Category Archives: Energy

2TW of Coal Fired Power to Derail Climate Targets

Coal fired Power Plant, Credit: African Briefing

Financial Times, 31 October 2018

Leslie Hook, David Sheppard and Myles McCormick

A fleet of new coal plants in Asia threatening to derail global emissions targets has exposed the growing “disconnect” between energy markets and climate goals.

Fatih Birol, head of the International Energy Agency, said the growth of coal-fired power in Asia was worrying because the new plants would “lock in the emissions trajectory of the world, full stop”.

Asia has 2,000GW of coal-fired power plants that are operating or under construction — more than 10 times as much as the EU — and many of them are inefficient plants.

While the coal fleets in the US and Europe are older, 42 years on average, and nearing the end of their life, Asia’s coal plants are just 11-years-old on average and most still have decades left to operate.

Energy-related carbon dioxide emissions ticked up 1.4 per cent last year, following several years of staying flat, and are set to rise again in 2018 owing to greater demand for fossil fuels. Asia accounted for two-thirds of the growth in emissions last year.

Last year China’s coal-fired power generation grew 4 per cent, while India’s rose 13 per cent, according to IEA data. The rate of investment in the construction of new coal-fired power plants, however, also slowed down last year, according to the agency………

Read full Text

 

 

Madagascar announces 2018-19 offshore licensing round

OMNIS, in partnership with TGS and BGP, announce a licensing round in Madagascar, to be launched at Africa Oil Week, 5-9th November 2018.

Exploration in Madagascar began in the early 20th century with the discovery of heavy oil-rich sedimentary basins in the west, however this frontier region remains relatively under-explored. The Island shares a maritime boundary with Mozambique, which is in the same oil province where large quantities of natural gas have been discovered. Studies conducted in collaboration with TGS and BGP have resulted in new data that suggest there is significant potential for future discoveries both on and offshore.

“With the aim of intensifying offshore exploration activities, we are delighted to announce that OMNIS will be inviting investment from interested parties, during a licensing round to start in November 2018. We are working together with TGS and BGP to create an attractive environment for exploration in the offshore, and we are confident that this will signal the start of renewed investment for the upstream oil sector in Madagascar,” Voahangy Nirina Radarson, General Manager of OMNIS, commented.

We are looking for an industry partner who can leverage our local knowledge and presence in Madagascar to secure some of the most prospective offshore acreage in East Africa.  Email:  admin.mdg@cmi-capital.com 

renewables struggle without subsidies

Without subsidies and the ongoing presence of backup power based on fossil-fuel generation, the outlook for more renewable energy in Australia is extremely uncertain. Indeed, without the intervention of governments, the salad days for renewable energy will quickly fade.

The Australian 1st September, 2018

Judith Sloan

One of the most astute investors in the world is Warren Buffett. Since 2004 his company, Berkshire Hathaway, has invested more than $US17 billion in renewable energy, predominantly wind farms. In case you think Buffett is some bleeding-heart global warming believer, here is his explana­tion for the investment: “I will do any­thing that is basically covered by the law to reduce Berkshire’s tax rate … We get a tax credit if we build a lot of wind farms. That’s the only reason to build them. They don’t make sense without the tax credit.”

Under the US production tax credit scheme, American taxpayers forked out more than $US14bn to renewable energy operators between 2014 and last year. The scheme provides for a tax credit of $US23 per megawatt hour and each project can claim this credit for 10 years. Unfortunately for the renewable energy sector, the scheme is being phased out.

Moreover, with the dramatic cut to the federal company tax rate (from 35 per cent to 21 per cent) implemented by the Trump administration, the value of tax credits for existing renewable energy schemes suddenly has dropped.

Just recently the plan to construct the largest wind farm in the US, to be located in Oklahoma, has been shelved. The business case for the project just didn’t stack up without the tax credits. Its loca­tion in a remote, albeit windy, part of the country meant that close to 900km of transmission lines would need to be built. The cost of and local opposition to the erection of the pylons were further factors killing the project.
It’s early days, but there are indications that investment in renewable energy worldwide may have peaked and is trending down.

