Iraq turns to France for help curbing its energy profligacy; Biden’s offshore wind push; Santos’ LNG gamble + ✨MORE✨

💥Energy Flux💥 Wednesday, 31st March 2021

Howdy! Here’s my take on what’s driving the energy transition news agenda today:

  • Baghdad hires Total to tap Iraq’s vast wasted gas and solar resources

  • Biden’s offshore wind push strikes balance between ambition and reality

  • Santos swallows LNG market risk to enable FID at giant Oz gas field

  • Under the radar – energy transition stories you might’ve missed

  • Energy perspectives – critical thinking on crucial energy issues

Baghdad hires Total to tap Iraq’s vast wasted gas and solar resources

Iraq is squandering colossal amounts of natural gas and solar energy resources, to the detriment of Iraqi prosperity and the global climate. Now it wants France’s help to turn the dire situation around, and in the process resolve a regional geopolitical headache.

Iraq’s oil ministry has signed a $7 billion mega-deal with French oil giant Total to develop four major energy projects, including associated gas processing facilities at the Artawi oil field in southern Iraq and a 1 GW solar PV project.

Iraq is in the crazy situation of venting and flaring huge volumes of associated gas at its southern oil wells, while importing gas and electricity from neighbouring Iran to avoid power outages in and around Basra. This annoys the US, which begrudgingly issued Baghdad with repeat waivers from Iranian sanctions throughout the hawkish Trump administration years.

Each time Washington renews Iraq’s waiver, the State Department wags its finger and tells Baghdad to do more to curb reliance on Tehran by harnessing domestic energy resources. (Post-war planning since the 2003 US-led invasion should have addressed domestic energy supplies long ago, but I digress.)

Successive Iraqi governments have failed too, although they always make nice promises in a bid to assuage US foreign policy hawks. Iraq is now making some effort, but the short duration of the waivers — ranging from three to nine months — means officials are repeatedly requesting extensions.

Sun-drenched Iraq has practically zero solar PV installed capacity, despite its scorching and arid climate that make it ideal for big photovoltaic arrays. Getting on top of the gas flaring nightmare is a good start, but harnessing Iraq’s immense solar potential at the multi-gigawatt scale presents the most promising and sustainable means of digging the country out of its power predicament.

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Biden’s offshore wind push strikes balance between ambition and reality

US president Joe Biden’s flagship offshore wind push has been criticised by both clean energy advocates and detractors, which means it is probably on the right track.

Offshore industry leaders such as Ørsted hailed “offshore wind’s ability to launch a new U.S. industry”. Some renewable energy proponents went further, saying the Biden-Harris plan — to roll out thousands of offshore turbines and hit 30 GW by 2030 and 110 GW by 2050 — lacks ambition.

The experience of the UK, the world leader in offshore wind, should give pause for thought. The UK government last October hiked its 2030 target to 40 GW, which was widely seen as highly ambitious but just about achievable for a country already installing 2 GW of new capacity each year — so long as the target is supported by joined-up policies that break down barriers to deployment.

The US is playing catch-up from an almost standing start. As the nascent US offshore wind industry grows, it will encounter the same obstacles that have clipped the UK’s progress since it embarked upon its offshore wind odyssey at the turn of the millennium: supply chain and port infrastructure constraints, permitting delays, lack of installation vessels, finance bottlenecks, costly transmission upgrades and, yes, lots of NIMBY-ism.

The Biden-Harris plan seeks to address many of these potential obstacles from the get-go, which gives this fledgling new US clean energy industry a fighting chance of success. The next big challenge will be passing meaningful legislation through Congress, as well as getting state-level authorities onside, to turn that 30 GW ambition into reality.

Santos takes on more LNG market risk to enable FID at giant Oz gas field

Australian oil company Santos has finally pulled the investment trigger on the $3.6 billion Barossa gas and condensate project offshore the Northern Territory, but only after resigning itself to holding more project equity and market risk than it had ideally wanted.

Gas from the Barossa field will back-fill the ageing Darwin LNG plant, which would otherwise run out of feed gas in the next couple of years. As a fully amortised and de-risked liquefaction facility that began operating in 2006, drilling more wells to keep Darwin liquefying gas for another 20 years works out much cheaper than building a brand new greenfield LNG facility somewhere else.

Santos shelved a final investment decision (FID) on Barossa when Covid crashed the market a year ago, and subsequently said it couldn’t take FID without reducing its interest in the project to 40-50%. The company has now plumped to hold onto an equity stake at the top end of that range, meaning it will carry proportionally greater project risk on its books.

