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Scottish wind meet demand

by david on Sep.05, 2010, under renewables, scotland, wind

Renewable energy has something of a mixed reputation. On the one hand it is considered to be environmentally, while on the other hand it is consider as too minor a contribution to the power generation mix to make any significant dent in the thermal generation mix. So.. it was great to see the following piece of news on the reve website and on the EWEA blog:

During the last weekend in August, wind power met the demand for electricity for the first time in the north and northeast of Scotland. In Dundee, Perth, Aberdeen and Inverness wind power kept the lights on, the washing machines turning and the kettles boiling from 8.00 on Saturday 28 August to 9.00 on 29 August. Just over 700 MW of wind energy was produced in that time frame, while consumer demand for electricity was just under 700 MW, Scottish and Southern Energy (SSE) said.

As the article continues to highlight this is good progress towards the Scottish target of generating 50% of its power needs from renewable energy by 2020.

The Scottish government has set out a vision for Scotland’s economic future to be based on renewable energy, for job creation and economic development. While this isn’t a unique vision (the USA under President Obama has a similar stated approach) it is possible that the small and contained size of the Scottish nation could make it more likely to be delivered.

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US may see new coal ash regulations

by david on Sep.05, 2010, under canada, coal, regulation, usa

The USA is becoming increasingly conscious about the impact of energy consumption of the environment, driven by recent event such as the Deepwater Horizon oil leak, the Michigan pipeline leak, and the USA-Canada political debates about the pollution impact of oil sands developments.

The EPA is now proposing to regulate the disposal of the ash residue that is produced when coal is burned (see the Bloomberg Businessweek article, for example). According to the Bloomberg article the total volume of ash produced is rising:

Nationwide, annual coal ash generation has grown from 118 million tons in 2001 to 136 million tons in 2008, according to the EPA.

Now, there are many different concerns about the manage of ash and its impact, some of which could be implemented at a federal level while other strategies would see a continuation of the existing state-by-state patchwork.

However, what really struck me is that we’re seeing a gradual change in many of the different policy and regulations levers – away from carbon and towards water. Much of the debate around ash regulation concerns its impact on the water supply – as one of the farmers quoted in the Bloomberg article was quoted as saying:

“What’s at stake is one of the biggest valuable things we have, which is water,” he said.

The calls for regulation around oil sands are also becoming increasingly focused on water. Now the real question for the US regulators is whether they want to “play the long game” and begin work on a comprehensive and integrated set of water resource regulations that are deeply interlinked with the energy regulation frameworks. Such a set of regulation would be extremely difficult to create, to enact into legislation, and ultimately to implement – but could be very pwoerful.

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China and Russia in pipeline accord

by david on Aug.30, 2010, under china, europe, oil, pipeline, russia, usa

Russia and China have announced another step in their increased cooperation, through the construction of an oil pipeline from Daqing in East Siberia to the North East of China. The article in Associated Press gave further details of the deal:

Eventually, the pipeline is to provide 30 million tons of oil a year to China, with exports to the Asia-Pacific region expanding to a total of 50 million tons a year, Putin was quoted as saying. During a visit by Putin to Beijing late last year, Russia signed dozens of commercial pacts worth $3.5 billion and set the framework for a separate, multibillion-dollar agreement to build two natural gas pipelines to China from gas fields in Russia’s Far East that would provide supplies almost matching China’s current consumption.

Although the deal could be thought to be important for only Russia and China this would be a mistake. It also has potential significance for Europe and the USA. Europe has long been the largest importer of gas from Russia. Increasing demand from China for Russian gas could result in constraints that reduce the availability for Europe, and potentially pushes prices higher. Equally, the USA has been overtaken by China as the largest consumer of energy. Should China continue to grow its energy demand and to diversify its supply risk international then the USA may find itself less able to find gas supply across the globe.

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Shell and the oil sands clean up

by david on Aug.28, 2010, under canada, oil sands, shell, water

Tailing ponds are a very visible signature of the oil sands industry, covering a large area in Alberta – the recent article in the Wall Street Journal estimates more than 50 square miles of tailing ponds in Alberta. These ponds contain a mixture of sand, silt, oil and water produced from the steam and water-based extraction techniques used to produce oil. Many environmentalists are concerned that also contain harmful pollutants that find their way into the water supply.

In an effort to reduce the impact of these tailing ponds Shell has been experimenting with a new technique, known as Atmospheric Fines Drying, and is offering to make this method available to all-comers – without IP restriction or licensing. As the WSJ quoted:

Shell’s new technology, called Atmospheric Fines Drying, uses thickening agents and flocculants to speed the solidification of the tailings, which are then rolled down a sandy slope to extract water. The water is then reused in the oil sands operation.