To be sure, there is the left-wing Californian government proposing that the state’s electricity generation should be carbon-free by 2045, although electricity still will be sourced from interstate generators using fossil fuels.

By contrast, the recent election of a conservative government in Ontario — Canada’s most populous province — and the wipe-out of the previous progressive Liberal government has meant a rapid reversal of fortune for renewable energy there. The Liberals had held power since 2003, implementing a radical green agenda. Coal-fired electricity plants were closed, albeit with significant delays, and incentives were put in place for investment in renewable energy projects, particularly wind farms.

Ontario joined a limited cap-and-trade scheme with California and several US eastern states, thereby imposing a form of carbon tax in Ontario. Interestingly, the emissions reduction targets set by the Liberal government still were not achieved, notwithstanding these interventions. The election of Progressive Conservative Premier Doug Ford has taken a big stick to most of these policies. The latest cap-and-trade auction has been cancelled and approvals for new wind farms have been withdrawn. The $C14,000 ($14,863) subsidy to the purchasers of electric vehicles has been cancelled.

At a federal level in Canada, the Trudeau government has run into difficulties with its plan to impose an escalating carbon tax. The original idea was that the tax would be levied in all provinces deemed to be acting inadequately to reduce emissions. Some provincial governments are threatening to sue the federal government. And the Trudeau government has needed to tweak its carbon tax plans to deal with the commercial threats to energy-intensive, trade-exposed firms operating in Canada. This situation has been made more difficult by the recently imposed tariffs on some Canadian exports by the US administration.

In Germany, the solar industry basically has collapsed in line with sharply reduced subsidies from the government. Subsidies to wind turbines have oper­ated since 2000 but are due to run out in 2020. Some older turbines will need to be decommissioned, raising several thorny issues, including the lack of provisioning for the costs by the operators. The blades are incapable of being recycled and the turbines are anchored to the ground using hundreds of tonnes of concrete, making the decommissioning process problem­atic. One estimate puts a potential loss of existing turbines in Germany at 5 per cent of the stock by 2022.

German Chancellor Angela Merkel is under pressure to extend the life of coal-fired power stations. And recently she rejected the proposal of several EU countries to lift the shared emissions reduction target by 2030 from 40 per cent to 45 per cent. This is notwithstanding her earlier support for the higher target.

China often is cited as an example of a country that has invested heavily in renewable energy. What is less often cited is China’s substantial investments in new coal-fired and nuclear power stations. Providing affordable and reliable electricity across the country while shutting down old coal-fired power stations with damaging particulate emissions has been the top priority in China for some time.

A major event occurred in June with the decision of the Chinese government to slash the subsidies paid to solar power operators. In the future, there will be no subsidies and the incentives for existing projects are being cut to 10c per kilowatt hour. As a result of this change, the price of solar stocks has fallen significantly. (We should note here the dominance of China in the production of solar panels. Of the 10 largest firms, seven are China-based and another is based in Hong Kong. There is a large supplier in Canada but the firm has Chinese links.)

So what does this mean for Australia? The renewable energy sector is keen to spruik its economic case. It notes that about 7200MW of capacity has been added in the past few years, although this is nameplate capacity rather than actual 24/7 generation capacity. It also notes that the cost of renewable energy is falling, more so for solar than wind.

The combination of the dying days of the renewable energy target and active subsidisation of renewable energy projects by state and territory governments, mainly through the reverse auction process, has driven this latest burst of investment in wind and solar farms. However, no new projects are proceeding in which operators are taking the merchant risk. (A possible exception could be Chinese-backed projects.) Without power purchasing agreements from users, no new projects are likely to proceed.

49 Years Ago – Today

Neil Armstrong on the Moon, July 1969: NASA/JPLOn this day 49 years ago , Apollo 11 landed the first two people on the Moon, mission commander Neil Armstrong and pilot Buzz Aldrin.  Our first step into the cosmos?  There are 14,000 stars within 100 light years of Earth, where will we be in 10,000 years?

To put this event into perspective some of the historic documents merit review and provide some understanding of the challenges and the technology of the time.

