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Just a few days ago, Chevron sent a tremor through the LNG industry when it announced that it was putting its stake in Australia’s giant North West Shelf project up for sale, having received ‘unsolicited approaches from a range of credible buyers’. The term to zoom in on is ‘unsolicited’. Meaning that Chevron wasn’t actively considering selling its stake in Australia’s oldest LNG project, but had been cajoled into starting a formal sales process by attractive offers. And that itself says a lot about the state of the LNG industry going forward.
A bit of history. The North West Shelf Project kicked off in the 1980s, then the largest engineering project in the world and remains the largest LNG project in Australia, even after the new wave of Western Australian LNG projects over the last decade. Formed as an equal joint venture between Chevron, Woodside Petroleum, BHP Billiton, BP, Shell and Japan Australia (owned by Mitsubishi Corporation and Mitsui & Co) – each holding a 1/6th stake – the North West Shelf brought together gas producing assets in the huge Carnarvon Basin, tying together fields like Perseus, North Rankin and Goodwyn into total reserves of 33 tcf. It put Australian LNG in the headlines, established the healthy LNG trade relationship between Japan and Australia, and transformed the economy of Western Australia;
Three decades later, the North West Shelf is still Australia’s most prodigious LNG-producing project. But one thing has changed. The natural gas drawn from its fields is drying up, or – to use a more appropriate term – evaporating. There’s still plenty of gas in the Carnarvon Basin, but not enough to power LNG production fully for the foreseeable future. Which is why NWS has started to shift its focus to tolling. In this context, it essentially means that the NWS will sells its liquefaction and associated infrastructure capacity to other gas producers in the region, who will process their natural gas into LNG through NWS before selling it on to their own customers. That would flip the NWS – in its current structure – from having full control over assets and production to being a landlord, renting out its infrastructure for someone else to use.
And there are plenty of ‘someone’s around. BHP and Woodside Petroleum’s Scarborough natural gas development is a perfect example, with Woodside also have its Browse project. These assets are nearby, and tying them to the NWS facilities is considerably more economic than having to build a new liquefaction plant from scratch. Even Chevron has its own assets in the area – the giant Gorgon and Wheatstone LNG project – but due to geography and proximity, has developed these as independent projects with individual facilities. The problem is that the potential third-party assets to be tied into NWS are owned by some of the NWS’ own stakeholders. This would upset the delicate balance between the NWS partners – who designed the structure to be equal and equitable.
With this significant misalignment between Chevron and its partners, it makes sense that Chevron would want to sell out of the project, particularly since the sale could fetch as much as US$4 billion, which is a nice chunk of change to help Chevron weather the current Covid-19 storm. It won’t just be Chevron considering this; BP and Shell will be thinking about this as well, although the Japanese partners are likely to remain to continue siphoning the LNG back home. While the potential suitors have not been named, the most likely candidate is Woodside, who could use its additional clout to convince the remaining NWS partners to agree on feeding Browse gas into NWS, a proposal that it has had difficulties with so far. Key Asian LNG buyers could be potential suitors as well, particularly Korean or Chinese companies that are keen to secure LNG assets for their own growing demand.
This problem won’t be unique to the North West Shelf. It is one that most giant LNG projects that were developed in the 1980s and 1990s must confront soon: with associated natural gas reserves running low, these projects must now look for alternative sources to continue LNG production. For some, circumstances may dictate that decommissioning makes more sense. But for others, like the North West Shelf, the presence of other nearby assets is a double-edged sword: it means that the project can keep running, but will have change its business model to adapt. That means ruffling a few feathers. Chevron might be one of the first to take this step, but it certainly will not be the last.
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In 2019, consumption of renewable energy in the United States grew for the fourth year in a row, reaching a record 11.5 quadrillion British thermal units (Btu), or 11% of total U.S. energy consumption. The U.S. Energy Information Administration’s (EIA) new U.S. renewable energy consumption by source and sector chart published in the Monthly Energy Review shows how much renewable energy by source is consumed in each sector.
In its Monthly Energy Review, EIA converts sources of energy to common units of heat, called British thermal units (Btu), to compare different types of energy that are more commonly measured in units that are not directly comparable, such as gallons of biofuels compared with kilowatthours of wind energy. EIA uses a fossil fuel equivalence to calculate primary energy consumption of noncombustible renewables such as wind, hydro, solar, and geothermal.
Source: U.S. Energy Information Administration, Monthly Energy Review
Wind energy in the United States is almost exclusively used by wind-powered turbines to generate electricity in the electric power sector, and it accounted for about 24% of U.S. renewable energy consumption in 2019. Wind surpassed hydroelectricity to become the most-consumed source of renewable energy on an annual basis in 2019.
Wood and waste energy, including wood, wood pellets, and biomass waste from landfills, accounted for about 24% of U.S. renewable energy use in 2019. Industrial, commercial, and electric power facilities use wood and waste as fuel to generate electricity, to produce heat, and to manufacture goods. About 2% of U.S. households used wood as their primary source of heat in 2019.
Hydroelectric power is almost exclusively used by water-powered turbines to generate electricity in the electric power sector and accounted for about 22% of U.S. renewable energy consumption in 2019. U.S. hydropower consumption has remained relatively consistent since the 1960s, but it fluctuates with seasonal rainfall and drought conditions.
