is Seasonal


OECD Natural Gas Consumption

Source: International Energy Agency, Monthly Gas Data Service

0

20

40

60

80

100

120

Jan-

00

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Jan-

06

Jan-

07

Jan-

08

OECD North America

OECD Europe

OECD Asia

PJ/d

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Gas StorageTown Gas Storage Bladders Modern Underground Gas Storage

Commenced in 1961


World Underground Working Storage Capacity, 2006

(Trillion cubic feet or 1000 PJ’s)

0.1

4.5 2.74.0

Sources: Cedigaz, Underground Gas Storage in the World, June 2006; Energy Information Administration, Office of Energy Markets and End Use

17% of Annual Gas Consumption

1%

16%14%

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World UGS Mix 2006


Global Gas Storage Facilities

>600

<10

>30

>150

>400

# UGS Facility Sites

>430

0

30 (6 sites)

300+

>100 (27 sites)

# Salt Caverns used for gas

Australia

Worldwide

Canada

Europe

USA

Gas Market

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UGS Comparison

0.1NE Asia

2.7Western Europe

4.5North America

Gas Storage Working Gas Capacity (Tcf)

Continent


World UGS Facilities & Growth

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Innovative Energy Consulting Pty Ltd

North America UGS

• 400 active facilities in US– 3.6 Tcf of working gas capacity– 86.6 Bcf/d max deliverability capacity– Independent operators since 1990– Unregulated UGS since 1990

• 53 active facilities in Canada– 603 Bcf of working gas capacity– 10.4 Bcf/d deliverability capacity– Unregulated facilities commenced in AB in 1988 and

now flourish in that province


North America as of 2007

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Depleted Reservoir Storage commenced in 1929$60+ Billion of Assets @ Market Value

AECO

BeddedSalt


US Lower 48 UGS FacilitiesWorking Gas Capacity

Max Gas Deliverability Capacity

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US Reservoir UGS Facilities

• 380 Facilities• Operated by 80

companies• Located in 26 of

lower 48 states (also exists in Alaska;

• 81% of Nations working gas capacity


Underground Salt Caverns

• Used since the 1940’s for storing hydrocarbons;– Gas since the 1960’s & petroleum liquids since the 1940’s– Gas storage in salt caverns in France and Germany since the

1970’s & 1960’s respectively

• The USA, Germany, France, and the Netherlands all use salt caverns for their crude oil strategic reserves to enhance security of energy;

• Compressed air for peak power generation in Europe and commencing in North America;

• Recently identified as a perfect vessel to store CO2 as environmental concerns escalate in OECD countries

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Underground Salt Caverns

• Used since the 1940’s for storing hydrocarbons;– Gas since the 1960’s & petroleum liquids since the 1940’s– Salt dome storage commenced in the 1970’s – Gas storage in salt caverns in France and Germany since the

1970’s & 1960’s respectively• The USA, Germany, France, and the Netherlands all use

salt caverns for their crude oil strategic reserves to enhance security of energy;

• Compressed air for peak power generation in Europe and commencing in North America;

• Recently identified as a perfect vessel to store CO2 as environmental concerns escalate in OECD countries


Salt Cavern UGS• Genesis in the early 1960’s• Preferential storage for liquids• 60 worldwide salt cavern gas

storage facilities with over 600 operating salt caverns

• 11% of UGS worldwide working gas capacity (much larger share of deliverability)

– 33% in Europe – most located in Germany

– 67% in America – most located Gulf Coast region

• FSU developing first salt caverns for gas

• US initiated salt cavern gas storage in 1961, followed by Canada in 1963

• Yet to be developed in Australia despite world classs domal salt deposits in Qld & WA

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Comparison of Salt Caverns

229 caverns for natural gas, numerous caverns for liquid storage

Bedded & dome salt Europe

30 for natural gas, 3 for waste disposal, 167 for petroleum liquids

200 in bedded saltCanada

456 total salt caverns

146 in bedded salt

Waste disposal, NGL’s, LPG’s, oil & natural gas (primarily for petroleum liquids)

310 in dome saltUSA

Uses# Salt Caverns for storageRegion


Europe Salt Cavern Storage

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Canadian Salt Cavern Storage


