Gas-fuelled fantasy: East Timor’s tortuous quest to decarbonise its tiny power grid

EASTER SPECIAL 🐣Energy Flux🐣 Monday, 5th April 2021

Happy Easter! Energy Flux won’t usually publish on UK public holidays, but I made an exception over the Easter weekend to give all readers the fullest possible experience during the two-week free trial period (which ends this Friday).

In today’s issue:

  • East Timor’s tortuous quest to decarbonise its tiny power grid

  • Biden’s $2tn American jobs plan electrifies infrastructure debate

  • Transmission lines – energy transition stories you might’ve missed

  • Energised minds – critical thinking on crucial energy issues

East Timor’s tortuous quest to decarbonise its tiny power grid

The impoverished Australasian island nation of East Timor last week pulled a notable U-turn by deciding to pursue imports of liquefied natural gas. This draws a line under years of fruitless efforts to develop the country’s own domestic gas resource – and ignoring potentially cheaper and cleaner alternatives.

Timor-Leste, as it is also known, is running the numbers on a terminal to import LNG to convert its three main thermal power plants from burning light fuel oil to relatively cheaper and cleaner natural gas. Importing LNG is now seen as the fastest way to achieve this, after a Chinese-backed plan to liquefy gas from East Timor’s Greater Sunrise offshore field hit the skids.

Sunrise has for many years been eyed as a source of gas to feed a liquefaction facility, either a new one on the island of East Timor, an existing one in neighbouring Australia or aboard a floating liquefaction vessel at sea. The government wrested control of the field by buying out oil majors Shell and ConocoPhillips in 2018 after insisting on an onshore development on the island, in the (fantastical) hope of securing construction jobs for Timorese workers.

The government now owns a ~57% stake in Sunrise. The problem is that the gas resource is located very far offshore. A long pipeline back to Timor would cross deep ocean trenches, hiking costs and execution risks. Worse still, the capital requirements of an onshore LNG facility far outweigh those of a smaller floating plant – which would make more sense for a mid-sized field of this size (Sunrise contains 5.13 trillion cubic feet of gas)

Higher project costs mean the LNG would have to be sold at a premium to leave a big enough margin to attract investors. If the LNG price tanks below the cost of production and shipping, as it periodically does, Timorese taxpayers would ultimately foot the bill.

In today’s well-supplied global LNG market, nobody is willing to pay a premium. Shell and ConocoPhillips knew Dili’s plan wouldn’t work for them, so quit. The remaining Sunrise shareholders – Woodside Energy (33.44%) and Japan’s Osaka Gas (10%) – are believed to prefer a more cost-effective floating LNG option too, for the same reasons. Woodside wrote off the carrying value of its stake in Sunrise last July, so evidently doesn’t expect a resolution any time soon.

The Timor government’s dogged pursuit of an uneconomic onshore liquefaction plant risked creating an horrendous money pit that drained scant public funds and enriched a few private investors – or pushed the impoverished nation further into a Chinese ‘debt trap’ (TimorGAP hired China Railway Construction Corporation to run the LNG facility).

While that plan is now in limbo, the government has found another way to misallocated scarce capital: an LNG import terminal that would commit the small nation to long-term fossil fuel imports and be rendered superfluous, either when Timorese gas starts flowing or the country wakes up to the potential for renewables to power the island.

The cost of replacing Timor-Leste’s three thermal power generators – which have an aggregate capacity of less than 270 MW – with a combination of wind, solar and battery storage does not seem to have been seriously considered, despite the plunging costs of these technologies and Timor’s abundant ocean breezes and solar irradiance.

The potential involvement of the US Embassy in the LNG import project has a geopolitical twist. China’s growing presence in the region spooks the State Department and some Australian politicians too, so an American-funded regasification terminal fed by US LNG could form a bulwark against Beijing’s burgeoning sphere of influence. As things stand that remains a highly distant possibility, but when an infrastructure project acquires a geopolitical dimension this can skew the priorities of host governments.

In a further twist, last week’s decision of Australian oil company Santos to invest in the Barossa gas field to backfill its Darwin LNG plant (see Wednesday’s Energy Flux) removes one route to market for Timorese gas. Shell and ConocoPhillips had wanted to pipe gas from Sunrise to Darwin for liquefaction and export, which an independent assessment concluded would be economically viable (unlike the onshore Timor option).

East Timor has woken up to the folly of pursuing highly speculative economic benefits of a domestic LNG project, only to fall back in bed with a problematic non-solution. Either no-one has told the government to cut its losses and opt for zero-carbon power generation that could be up and running before diggers even break ground on a new LNG import facility – or they aren’t listening.

Enjoying Energy Flux? Lock in a lifetime discount on membership today:

Get 33% off forever

Biden-Harris $2tn American jobs plan electrifies infrastructure debate

The Biden administration’s sweeping American Jobs Plan garnered widespread coverage last week, and for good reason. It proposes more than $2 trillion of investment over 10 years in everything from transmission upgrades, retrofitting buildings, climate mitigation, improving drinking water quality, rural broadband services, roads and bridges, electrification of public transport and plugging abandoned oil and gas wells – with a strong emphasis on blue-collar jobs, social justice and economic inclusion throughout.

As one NGO put it, the plan represents the most ambitious climate, clean energy and environmental justice programme in history – but bear in mind it is starting from a very low base after many years of federal neglect towards US infrastructure modernisation. Polite critics describe it as “a good start”.

