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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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Pioneering technology expert tells ADIPEC Energy Dialogue up to 80 per cent of plant shutdowns could be mitigated through combination of advanced electrification, automation and digitalisation technologies
Greater use of renewables in power management processes offers oil and gas companies opportunities to create efficiencies, sustainability and affordability when modernising equipment, or planning new CAPEX projects
Abu Dhabi, UAE – XX August 2020 – Leveraging the synergies created by the convergence of electrification, automation and digitalisation, can create significant cost savings for oil and gas companies when making both operational and capital investment decisions, according to Dr Peter Terwiesch, President of Industrial Automation at ABB, a Swiss-Swedish multinational company, operating mainly in robotics, power, heavy electrical equipment, and automation technology areas.
Participating in the latest ADIPEC Energy Dialogue, Dr Terwiesch said up to 80 per cent of energy industry plant shutdowns, caused by human error, or rotating machinery or power outages, could be mitigated through a combination of electrification, automation and digitalisation.
“Savings are clearly possible not only on the operation side but also, using the same synergies between dimensions, you can bring down the cost schedule and risk of capital investment, especially in a time when making projects work economically is harder,” explained Dr Terwiesch.
A pioneering technology leader, who works closely with utility, industry, transportation and infrastructure customers, Dr Terwiesch said despite the increasing investment by oil and gas companies in renewables and the growing use of renewables to generate electricity, both for individual and industrial uses, hydrocarbons will continue to have an important role in creating energy, in the short to medium term.
“If you look at the energy density constraints, clearly electricity is gaining share but electricity is not the source of energy; it is a conduit of energy. The energy has to come from somewhere and that can be hydrocarbons, or nuclear, or renewables.” he said.
Nevertheless, he added, the greater use of renewables to generate electricity offers oil and gas companies the option of integrating a higher share of renewables into power management processes to create efficiencies, sustainability and affordability when modernising equipment, or planning new CAPEX projects.
The ADIPEC Energy Dialogue is a series of online thought leadership events created by dmg events, organisers of the annual Abu Dhabi International Exhibition and Conference. Featuring key stakeholders and decision-makers in the oil and gas industry, the dialogues focus on how the industry is evolving and transforming in response to the rapidly changing energy market.
With this year’s in person ADIPEC exhibition and conference postponed to November 2021, the ADIPEC Energy Dialogue, along with insightful webinars, podcasts and on line panels continue to connect the oil and gas industry, with the challenges and opportunities shaping energy markets in the run up to, and following, a planned three-day live stream virtual ADIPEC conference taking place from November 9-11.
An industry first of its kind, the online conference will bring together energy leaders, ministers and global oil and gas CEOs to assess the collective measures the industry needs to put in place to fast-track recovery, post COVID-19.
To watch the full ADIPEC Energy Dialogue series go to: https://www.youtube.com/watch?v=QZzUd32n3_s&t=6s
Forecast Highlights
Utility-scale battery storage systems are increasingly being installed in the United States. In 2010, the United States had seven operational battery storage systems, which accounted for 59 megawatts (MW) of power capacity (the maximum amount of power output a battery can provide in any instant) and 21 megawatthours (MWh) of energy capacity (the total amount of energy that can be stored or discharged by a battery). By the end of 2018, the United States had 125 operational battery storage systems, providing a total of 869 MW of installed power capacity and 1,236 MWh of energy capacity.
Battery storage systems store electricity produced by generators or pulled directly from the electrical grid, and they redistribute the power later as needed. These systems have a wide variety of applications, including integrating renewables into the grid, peak shaving, frequency regulation, and providing backup power.
Source: U.S. Energy Information Administration, Preliminary Monthly Electric Generator Inventory and Annual Electric Generator Report
Most utility-scale battery storage capacity is installed in regions covered by independent system operators (ISOs) or regional transmission organizations (RTOs). Historically, most battery systems are in the PJM Interconnection (PJM), which manages the power grid in 13 eastern and Midwestern states as well as the District of Columbia, and in the California Independent System Operator (CAISO). Together, PJM and CAISO accounted for 55% of the total battery storage power capacity built between 2010 and 2018. However, in 2018, more than 58% (130 MW) of new storage power capacity additions, representing 69% (337 MWh) of energy capacity additions, were installed in states outside of those areas.
In 2018, many regions outside of CAISO and PJM began adding greater amounts of battery storage capacity to their power grids, including Alaska and Hawaii, the Electric Reliability Council of Texas (ERCOT), and the Midcontinent Independent System Operator (MISO). Many of the additions were the result of procurement requirements, financial incentives, and long-term planning mechanisms that promote the use of energy storage in the respective states. Alaska and Hawaii, which have isolated power grids, are expanding battery storage capacity to increase grid reliability and reduce dependence on expensive fossil fuel imports.
Source: U.S. Energy Information Administration, Form EIA-860, Annual Electric Generator Report
Note: The cost range represents cost data elements from the 25th to 75th percentiles for each year of reported cost data.
Average costs per unit of energy capacity decreased 61% between 2015 and 2017, dropping from $2,153 per kilowatthour (kWh) to $834 per kWh. The large decrease in cost makes battery storage more economical, helping accelerate capacity growth. Affordable battery storage also plays an important role in the continued integration of storage with intermittent renewable electricity sources such as wind and solar.
Additional information on these topics is available in the U.S. Energy Information Administration’s (EIA) recently updated Battery Storage in the United States: An Update on Market Trends. This report explores trends in battery storage capacity additions and describes the current state of the market, including information on applications, cost, market and policy drivers, and future project developments.