US Salt Caverns

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US Gulf Coast Salt Caverns


Salt Cavern Vs. Reservoir

10 - 100+1 – 12 per cavernWorking gas PJ

1 to 2.5%Up to 11%Daily Withdrawal as a % of working gas

1 – 2 years3 yearsProject time

1 to 5Up to 30Cycles per year

0.2 to 1.00.2 to 0.4Cushion to Working gas ratio

Low to high

5 to 10

High

15 to 25

Development Cost

$million per PJ working Gas Capacity

ReservoirSalt Cavern

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Deliverability Enhancement

601502.5?Glauc RHassar

17.570040?Viking AEdson

55.650090.35BI NCountess

6030052.5Man M5MCountess

6030053.2Man KSuffield

33.31000303.0Man ISuffield

11.1200182.2Gething DSinclair

7.53044.7Paddy CSinclair

Improvement Factor

Max Storage Deliverability Rate MMcf/d

Pre Storage Max Prod Rate MMcf/d

Darcy KPoolField


Gas Storage Alternatives

• 10 day LNG storage (above ground)– Typically 1.5 PJ’s per project

• 30 day salt cavern storage– Typically 3 to 25 PJ’s working gas per project

• 150 day depleted reservoir or aquifer storage– Typically 20 to 80 PJ’s working gas per project

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UGS Located Upstream & Downstream of Gas Pipelines


US UGS by Type

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OECD Comparison

• Europe & North America– UGS is vital aspect of gas industry

• Australia– UGS is virtually a nonexistent in terms of its

role in the gas industry


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Many Roles of UGS

Source: Gas Storage Europe

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Historical UGS Development in Canada

Source: GSA Energy Company

Major Structural

Change

ProducerDriven UGS GrowthTo Improve Upstream CapitalEmployment


Canada Gas Storage Distribution

10.98636.9Total

4.6%0.507.5%48.0B.C.

52%5.7147%300.7Alta

5.9%0.655.6%36.0Sask

37%4.0539%247.6Ontario

negligible0.07negligible4.6Quebec

% of totalDel (Bcf/d)

% of totalWorking gas (Bcf)

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Alberta UGS Growth Driven by Gas De-regulation in 1985

SuffieldStorage

Little storage developmentGas utility storage cost based Era

Significant Alta Storage capacity growthMarket based Independent storage Era


Innovative Energy Consulting Pty Ltd

Alberta Gas Storage GrowthProducers Desire to Maximise Wellhead Prices

0

50

100

150

200

250

300

350

1988 1994 2005 2008

Working Gas (Bcf)

0

1

2

3

4

5

6

7

1988 1994 2005 2008

Deliverability (Bcf/d)

Alberta Gas Storage GrowthDriven by need to be competitive with US supplieshad nothing to do with weather sensitive market

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Alberta, Canada Case StudyProduces 80% of Canada’s Gas

Eastern AustraliaToday


Gas Storage Growth in Canada

Source: AGA data for 1991; Demke Management for 1998 & 2005

31%10.925%6332005

131%8.3153%5051998

3.62001991

% changeMax Del Bcf/d

% changeWorking Gas Bcf

Year

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Canada’s Gas Demand

• Highly variable heating demand;

• UGS absorbs all of this fluctuation between demand and production;

• Yet gas prices in summer of 2008 was $13/GJ and are now $5/GJ in winter 2009;

• Gas prices in an open market are determined by many factors of which supply/demand is but one.


Canada’s Gas Production Profile

• Since 1985 de-regulation of gas industry production has flowed at near capacity regardless of gas demand;

• UGS was aggressively developed in Alberta first by producers and then by others to accommodate fluctuating market demand

• Very efficient utilisation of upstream capital (10,000+ new gas wells per year)

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Canada’s Upstream Facilities Do Not Swing with Gas Demand

Source: Canada’s National Energy Board


Upstream Infrastructure Load Factor

• 2008 Eastern Australia report card– 12 months ending Sept 2008 gas consumption of 667 PJ’s

– 20 gas plants with cumulative capacity of approximately 3.4 PJ/d– 55% overall upstream load factor

NSW/SA/VIC 1994 443 PJ’s Gas Consumption657 PJ’s Upstream Capacity67% load factor

Compares to 95%+ in North America based onproduction capability as opposed to installed plantcapacity

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Australia’s Upstream Gas Industry

• SW Qld & SA Cooper/Eromanga Basin investment to date – >AUD $8 Billion in total– Significant proportion allocated to gas

• Offshore Gippsland Basin– >AUD $14 Billion post Turrum Development

• Otway offshore – $AUD 1.5 Billion

• Surat/Bowen Basin conventional gas & CSM


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Natural Gas Spot Price at the Henry Hub & Volatility, 2000-2008

0

2

4

6

8

10

12

14

1615

/01/

2000

15/0

1/20

01

15/0

1/20

02

15/0

1/20

03

15/0

1/20

04

15/0

1/20

05

15/0

1/20

06

15/0

1/20

07

15/0

1/20

08

$/M

illio

n B

tu

0

20

40

60

80

100

120

Vol

atili

ty (%

)

Source: Derived by Energy Information Administration, Office of Oil and Gas.