The demonstration project at Shell’s Muskeg River Mine will dry out about 250,000 metric tons of tailings this year. That is only a small fraction of the waste created by the Muskeg River Mine, given that it can produce about 150,000 barrels of oil a day, and about two metric tons of sand are mined to create one barrel of oil. Shell’s Muskeg River tailings pond covers nearly nine square miles.

But Shell says it will use results from the project this fall to see if it can be adopted on a wider scale at Muskeg and its nearby Albian Jackpine oil sands mine.

Shell will also allow competitors to use Atmospheric Fines Drying and other tailings reduction technologies it has developed free of charge.

While this looks like progress, it is by no means clear if it will be enough to satisfy the increasingly robust regulations on tailings management that Alberta regulators enforce. Equally, even if this technology does meet the regulatory standards, it will not meet the core concerns of many of the environmentalist who will continue to campaign for the total curtailment of oil sands production.

The reality is that while demand for energy continues to rise then the market needs the additional resources that the oil sands offer, and technologies like Atmospheric Fines Drying will help to curtail the environmental impact.

If you want to see the science behind this then the YouTube video clip gives a kitchen-table science version

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Enbridge diversifying pipeline risks

by david on Aug.28, 2010, under canada, enbridge, oil sands, pipeline, suncor, usa

The pipeline activities of Enbridge have already been in the news this year, with the July leak in the Michigan area (see my earlier posting) resulting in about 20,000 barrels of crude being spilled. However, the disruption has gone beyond the initial spill, with US authorities yet to give clearance for the pipeline to resume operations.

So.. it is a solid bit of risk planning on the part of Enbridge to build further pipeline capacity. It will to ensure continuity of operation but more importantly gives them the ability to deliver the increased volumes that will be produced from their increased investment in the oil sands.

As the coverage on UPI explained:

The $370 million Wood Buffalo pipeline will run parallel to the Athabasca pipeline that Suncor uses currently to transfer crude oil from oil sands. Suncor’s existing commitments to the Athabasca pipeline remain in place, Enbridge said in a statement. The Wood Buffalo pipeline will go into service by 2013 pending regulatory approval, the company added.

The partnership between Enbridge and Suncor is a long one, with the article in American Machinist reminding us that:

“Suncor was the anchor shipper that enabled our original entry into oil sands regional pipeline and terminaling infrastructure with the Athabasca Pipeline and terminal in 1999,” stated Enbridge Inc. EVP-Liquids Stephen J. Wuori.

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IKEA getting hot

by david on Aug.23, 2010, under geothermal, usa

Although geothermal is a minority power source, in terms of the total generation mix, it has the potential to find greater application in the heating arena. So, I was pleased to see the report of IKEA investing in geothermal heating in Denver, alongside the Department of Energy’s National Renewable Energy Laboratory. As the article at sustainablebusiness.com related:

It will be the first IKEA store in the United States to be built with geothermal heating and cooling, said Douglas Wolfe, IKEA project construction manager for the store expected to open south of Denver in the fall of 2011. The holes, each 500 feet deep, will be directly below the parking garage that will be just below the store. Geothermal heat pumps use 25% to 50% less electricity than conventional heating or cooling systems, a potential saving of several billion dollars a year if projections for geothermal growth prove true. The Environmental Protection Agency says geothermal heat pumps can reduce energy consumption—and corresponding emissions—up to 72% compared to traditional electric resistance heating and standard air-conditioning equipment. Geothermal cooling and heating also improves humidity control by maintaining about 50% relative indoor humidity, making GHPs very effective in humid areas.

However, the most interesting part of the project is that it will be measured, and measured in a lot of detail – from engineering to economic aspects of the project. The reason behind the measurement regime is that there is a desire for retailers to make wider use of geothermal heating and there needs to be both detailed planning models and cost-benefit calculations, in order to justify future projects.

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Sinopec posts another demonstration of the impact of the growing demand for energy in China

by david on Aug.22, 2010, under china, gas, india, oil, sinopec, south korea

The press release on AFP today gave the basic facts about the latest half-year performance of Sinopec. The numbers are impressive:

China’s Sinopec, the largest oil refiner in Asia, said Sunday its first-half net profit rose nearly seven percent from a year earlier to 35.4 billion yuan (5.2 billion dollars). Net profit in the first six months of the year increased by 6.7 percent from the year-earlier period, Sinopec said in a statement to the Hong Kong stock exchange.

Sinopec is not alone amount Chinese companies in seeking international expansion opportunities. Indeed China is not the only country where increased demand for energy, fueled by economic growth, is stimulating interest in the acquisition of international energy resources. South Korea and India are two other nations in search of international energy resources.