Moreover, less than half of the LNG volumes to come from Barossa have been pre-sold, leaving Santos exposed to being caught ‘long’ in periods of global oversupply (which happen with some regularity in the LNG game). The project will produce 3.7 million tonnes per annum (mtpa) of LNG, of which 1.5 mtpa is covered by a long-term contract. If the balance can’t be sold in a bear market, Santos will take 50% of the hit.

A recovering outlook for the LNG market — which has yo-yoed dramatically from last year’s Covid-induced demand destruction to an intense supply crunch at the start of this year — seems to have convinced the Santos board that this gamble will ultimately pay off.

LNG spot prices are stabilising with a healthy-ish forward curve in the $6-8/MMBtu range and oil prices are (amazingly) well above $60/barrel, a situation unthinkable a few months ago.

Yet the global gas market cannot support all new proposed LNG supply. Intense seller competition, enduring price sensitivity of Asian buyers and the relentless pressure of decarbonisation on European gas demand mean only the cheapest cargoes will find a home.

Santos seems confident that Barossa gas volumes processed through Darwin LNG will be among those that do, thanks to the low cost base of this brownfield development. With Santos holding half of the Barossa equity bag, bosses will be praying the next two decades will not see another Covid-esque ‘black swan’ event that pushes the project out of the money.


Under the radar

Energy transition stories you might’ve missed
  • India has around 40 GW of “stressed and stranded” thermal power generation assets that investors can’t or won’t touch. Numerous fully or partially built coal-fired generators cannot be financed due to lack of power purchase agreements (PPAs) and problems securing environmental permits, according to the IEEFA. While these problems drag on, renewables are eating further into coal’s share of the Indian power market.

  • First natural gas, now nuclear: European Commission is poised to label atomic energy projects as “sustainable” in its landmark investment taxonomy. Leaked analysis “did not reveal any science-based evidence that nuclear energy does more harm to human health or to the environment than other electricity production technologies,” Euractiv reports. The Commission is also relaxing the rules for gas-fired power investments (see also Monday’s Energy Flux).

  • Utility SSE is trying to offload its 50% stake in gas distribution network SGN, after regulator Ofgem trimmed the margins of regulated network operators. The company is, like so many others in the regulated space, seeking to sell other network assets to build a war chest in its quest to pivot further into renewables.

  • Drivers in Shetland can now power their electric vehicles using tidal power, after Nova Innovation installed a seaside charging point on the island of Yell. The company also plans to power a whiskey distillery in Scotland’s Inner Hebrides. Tidal power has great potential for remote (or off-grid) applications such as these, although the overall contribution to the global power mix will only ever be a tiny fraction as the best sites are few and far between.

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Energy perspectives

Critical thinking on crucial energy issues
  • ‘The value of energy inefficiency’ — As house prices rise, the cost of energy efficiency improvements become harder for homeowners to take on. As carbon taxes inflate more quickly than wages and real estate, “third-party financiers, consultants and vendors are emerging to take advantage of the burgeoning efficiency arbitrage,” says Peter Tertzakian of Energyphile. “[I]nefficiency is likely to go from being a liability to an attractive asset that can be monetized by those who see its potential.”

  • ‘What does it really mean for a gas utility to go net-zero?’ — If the transition away from gas is not properly managed, customer gas bills could “shoot up by 500%”, says Michael Colvin of the Environmental Defense Fund . He highlights the challenge of managing pipeline and network infrastructure costs as electrification drains demand from the gas grid, leaving fewer customers to shoulder a growing cost burden.

  • ‘Tech companies could play a huge role in tackling the climate challenge’ — While solar and wind procurement deals to power data centres have garnered a lot of attention in developed economies, Big Tech could do more by underwriting renewable investments where they are needed most: “[I]n developing and emerging economies where coal is still seen as essential for energy security and renewable investments are hindered by capital scarcity.” That’s according to IEA chief economist Laszlo Varro and IEA digital/energy analyst George Kamiya.

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And finally...

The world’s most powerful tidal turbine, the O2, is preparing for its maiden excursion. Bon voyage et bonne chance!

P.S. Here’s a pic of me documenting the O2’s predecessor, the SR250, in choppy Orkney waters in 2013 while I was on the tidal energy news beat at reNews. Got the scoop and held down my lunch. Result!

That’s all for today, tune in tomorrow for more of the same!