Reports from the Research Steering Committee on Manned Spaceflight, Space Sciences board etc for the period 1959 through 1971.  From the NASA Historical archives

The Apollo 11 Press Kit, released Sunday July 6, 1969

“The United States will launch a three-man spacecraft toward the Moon on July 16 with the goal of landing two astronaut-explorers on the lunar surface 4 days later.

If the mission –called Apollo 11–is successful, man will accomplish his long-term dream of walking on another celestial body.”

Apollo 11 Mission Report, Manned spaceflight Center, Houston Texas, November 1969

“The purpose of the Apollo 11 mission was to land men on the lunar surface and to return them safely to earth. The crew were Neil A. Arm¬strong, Commander; Michael Collins, Command Module Pilot; and Edwin E. Aldrin, Jr., Lunar Module Pilot.

The space vehicle was launched from Kennedy Space Center, Florida, at 8:32:00 a.m., e.s.t., July 16, 1969. The activities during earth orbit checkout, translunar injection, transposition and docking, spacecraft ejection, and translunar coast were similar to those of Apollo 10. Only one midcourse correction, performed at about 27 hours elapsed time, was required during trans lunar coast.

Neil Armstrong walks on the Moon. July 20, 1969. Image AS11-40-5873 courtesy NASA/JSC

The spacecraft was inserted into lunar orbit at about 76 hours, and the circularization maneuver was performed two revolutions later. Initial checkout of lunar module systems was satisfactory, and after a planned rest period, the Commander and Lunar Module Pilot entered the lunar module to prepare for descent.

The two spacecraft were undocked at about 100 hours, followed by separation of the command and service modules from the lunar module. Descent orbit insertion was performed at approximately 101-l/2 hours, and powered descent to the lunar surface began about 1 hour later. Operation of the guidance and descent propulsion systems was nominal. The lunar module was maneuvered manually approximately 1100 feet downrange from the nominal landing point during the final 2-1/2 minutes of descent. The spacecraft landed in the Sea of Tranquillity at 102:45:40. The landing coordinates were 0 degrees 41 minutes 15 seconds north latitude and 23 degrees 26 minutes east longitude referenced to lunar map ORB-II-6(100), first edition, December 1967. During the first 2 hours on the surface, the two crewmen performed a postlanding checkout of all lunar module systems. Afterwards, they ate their first meal on the moon and elected to perform the surface operations earlier than planned.

Crater 308: This photo was taken by the Apollo 11 astronauts as they circled the far side of the Moon, which is rough with craters and marks. Image AS11-44-6611 courtesy NASA/JSC.

Considerable time was deliberately devoted to checkout and donning of the back-mounted portable life support and oxygen purge systems. The Commander egressed through the forward hatch and deployed an equipment module in the descent stage. A camera in this module provided live television coverage of the Commander descending the ladder to the surface, with first contact made at 109:24:15 (9:56:15 p.m. e.s.t., July 20, 1969). The Lunar Module Pilot egressed soon thereafter, and both crewmen used the initial period on the surface to become acclimated to the reduced gravity and unfamiliar surface conditions. A contingency sample was taken from the surface, and the television camera was deployed so that most of the lunar module was included in its view field. The crew activated the scientific experiments, which included a solar wind detector, a passive seismometer, and a laser retro-reflector. The Lunar Module Pilot evaluated his ability to operate and move about, and was able to translate rapidly and with confidence. Forty-seven pounds of lunar surface material were collected to be returned for analysis. The surface exploration was concluded in the allotted time of 2-l/2 hours, and the crew reentered the lunar module at lll-l/2 hours.

Ascent preparation was conducted efficiently, and the ascent stage lifted off the surface at 124-l/4 hours. A nominal firing of the ascent engine placed the vehicle into a 45- by 9-mile orbit. After a rendezvous sequence similar to that of Apollo 10, the two spacecraft were docked at 128 hours. Following transfer of the crew, the ascent stage was jettisoned, and the command and service modules were prepared for trans earth injection.

The return flight started with a 150-second firing of the service propulsion engine during the 31st lunar revolution at 135-l/2 hours. As in trans lunar flight, only one midcourse correction was required, and passive thermal control was exercised for most of trans earth coast. Inclement weather necessitated moving the landing point 215 miles downrange. The entry phase was normal, and the command module landed in the Pacific Ocean at 19 5-l/4 hours. The landing coordinates, as determined from the onboard computer, were 13 degrees 19 minutes north latitude and 169 de-grees 09 minutes west longitude.