Australia Gas Sale Projection

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Source: Andrew Flower LNG Associates, as presented at the EnergyInformation Administration’s 2008 Conference, Washington D.C., April 6-7, (Proceedings available at http://www.iea.doe.gov/eia_conference_2008.html).

0

5

10

15

20

25

30

35

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Mill

ion

To

ns

per

Yea

r

World LNG Short-term Trades1992-2007


Australia’s Fading Gas Industry Structure

• “Deliverability Margin” provided by surplus gas plant & upstream facilities;

• Sloppy pipeline nominating & balancing procedures;• Security of gas supply in the form of onerous TOP

contracts;• Producers are the gate keepers to pipeline capacity;• No gas clearing prices based on market forces;• No exports from Eastern Australia to other continental gas

markets;• Government imposed solution to gas supply outages

– Curtailment of industrial demand to ensure voters get their gas

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Price VolatilityArbitrage

RESTRAINING FORCES

RegulatoryRisk

Complacentindustry

Resistance To change

No Price Signals

Long Term Contracts

E&PRationalisation

Elimination of linepack

swings

Security of Supply

Management

Good Storage Regulations

Gas Fired Power Generation

Market

DRIVING FORCES

Major Gas StorageSector

Status Quo

LNG Exports

of onshore

gas supplies

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Security of Supply

• Australia appears to accept re-occurring gas crisis;

• UGS can easily eliminate gas shortages– Free Market solution as opposed to

Government intervention

• Retail companies contract for adequate supply to ensure voters always get their gas

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Upstream Capital Efficiency

• Multi-billion dollar gas production facilities idling most of the time;

• UGS allows upstream facilities to run at maximum capability all of the time; subject to market demand & storage injection constraints;

• UGS enhances liquidity so that gas can be either immediately sold or stored until a later sale.


Reliable Exporter

• Gas exports usually need to demonstrate reliability of gas supply to high value export customers;

• UGS can easily meet this role;• Export of onshore gas may be subject to

pro-rationing & curtailments without a vibrant UGS sector;

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Operational Efficiency

• STTM emerging in Eastern Australia;– Liquidity, transparency & price arbitrage

• Greater market share of power generation;– Increasing weather driven gas demand

fluctuations;– Spark spread arbitrage;

• Pre-requisite for a working gas hub


UGS’s Future Key Role in Balancing Supply/Demand

E. Australia Daily Gas Deliverability Balancing Act

Natural Gas Sources Natural Gas Sinks

Field Production,Storage

Withdrawal,Pipeline Draft,Fuel Switching,Curtail Exports

Eastern Australia Demand,

LNG Exports,Pipeline Pack,

Storage Injection

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Short Term Physical Gas Deliverability Ranking

UGS

FuelSwitching

Drafting Pipeline Pack

Surplus Capacity Behind Gas Plants

IncreasingCost/TJ

Capacity


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Innovative Energy Consulting

• www.innovativeenergy.com.au• 13 North Maleny Rd, Maleny, Qld, Australia 4552• Tel/Fax: (61 7) 5429-6002• Glen Gill

– mobile 0400-772-512, – email: [email protected]

• Glori Cowan– mobile 0400-772-383– Email: [email protected]


IEC’s EPM 17010• 20 km east of gas

pipeline;• 35 km S.E. of town of

Blackall, Qld (pop 1833);• 900 km N.W. of Brisbane

via Lansborough Hwy.;• 800 km from

Rockhampton via Capricorn Hwy.;

• 600m thick salt with top of salt at depth of 2000m

BarcooRiver

Lansborough Hwy

EPM’s 16413, 16410 & 16409 (Holocene Ltd)

ATP 863P(CoomoorooEnergy)

EPM’s 17503, 17538, 17557, 17581 (Circle Resources/BT Metals)

The Missing Link to Security of Supply, Capital … conference 2009.pdf · Exports, Operational...

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