The US president intends to pay for all this by “fundamentally reform[ing] the corporate tax code” to drive investment where it is needed. This includes an expansion of the Section 45Q tax credit for carbon capture and storage, which delighted oil and gas companies:

This inevitably riled climate activists, who see this as a sop to fossil fuel interests and specifically senator Joe Manchin, a Democratic centrist from the hydrocarbons-rich state of West Virginia who frequently crosses the aisle in Congress. Environmental campaigners want to see an even more radical approach such as the Green New Deal sponsored by firebrand representative Alexandria Ocasio-Cortez, who drew the following comparison:

Still, with trillions of tax credits and direct investment now on the table, lobbyists from all sectors are gearing up for an almighty battle to secure their slice of the pie. There’s already such a frenzy that some lobbying firms are turning away clients after being swamped by demand for their services, reports Politico.

The challenge for the White House will be steering such far-reaching legislation through a tightly balanced Congress amidst the maelstrom of lobbying without losing sight of Biden’s overarching priorities of deep decarbonisation and climate justice.

In related news: US carbon tax legislation hits Congress (again). Democratic representative Ted Deutch re-introduced the Energy Innovation and Carbon Dividend Act, which would place an escalating tax on CO2 emissions and redistribute the proceeds among American citizens as monthly payments. Republican congressman Francis Rooney said a CO2 tax-and-dividend would drive energy markets “towards cleaner fuels, beginning with natural gas and moving increasingly to renewables”.

Transmission lines

Energy transition stories you might’ve missed
  • Price reporting agency launches first suite of UK hydrogen price assessments. S&P Global Platts now offering daily assessments in response to market players eager to understand the cost of ‘blue’ and ‘green’ hydrogen production in the UK. Assessments cover three H2 production processes: methane-based autothermal reforming (ATR) with carbon capture; proton exchange membrane (PEM) electrolysis; and alkaline electrolysis. Calculated prices will reflect both commodity production costs and capital expenditure to build a hydrogen facility.

  • Government auditors call for reform of Germany’s energy taxes and levies. Germany’s Federal Court of Auditors (BRH) criticised Berlin for its “inadequate” management of the energy transition in a report (German only).

  • Methane emissions footprint of new coal mines under scrutiny. Mining the world’s gassiest coal seams would emit 1,135 million tonnes per annum of CO2-equivalent on a 20-year horizon, more than the 952 mtpa CO2e emitted from US coal plants in 2019, according to Global Energy Monitor.

  • Shell predicts it will never pay tax on feed gas for Australian LNG projects. Anglo-Dutch oil major expects Petroleum Resources Rent Tax payments will be ‘zero forever’ on gas that feeds its Gorgon and Prelude LNG plants. Shell’s equity share of LNG from these facilities earns the company AUD$2.4-3.8 billion per annum depending on market prices, according to independent investigative Western Australia news outlet Boiling Cold.

  • Siemens Gamesa  lands first firm order for 100 flagship 14 MW offshore wind turbines. RWE orders direct drive units for the Sofia offshore wind farm at Dogger Bank in the UK North Sea, marking Siemens Gamesa’s maiden order for its flagship product and its furthest from shore. Turbines, featuring “the world’s largest single-cast turbine blade”, should be spinning by 2026.

  • Tesla watches as New Caledonian nickel and cobalt mine changes hands. Commodity trader Trafigura joined a consortium of local and international investors to take problematic Usine du Sud mine off Vale’s hands. Trafigura will secure access to international markets for nickel, “a vital component in lithium-ion batteries required for electric vehicles”. Tesla is providing assistance via a partnership with the new owners. Activists seeking the archipelago’s independence from France forced the mine to close last year.

  • ESG-focussed investment house snaps up US renewable energy developer and tyre recycling outfit. Energy Capital Partners buys out remaining stake of wind, solar and geothermal player Terra-Gen as part of $1.2 billion refinancing deal and, separately, acquires Liberty Tire Recycling from private equity firm The Carlyle Group.

  • UK nuclear fusion firm nears plasma milestone in push for commercial fusion power (they didn’t say when that might happen, but let me guess — in 20 years’ time, right?). Tokamak Energy says it is “on track to achieve fusion temperatures of 100 million degrees in the coming months” after upgrading its spherical tokamak – the ST40. Here it is in action (click for video):

Energised minds

Critical thinking on crucial energy issues

‘The Stark Truth About the Green Revolution’ – Anti-fossil fuel campaigners must face some inconvenient truths around the need for an enduring role of energy incumbents in the energy transition, writes energy trader, analyst and author Dan Dicker. “While the left hopes for a clean energy future that eliminates fossil fuels companies, there isn’t another system anywhere that can price, transport or deliver energy, whether green or not, outside of the existing [infrastructure] that current energy companies already own.”

‘The Intricacies of Energy Diplomacy and Geopolitics in the Eastern Mediterranean’ – The geopolitics of energy in the resource-rich Eastern Mediterranean are leading to the establishment of new alliances and the re-emergence of past rivalries, writes geopolitical security consultant Alex Kassidiaris. He questions whether the geopolitical benefits of the highly speculative and costly EastMed gas pipeline from Cyprus to Italy outweigh the many financial and market-based risks of the endeavour.

‘Electric vehicle boom does not pose huge burden for power grids’ – Powering EVs represents “a massive reduction in energy demand compared to oil, which loses most of its power to waste heat,” writes data-driven energy journalist Gregor Macdonald. “A typical EV requires at least 60% if not 70% less energy to travel one mile. That’s how you can place 1.367 million new EV on the road, as China did last year, while triggering a fairly light call on new power—just 4.785 TWh of electricity demand” compared to the 186 TWh of wind and solar capacity that China added in the same year.

And finally...

An attempt by Warren Buffett’s Berkshire Hathaway to lobby Texas for a subsidised build-out of unabated gas-fired power plants drew scorn from some sharp minds. The best of them, in their own words, is here (click through for the full thread):

That’s all for today, more tomorrow!