After landing, the crew donned biological isolation garments. They were then retrieved by helicopter and taken to the primary recovery ship, USS Hornet. The crew and lunar material samples were placed in the Mobile Quarantine Facility for transport to the Lunar Receiving Laboratory in Houston. The command module was taken aboard the Hornet about 3 hours after landing.

With the completion of Apollo 11, the national objective of landing men on the moon and returning them safely to earth before the end of the decade had been accomplished.”

sonoro makes oil discovery in Indonesia and looses licence

Sonoro Energy acquired promising oil and gas acreage from Stockbridge Group in 2016 and set about drilling what proved to be a discovery.  The company commenced drilling the LG-1 Updip appraisal well in October 2017, with site operations lasting 50 days, in part due to difficult drilling conditions and numerous gas shows and kicks.

Sonoro attempted to test the well in an open hole using a formation testing tool.  High porosity and weakly consolidated Miocene sands saw considerable sand and fluid ingress into the well and testing was not successful.  It was determined that further testing in an uncased well was potentially dangerous and then cased and cemented and suspended the well.  This operation was approved by the regulator, SKKMIGAS.

The permit however was at the end of this term and a renewal was required to perforate and test the well with a work-over rig.

However, the Ministry of Energy in Indonesia declined to extend the Budong Budong production-sharing contract.   It would appear that Sonoro has undertaken the approved program and made a discovery.  The decision to not extend the PSC does not help the international image of the country and the Minister should reconsider.

Press Release

 

First Thermogenic Oil Seeps Discovered Onshore Jamaica

The recent discovery of two thermogenic oil seeps 70 km apart onshore Jamaica, suggests that a previously unrecognised hydrocarbon system may well be present.

Windsor Gas Seep

A natural gas seep at St Ann, Windsor, in northern  Jamaica is a well-known tourist attraction and money earner for locals, offering amongst other things, its healing properties (hey, whatever does it for you man!). These recent discoveries are the first reported oil seeps.

Chris Machette-Downes visited the seep and  reported:

The seep is of dry gas and is guarded enthusiastically by a local Rastafarian. My attempts to sample the gas in 2006 were met with some resistance as using a gas syringes in the sacred spring was considered offensive until some Jamaican dollars were presented. The gas proved to be very dry, almost pure Methane, but with an isotopic signature that suggests that it is thermogenic in origin. The origin is unknown, but a Cretaceous or older source is indicated. The St Ann’s Great River Inlier is one of the 26 Cretaceous inliers that occur on the Island in an otherwise Tertiary setting.

Jamaica Oil and Gas Potential

The JEBCO Alliance in 2004 undertook a multiclient study and reported that  of the 11 wells drilled in Jamaica, all but one encountered oil and gas shows.  They identified three petroleum systems in the data with the most important being a middle Eocene pro-delat source.  In the offshore Walton #1 well the middle Eocene occupied a 700 metre interval.  JEBCO defined reservoir objectives within the middle Eocene, delta-associated sequence, reef sequences and detrital products.  Assuming a 50% fill of the mapped carbonate targets would imply potential for 2.8 BBO or 10.6 Tcf.

The Windsor #1 well was drilled in northern Jamaica near the St Ann gas seep and encountered oils similar to others in the Caribbean Region.

Remarkably, the three broad elements that comprise the essence of the Caribbean plate (the Lower Nicaraguan Rise, or Siuna Terrane; the Upper Nicaraguan Rise, or Chortis; and part of the Great Caribbean Arc or northern periphery of the Caribbean plate or platelets) can also be identified though petroleum geochemistry. Windsor #1 well in the north of the island was drilled in a terrain that has strong affinities with the geology of the Yucatan in Mexico. If one compares the oil fingerprint, using gas chromatography-mass spectrometry and stable isotope ratio distributions, there is a near identical match with the Belmopan oil found in Belize, 1,000 km to the west. The match is so close that it is as if the Belmopan field has been cut in two, with one portion perhaps residing on the North Coast of Jamaica in what is called the North Coast Block.  Chris Machette-Downes

