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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
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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
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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
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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
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Eastern Australia Gas Grid 2007
Source: R W Timmons of PriceWaterhouseCoopers
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Testing Ones Worldview
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Transporting GasThird World Country Alaska Pipeline
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World Gas Demand is Seasonal
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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
8
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Gas StorageTown Gas Storage Bladders Modern Underground Gas Storage
Commenced in 1961
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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
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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
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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
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North America as of 2007
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Depleted Reservoir Storage commenced in 1929$60+ Billion of Assets @ Market Value
AECO
BeddedSalt
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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
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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– 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
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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
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Europe Salt Cavern Storage
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Canadian Salt Cavern Storage
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US Salt Caverns
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US Gulf Coast Salt Caverns
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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
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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
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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
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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
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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
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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.
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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
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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.
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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
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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.
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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
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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]
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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)