Sunday, March 27, 2011

The Canadians move ahead

In the snails paced world of arctic gas development the Canadians have pulled ahead. First, Kitimat LNG has awarded a Front End Engineering Design (FEED) contract to KBR, and announced plans to pursue an expansion of their project. The first plant will process 700 million cubic feet per day into about 5.5 million tons per year of LNG. Proposed expansion could add another 1 MTPA capacity. The proposed customers are in Asia and the target sales price of product is quoted at $12/MCF vs. $4/MCF in North American markets for the same gas. The Kitimat volumes are roughly 18% of the volumes of the Alaska Gas Pipeline project. Project description video from Kitimat webpage (LINK).

Secondly, the Canadian National Energy board has given the green light to the Mackenzie pipeline project. When completed the Mackenzie could move up to 1.2 Billion cubic feet per day of gas or about 26% of the capacity of the Alaska Gas Pipeline.

In terms of capacity the two Canadian projects will market about 44% of the volume of the Alaska Gas Pipeline. Best wishes to both projects - It's great to see some forward motion.

Sunday, March 20, 2011

The end of Nuke as we know it?

Last weeks events in Japan may spell an end to the renewed pursuit of nuclear power in the United States and set the stage for increased use of natural gas for base load power generation.

I'm not talking about the knee jerk reaction you can see 24/7 on Fox News or CNN. Instead it simply looks like the cost of nuclear power just went up beyond the point of feasibility.

This 2008 study (LINK) compares the cost of various power generation technologies. In Table 4, the baseline cost of combined cycle natural gas is $61.77/Mwh and Nuclear is $83.33/Mwh. Table 14 shows the cost of combined cycle natural gas climbing to $94.90/Mwh if the plant is equipped with carbon controls. The reader is lead to assume that nuclear power is the less expensive power source after gas-fired plants are fitted with carbon controls.

Of course carbon controls on a combined cycle power plant is a false choice. Utilities like TVA see the light and include natural gas in their power generation mix as they ramp down older coal fired capacity (LINK). Also pencil in some gas-fired capacity to take up the slack on calm days when wind power sits idle. Page 72 of the TVA study addresses base load capacity the hints that the cheap shale gas may tip the scale in favor of gas-fired generation:

"Baseload generators are primarily used to meet energy needs during most hours of the year due to their lower operating costs and high availability. Even though baseload resources typically have higher construction costs than other alternatives, they have much lower fuel and variable costs, especially when fixed costs are expressed on a unit basis. An example of a baseload resource that provides continuous, reliable power over long periods of uniform demand is a nuclear power plant. Some energy providers may also consider natural gas-fired combined cycle plants for use as incremental baseload generators. However, given the historical tendency for natural gas prices to be higher than coal and nuclear fuel prices when expressed on a unit basis, a combined cycle unit may be a more expensive option for larger continuous generation needs. As the fundamentals of fuel supply and demand continue to change and if access to shale gas continues to grow, this relationship may change in the future." (emphasis added).

Long-term contracts for natural gas are cheap at the moment. Many think that shale gas may provide long term stability for gas prices in the $4 to $6/MMBTU range. The installed cost of the plant can be estimated with a high degree of accuracy. The chance of a cost overrun for a gas-fired plant is low. A combined cycle gas plant is very bankable.

On the other hand nuclear plants are expensive and subject to delays and unexpected cost escalation. We still lack a workable plan to store or process spent fuel. The incident in Japan will likely result in studies and new regulations for new and existing plants. Those studies will add cost, uncertainty and delays. Less bankable.

I've worked a few nuclear projects and the more I learn about nuclear plant design and operation the more I study the thinking of Nassim Nicholas Taleb author of The Black Swan: The Impact of the Highly Improbable. In the coming weeks and years we'll learn the total impacts of the highly improbable events witnessed in Japan.

There's no time like the present to build a gas line from the North Slope.

Saturday, March 12, 2011

Arctic Gas Headlines

Mackenzie bounces back - First Oil 2018, Construction in 2013 claimed. Sounds good to me.

Mackenzie pipeline wins federal cabinet approval after years of delay

"The next step will be for the project’s backers, which also include ConocoPhillips, ExxonMobil, Shell and the Aboriginal Pipeline Group, to resume negotiations with the federal government over a fiscal framework."
Where have I heard that before?

Point Thomson Talks Continue - Important source of Alaska gas for the pipeline.

Global LNG-Japan tsunami bullish for Asia LNG spot market
LNG and fuel oil to fill the gap.

Denali Alaska pipeline project to miss deadline

FERC reports to Congress on the Alaska Gas Pipeline
TC Alaska has stated that it is intensifying its efforts to finalize its project design and compile the information necessary to file a complete application with the Commission in October 2012.
Mine Wants to Build Gas Pipeline From Cook Inlet - The next pipeline project?
NovaGold says it wants to build a natural gas pipeline from Cook Inlet to provide power to its Donlin Creek Mine near the Kuskokwim River