Comparison of oils from Windsor #1, Jamaica, a Belmopan field oil from Belize and the Smackover Formation in Arkansas Image After Machette-Downes, C., Jebco Alliance 2004
Seep Sampling Program and Results

CGG GeoConsulting and the Petroleum Corporation of Jamaica (PCJ) have announced the discovery of two independent live oil seeps from different parts of the island of Jamaica. This significant find marks the first documented occurrence of ‘live’, or flowing, oil from onshore Jamaica and will be of particular interest to oil explorationists focused on Central America and the Caribbean.

Live oil seeps in Jamaica

The oil seeps were found during fieldwork for a recently completed multi-client Robertson Study (Red Book) of the petroleum potential of on- and offshore Jamaica entitled ‘Petroleum Geological Evaluation of Jamaica’ made jointly by CGG GeoConsulting and PCJ. Subsequent detailed geochemical analyses confirmed the oil seeps originate from two separate Cretaceous source rocks. These results are included within the study, which gives a detailed account of the petroleum geology of this frontier region of the Caribbean. It comprises over 1,300 new geochemical, biostratigraphic and sedimentological analyses of over 800 individual outcrop, well, corehole and seep samples collected from Jamaica.

Jamaica and its offshore basins remain relatively underexplored. Oil or gas shows have been seen in ten of the eleven exploration wells drilled to date. The discovery of these seeps indicates the presence of working petroleum systems on the island that are generating and expelling liquid hydrocarbons to the surface. The Robertson Study offers a valuable tool for oil explorationists to quickly become familiar with the geology of Jamaica and is available for purchase from CGG.

CGG sampling live oil seep, Jamaica

Sophie Zurquiyah, Senior Executive Vice President, Geology, Geophysics & Reservoir, CGG, said: “This exciting discovery of live oil onshore Jamaica, based on our joint study with PCJ, builds a strong case for the island as an attractive region for future oil exploration within the Caribbean. The insights and promising outcome of the study demonstrate the value that CGG’s broad geoscience expertise combined with the integration of field geology, laboratory analyses and seismic interpretation can bring for high-grading frontier regions for future oil exploration.”

Original Article

Dakota Access Partners Sue Greenpeace for US$300 Million in Damages for Raketeering

Wall Street Journal Full Story

The company behind the Dakota Access Pipeline launched an unusual legal attack Tuesday against Greenpeace International and other environmental groups, alleging that the organizations effectively ran a criminal enterprise through their protests of the project.

The suit by  Energy Transfer Partners LP, filed in federal court in North Dakota under the Racketeer Influenced and Corrupt Organizations Act—a law created to prosecute the mafia—represents an aggressive new front in the continuing battle over the nearly 1,200-mile pipeline. It became operational in June but remains the subject of legal challenges.

The company alleged that Greenpeace ran a “relentless campaign of lies and outright mob thuggery.” Among other things, it alleged Greenpeace and other groups solicited donations under false claims about the pipeline, threatened the company’s investors and lenders, launched cyber attacks against the company, and sought to sabotage the pipeline with serious “terrorist threats.”

Protesters demonstrate against the Energy Transfer Partners’ Dakota Access oil pipeline near the Standing Rock Sioux reservation in Cannon Ball, North Dakota, U.S. September 9, 2016. REUTERS/Andrew Cullen – RTX2OVHS

The Trump administration gave a green light to the pipeline in February following months of intense opposition from Native American tribes and environmental groups.   President Donald Trump made his support of the pipeline and other energy infrastructure projects a prominent part of his campaign. The line can carry as many as 570,000 barrels of oil a day from North Dakota to Illinois.
 
Energy Transfer’s lawsuit seeks at least $300 million in damages, which can be tripled under the RICO statute. The company alleged it lost revenue and investors as the project was delayed and incurred unnecessary expenses on construction.