Biofuels, including fuel ethanol, biodiesel, and other renewable fuels, accounted for about 20% of U.S. renewable energy consumption in 2019. Biofuels usually are blended with petroleum-based motor gasoline and diesel and are consumed as liquid fuels in automobiles. Industrial consumption of biofuels accounts for about 36% of U.S. biofuel energy consumption.
Solar energy, consumed to generate electricity or directly as heat, accounted for about 9% of U.S. renewable energy consumption in 2019 and had the largest percentage growth among renewable sources in 2019. Solar photovoltaic (PV) cells, including rooftop panels, and solar thermal power plants use sunlight to generate electricity. Some residential and commercial buildings heat with solar heating systems.
Source: U.S. Energy Information Administration, Annual Electric Generator Inventory
Based on the U.S. Energy Information Administration's (EIA) annual survey of electric generators, natural gas-fired generators accounted for 43% of operating U.S. electricity generating capacity in 2019. These natural gas-fired generators provided 39% of electricity generation in 2019, more than any other source. Most of the natural gas-fired capacity added in recent decades uses combined-cycle technology, which surpassed coal-fired generators in 2018 to become the technology with the most electricity generating capacity in the United States.
Technological improvements have led to improved efficiency of natural gas generators since the mid-1980s, when combined-cycle plants began replacing older, less efficient steam turbines. For steam turbines, boilers combust fuel to generate steam that drives a turbine to generate electricity. Combustion turbines use a fuel-air mixture to spin a gas turbine. Combined-cycle units, as their name implies, combine these technologies: a fuel-air mixture spins gas turbines to generate electricity, and the excess heat from the gas turbine is used to generate steam for a steam turbine that generates additional electricity.
Combined-cycle generators generally operate for extended periods; combustion turbines and steam turbines are typically only used at times of peak load. Relatively few steam turbines have been installed since the late 1970s, and many steam turbines have been retired in recent years.
Source: U.S. Energy Information Administration, Annual Electric Generator Inventory
Not only are combined-cycle systems more efficient than steam or combustion turbines alone, the combined-cycle systems installed more recently are more efficient than the combined-cycle units installed more than a decade ago. These changes in efficiency have reduced the amount of natural gas needed to produce the same amount of electricity. Combined-cycle generators consume 80% of the natural gas used to generate electric power but provide 85% of total natural gas-fired electricity.
Source: U.S. Energy Information Administration, Annual Electric Generator Inventory
Every U.S. state, except Vermont and Hawaii, has at least one utility-scale natural gas electric power plant. Texas, Florida, and California—the three states with the most electricity consumption in 2019—each have more than 35 gigawatts of natural gas-fired capacity. In many states, the majority of this capacity is combined-cycle technology, but 44% of New York’s natural gas capacity is steam turbines and 67% of Illinois’s natural gas capacity is combustion turbines.
Countries that are not members of the Organization for Economic Cooperation and Development (OECD) in Asia, including China and India, and in Africa are home to more than two-thirds of the world population. These regions accounted for 44% of primary energy consumed by the electric sector in 2019, and the U.S. Energy Information Administration (EIA) projected they will reach 56% by 2050 in the Reference case in the International Energy Outlook 2019 (IEO2019). Changes in these economies significantly affect global energy markets.
Today, EIA is releasing its International Energy Outlook 2020 (IEO2020), which analyzes generating technology, fuel price, and infrastructure uncertainty in the electricity markets of Africa, Asia, and India. A related webcast presentation will begin this morning at 9:00 a.m. Eastern Time from the Center for Strategic and International Studies.
Source: U.S. Energy Information Administration, International Energy Outlook 2020 (IEO2020)
IEO2020 focuses on the electricity sector, which consumes a growing share of the world’s primary energy. The makeup of the electricity sector is changing rapidly. The use of cost-efficient wind and solar technologies is increasing, and, in many regions of the world, use of lower-cost liquefied natural gas is also increasing. In IEO2019, EIA projected renewables to rise from about 20% of total energy consumed for electricity generation in 2010 to the largest single energy source by 2050.
The following are some key findings of IEO2020:
IEO2020 builds on the Reference case presented in IEO2019. The models, economic assumptions, and input oil prices from the IEO2019 Reference case largely remained unchanged, but EIA adjusted specific elements or assumptions to explore areas of uncertainty such as the rapid growth of renewable energy.
Because IEO2020 is based on the IEO2019 modeling platform and because it focuses on long-term electricity market dynamics, it does not include the impacts of COVID-19 and related mitigation efforts. The Annual Energy Outlook 2021 (AEO2021) and IEO2021 will both feature analyses of the impact of COVID-19 mitigation efforts on energy markets.
Source: U.S. Energy Information Administration, International Energy Outlook 2020 (IEO2020)
Note: Click to enlarge.
With the IEO2020 release, EIA is publishing new Plain Language documentation of EIA’s World Energy Projection System (WEPS), the modeling system that EIA uses to produce IEO projections. EIA’s new Handbook of Energy Modeling Methods includes sections on most WEPS components, and EIA will release more sections in the coming months.