This is not going to be a short term game, nor will it be one that will be fought cheaply. Prices for international energy resources are sure to increase in the short and medium term, with excessive premiums potentially having to be paid to secure resources in the face of determined competition.

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Korea and oil sands

by david on Aug.22, 2010, under Korean National Oil Corporation, canada, investment, oil sands, south korea

South Korea and oil sands do not traditionally go together. In fact until today I’d never heard of a single Korean company being engaged in an oil sands project. However, the article by Richard Gilbert in the Journal of Commerce changed that today. It related:

GS Engineering & Construction will build facilities for the project.“It is the first Korean entity with a project in the oilsands,” said John Zahary, president and CEO Harvest Energy Trust, which works closely and gets financial support from Korea.

The Korea National Oil Corporation (KNOC) awarded a US$299.5 million contract to the South Korean-based firm this month, for the first stage of a new refining facility at the BlackGold Oil Sands Block. Harvest Energy Trust became a wholly-owned subsidiary of KNOC in December 2009.

As a nation South Korea, driven by its continued economic and industrial growth, continues to have a prodigious appetite for energy and its major players continue to find new sources of commercial opportunity for new energy projects

Only this week KNOC continued its battle to gain control of Dana Petroleum. KNOC originally acquired the BlackGold Oil Sands Block in 2006 and, if it gains approval for the second phase of investment the facility could produce 30,000 barrels a day.

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CNOOC, profit growth and the continued international trail

by david on Aug.20, 2010, under china, gas, investment, oil, oil exploration

A press release on the Wall Street Journal MarketWatch site that I picked up today showed the H1 results, based on their continued success in increasing oil and gas production. These increases, coupled with strong oil prices, helped to deliver nearly double the profits of last year – according to the Bloomberg commentary on the results. Production forecasts continue to look strong, drive by new projects coming onstream but also by the potential for further international acquisition activity that departing CEO, Fu Chengyu, related in the WSJ article:

“The market has paid great attention to the company’s merger-and-acquisition activities overseas. In fact, such activities have been progressing smoothly all along,” Fu said in a statement. “The future merger-and-acquisition opportunities will be an important driving force for the company’s medium and long term growth.”

While the revenue increases were interesting it was the efforts at costs control that were most interesting for me, as the Bloomberg article related: “Cnooc’s operating costs fell about 15 percent from a year earlier to $6.80 a barrel in the first six months”.

If CNOOC are able to continue to control costs as effectively as this, while growing production, then it will be able to generate continued free cash flow – and that will, in turn, facilitate more aggressive overseas acquisition activities. This then allows further profits to be driven by cost control in the acquired entities, fuelling further acquisition potential – a continuous growth cycle that is only possible if costs are controlled enough to keep profits growing steadily.

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Korean Oil getting hostile

by david on Aug.15, 2010, under Dana Petroleum, Korean National Oil Corporation, UK, investment, oil, oil exploration, south korea

A piece in the New York Times really caught my eye this morning, it began:

Korea National Oil Corporation has indicated it is willing to start a hostile takeover bid for Dana Petroleum after the British company formally said that K.N.O.C.’s £1.7 billion offer did not reflect the value of its oil exploration program.

Again, we see an Asian economy that has a strong appetite for energy trying to secure control of future energy resources from other parts of the world. If, as seems probable, the KNOC interest in Dana Petroleum leads to a hostile takeover this will be a unique occurrence – with a state oil company making a hostile acquisition of a UK listed company.

However, anyone with a familiarity with KNOC should to be totally surprised. Their GREAT KNOC 3020 strategy, which sets out their goals for 2012, aims to make the company that demonstrates: globalisation, respect, ethics, action and trust. A strong move to acquire Dana Petroleum supports both the globalisation and action elements of the strategy. It also follows on from previous international expansion into: Canada, Congo, Gulf of Mexico, Peru and Kazakhstan in the past 4 years.

The international moves made by Dana Petroleum have made it an interesting morsel for KNOC, such as their interests in West Africa or in Egypt. In addition Dana Petroleum has decent operations in the North Sea, only added to recently through the acquisition of Petro-Canada Netherlands B.V.

Clearly Dana Petroleum feel they can generate significant shareholder return in their current corporate setup i.e. without being acquired. If the bid is to succeed KNOC will either have improve the offer or convince the shareholders directly (without the help of Dana Petroleum management) that the existing offer is good enough. Personally, I think it’s more likely that the offer will need to be sweetened, rather than the shareholders sweet-talked. An offer price of £1.85 billion, compared to the existing reported offer of £1.7 billion, would be my guess on the capture price – even though this would represent a very substantial premium (around 19%) on the closing share price last week.