The Details of the Suit

Energy Transfer Equity, L.P.  and Energy Transfer Partners, L.P. have filed a federal lawsuit in the United States District Court for the District of North Dakota against Greenpeace International, Greenpeace Inc., Greenpeace Fund, Inc., BankTrack, Earth First!, and other organizations and individuals.  The Complaint, which is Index number 1:17-cv-00173, alleges that this group of co-conspirators (the “Enterprise”) manufactured and disseminated materially false and misleading information about Energy Transfer and the Dakota Access Pipeline (“DAPL”) for the purpose of fraudulently inducing donations, interfering with pipeline construction activities and damaging Energy Transfer’s critical business and financial relationships. The Complaint also alleges that the Enterprise incited, funded, and facilitated crimes and acts of terrorism to further these objectives.  It further alleges claims that these actions violated federal and state racketeering statutes, defamation, and constituted defamation and tortious interference under North Dakota law.

The alleged Enterprise is comprised of rogue environmental groups and militant individuals who employ a pattern of criminal activity and a campaign of misinformation for purposes of increasing donations and advancing their political or business agendas.  The Complaint describes the Enterprise’s misinformation campaign that aggressively targeted Energy Transfer’s critical business relationships, including the financing sources for DAPL and Energy Transfer’s other infrastructure projects, by publicly demanding these financial institutions sever ties with Energy Transfer or face crippling boycotts and other illegal attacks.

The Complaint asserts that the attacks were calculated and thoroughly irresponsible, causing enormous harm to people and property along the pipeline’s route. Dakota Access was a legally permitted project that underwent nearly three years of rigorous environmental review and for this reason, Energy Transfer believes it has an obligation to its shareholders, partners, stakeholders and all those negatively impacted by the violence and destruction intentionally incited by the defendants to file this lawsuit.

The DAPL misinformation campaign was predicated on a series of false, alarmist, and sensational claims that plaintiffs:

  1. encroached on tribal treaty lands;
  2. desecrated sacred sites of the Standing Rock Sioux Tribe’s (“SRST”) in constructing DAPL;
  3. constructed DAPL without consulting with and over the rights and objections of SRST; and
  4. used excessive and illegal force against peaceful protestors.

The Enterprise also claimed that the pipeline will inevitably result in catastrophic oil spills, poisoned water, and massive climate change, while ironically, members of the Enterprise deliberately and maliciously attempted to cut holes in the pipeline with torches which, if successful, would have resulted in significant environmental damage and possible loss of life.

The Enterprise supported these false claims with manufactured evidence, including phony GPS coordinates purporting to show the existence of cultural and religious artifacts along DAPL’s corridor, and sham affidavits submitted in court.

In addition to its misinformation campaign, the Enterprise directly and indirectly funded eco-terrorists on the ground in North Dakota.  These groups formed their own outlaw camp among peaceful protestors gathered near Lake Oahe, and exploited the peaceful activities of these groups to further the Enterprise’s corrupt agenda by inducing and directing violent and destructive attacks against law enforcement as well as Plaintiffs’ property and personnel. The Enterprise then flagrantly manipulated these “made-for-TV” events to raise more funds for the Enterprise.  These terrorist groups also funded their activities and the Enterprise by using donations to fund a lucrative drug trafficking scheme inside the camps.

Other illegal activities directed at Energy Transfer and its executives that are alleged in the Complaint include persistent attempted cyber-attacks and telephonic and electronic threats to the physical safety of executives.

The Enterprise has conceded that their campaign has inflicted “hundreds of millions of dollars of damage to the Company,” including increased costs of financing resulting from the Enterprise’s interference with the Company’s financial relationships and mitigation costs in response to the Enterprise’s illegal and malicious campaign.  These damages, as well as the harm to the Company’s reputation, resulting from the Enterprise’s misinformation campaign, continue to this day.  Energy Transfer is seeking compensatory damages in an amount to be proven at trial as well as treble and punitive damages.

Detail Here

Greenpeace Response:  We are being Bullied

Greenpeace USA General Counsel Tom Wetterer said in a statement that the suit was “not designed to seek justice, but to silence free speech through expensive, time-consuming litigation. This has now become a pattern of harassment by corporate bullies.”
 

 

Crude Oil heading into Backwardation – First since 2014

One-year difference in Crude oil futures price – CQG

As we suggested earlier the oil markets are moving in an interesting direction.  It seems we are about to see the crude oil market move into backwardation for the first time since 2014.    This will be a very important move for traders as during contango traders are forced to sell low and buy high to cover their positions.

Since 2014 future delivered oil sold for more than the spot price. This is a reflection of the supply-demand, there being abundant supply for the spot market.  This simply encourages traders to place oil in storage.  However commercial crude oil in storage in the USA has been dropping according to the EIA.  This has likely been driven by the closing gap between one-year futures pricing and spot and the impact of OPEC supply restriction.  Storing oil after transport and storage costs is no-longer profitable.

The cap on a move into backwardation is the new dynamic of US tight oil which has become very sensitive to any price increase. Expect to move into backwardation in the coming 6 months if commercial storage volumes continue to fall and OPEC maintains its production resolve.

Backwardation: Near-term prices above longer term prices
Contango: Near-term prices are below longer-term prices

 

US$25 Billion AP1000 Nuclear Plants Abandoned

The vast Summer Nuclear Power station project – now abandoned due to cost overruns.

The state of the US and indeed western nuclear industries is exemplified by the decision on Monday to abandon the 35% completed Summer Nuclear Power Station project in south Carolina.  These were the only nuclear plants being constructed in the United States and upon completion would have been the first new plants since the 1980s.

South Carolina Electric & Gas Company (SCE&G), principal subsidiary of SCANA Corporation (SCANA) (NYSE:SCG), announced it plans to cease construction of the two new nuclear units at the V.C. Summer Nuclear Station in Jenkinsville in the USA.

The decision was reached due to the revised anticipated costs of construction being more than US$25 billion up from US$11 billion, uncertainty regards production tax credits (the plants would need to be in production by 2021 which seems most unlikely to qualify) and the realistic level of payments from Toshiba.  In addition the co-owner of the project, the South Carolina Public Service Authority elected to suspend construction as they had determined that it would not be in the best interest of its customers and other stakeholders to continue construction of the project.

Based on an independent evaluation the parties concluded that completion of both Units would be prohibitively expensive.

SCE&G also considered the feasibility of completing the construction of Unit 2 and abandoning Unit 3 under the existing ownership structure and using natural gas generation to fulfill any remaining generation needs. This option provided a potentially achievable path forward that may have delivered SCE&G a similar megawatt capacity as its 55% interest in the two Units and provided a long-term hedge against carbon legislation/regulation and against gas price volatility. SCE&G had not reached a final decision regarding this alternative when Santee Cooper determined that it would be unwilling to proceed with continued construction of two Units or one Unit. Consequently, SCE&G determined that it is not in the best interest of customers and other stakeholders for it to continue construction of one Unit.

Based on this evaluation and analysis, and Santee Cooper’s decision, SCE&G has concluded that the only remaining prudent course of action will be to abandon the construction of both Unit 2 and Unit 3 under the terms of the Base Load Review Act.

The cost blowout was due to the construction of a first-of-kind AP1000 reactor.  The AP1000 is  Westinghouse’s  new generation reactor designed for lower cost of construction and higher safety.

AP1000 nuclear plant components

The AP1000 plant was completely resigned from earlier generation plants with:

 

  • Fewer safety-related valves
  • Less safety-related piping
  • Less control cable
  • Fewer pumps
  • Less seismic building volume

Nevertheless, in the USA it seems that nuclear plants are unlikely to be economic now or in the immediate future.

 

Oil Price Above US$50/BBL

US oil prices (WTI) settled above US$50 per barrel on Monday, the first time for several months.  WTI futures rose 95% with many technical indicators showing a strong buy.  Likely automated trading followed the momentum.   Brent rose to US$50.20 a barrel in the ICE.

What drove this?  Likely a combination of rapidly declining US storage and the Saudi announcement that it will limit exports. The other drivers in the markets which is likely to limit the upside is US fracking which becomes increasingly profitable at these prices and recovery from the supply glut and the lack of OPEC restraint of the last few years.

We now have the perfect storm for speculative price moves, with declining inventories and a commitment to supply restriction plus continuing growth in demand.  While increasing US supply on any price uptick will see a cap on prices, the EIA announced that production in May was less than previously anticipated.