December 5, 2017
ENERGY WATCH #1 by Karel Beckman
The bright global outlook for (cleaner) oil
December 5, 2017
If you believe that the International Energy Agency’s World Energy Outlook (WEO) presents energy scenarios that, if they came true, would lead to climate disaster (as Greg Muttit argues here), or that seriously underestimate the growth in solar and wind power, as many people have argued (e.g. here, here, here, here, here, here, here), then wait till you see the latest OPEC’s World Oil Outlook!
In the world of OPEC, climate policies play only a minor role. The same goes for the growth of renewables or electric cars.
OPEC’s scenario of what it regards as our likely energy future, presented in its World Oil Outlook, released in November, is actually very close to the WEO’s so-called “Current Policies” scenario. This is the worst of the WEO’s three scenarios in terms of climate impacts. It assumes that no new climate policies will be enacted.
OPEC’s scenario is, to be fair, a little bit better – it is actually in between the WEO’s Current Policies scenario and its New Policies Scenario. The latter assumes that countries will live up to their pledges under the Paris climate agreement.
Here is the key table from the World Oil Outlook by OPEC:
This can be compared to the key table from the World Energy Outlook by the IEA:
Unfortunately, the two outlooks use different units of measurement. To convert mboe/d (million barrels of oil per day) to mtoe (million tons of oil equivalent) you have to divide by 7.33 and then multiply by 365. That gives the following outcome for OPEC’s chart in 2040:
Oil 5014 mtoe
Other renewables 996
Total 18474 mtoe
If you compare this to the IEA’s Current Policies scenario, you will see that the big difference is in the share of coal. OPEC is obviously willing to believe that the share of coal will be much lower than in the WEO’s climate-unfriendly Current Policies scenario.
OPEC does not believe, however, that oil and gas will be much affected by climate policies the next few decades.
When it comes to oil and gas, OPEC projects a combined share of 52.2%. This is almost exactly the same as the oil and gas share in the WEO’s Current Policies scenario (52.5%).
Note, however, that when it comes to oil and gas, the WEO’s New Policies scenarios does not differ that much from the Current Policies scenario. In the New Policies scenario, oil and gas have share of 52.1%.
So in this respect the WEO and OPEC see eye to eye: they don’t see a peak in oil and gas demand coming, but rather steady growth.
Only the WEO’s Sustainable Development scenario has a different outcome: a combined oil and gas share of (still) 48.1%, including a “peak oil” scenario, with lower oil demand in 2040 than today.
OPEC’s messages are, of course, reassuring to the oil industry, which is increasingly painting itself into a corner. Respectable oil companies are making all the right noises about climate change, and the necessity to move away from fossil fuels, while at the same time they have to maintain and preferably grow their existing business.
But they have found a solution, summarized in a recent article on Reuters with the phrase: “There’s oil – and then there’s oil.” This means: there’s the oil that we have to get rid of – and there’s the oil we will still need – which is the oil our company will be producing.
Reuters notes that Big Oil is engaged in a “race for cleaner crude”. In particular it quotes Statoil’s Chief Executive Eldar Saetre, who told Reuters in an interview that while the world will need oil and gas for decades to come, he expects that many oil deposits will never be tapped as increasingly discerning consumers will demand only the lowest-polluting crude.
“A lot of fossil fuels will have to stay in the ground, coal obviously … but you will also see oil and gas being left in the ground, that is natural,” Saetre said.
“At Statoil we are not pursuing certain types of resources, we are not exploring for heavy oil or investing in oil sands. It is really about accessing the most carbon-efficient barrels.”
Around 70 percent of the world’s discovered oil resources is heavy oil and bitumen, both highly viscous crudes that are more complex and energy-intensive to extract and process than lighter crude, according to the U.S. Geological Survey.
According to Reuters, “The retreat from energy-intensive oil production in Canada and elsewhere is already taking place. Statoil sold its entire Canadian oil sands business late last year to Athabasca Oil Corp, and Royal Dutch Shell, ConocoPhillips and Marathon Oil have all scaled back their operations in the country.”
Statoil is now exploring for new resources offshore Norway and Brazil where oil is lighter and abundant. “The world needs to develop more efficient barrels… Competitiveness to me is carbon competitiveness and cost competitiveness,” Saetre said.
Shell, ExxonMobil and France’s Total have also invested billions in recent years in Brazil’s oil wealth, and “companies are vying to discover and develop resources in other light-oil provinces such as the North Sea as well as shale basins in the United States”, says Reuters.
“Growing pressure from investors on oil companies to reduce their carbon emissions, is propelling the trend – highlighted last week when Norway’s trillion-dollar sovereign wealth fund announced plans to cut investments in oil and gas companies.”
“Investment sentiment towards carbon is starting to harden and it does need to be part of the decision making,” said Tom Ellacott, senior analyst at consultancy Wood Mackenzie.
“There is an economic perspective as well with the risk of future carbon taxes which you are more likely to be impacted by if you have a carbon-intensive portfolio,” Ellacott said.
Personally I would take the talk of a “race for clean oil” with some grains of salt. In reality, I suspect, oil companies will behave just as Reuters says they will: they will justify their own search for more oil somehow or other, while declaring that we really should be using less oil.
Take Italian oil company ENI: Reuters reported on 29 November that they “could begin work on oil exploration in federal waters off Alaska” soon “after the Trump administration … approved permits for leases the company has held for a decade, the Interior Department said.”
This is exactly what Subhankar Banerjee recently warned of in a moving essay published on Energy Post: that Trump will likely open up the Arctic Refuge to oil drilling.
It does not seem very likely that ENI wants to explore the area because it has such “clean” oil. Rather, because it represents an opportunity which will be difficult to find for ENI elsewhere.
Reuters writes that “The department’s Bureau of Safety and Environmental Enforcement (BSEE), issued ENI US, a unit of Italy’s ENI, a permit to explore for oil from an artificial island in the Beaufort Sea. ENI is the first company allowed to explore for oil in federal waters off Alaska since 2015. The approval is part of the Trump administration’s policy to maximize output of fossil fuels for domestic use and for exporting.”
ENI’s license does not apply to the Arctic Refuge, but that may be a question of time. “A tax bill passed by the Senate budget committee Tuesday contained a provision to open drilling in a portion of Alaska’s Arctic National Wildlife Refuge”, notes Reuters. “Conservationists say the refuge is one of the planet’s last paradises. The bill, which Republicans hope to pass in the full Senate this week, faces an uncertain future.” The bill, of course, as you know, has been passed.
Scott Angelle, the BSEE director, said developing Arctic resources responsibly is a “critical component to achieving American energy dominance.”
ENERGY WATCH #2 by Karel Beckman
The outlook for EVs is also bright – from around 2026 on
December 5, 2017
So what about the effect electric vehicles (EVs) are going to have on oil demand? Won’t they be able to endanger OPEC’s reassuring (for the industry) picture of the future?
OPEC itself is not worried. In its basic scenario, OPEC sees only a very limited effect.
The Outlook notes that “In the OECD, the moderate increase in the car fleet would, all other things being equal, add around 1.6 mb/d to sectoral demand. However, efficiency improvements as a result of a further tightening of emission reduction policies, technological developments, changing driving behaviour and the increasing penetration of alternative fuel vehicles, particularly EVs (including plug-in hybrid electric vehicles and battery electric vehicles) and, to a lesser extent natural gas and fuel cells, is expected to significantly shrink sectoral demand.”
In developing countries, “the picture is rather different. The massive increase in the car fleet would, all other things being equal, increase sectoral demand by 26.4 mb/d over the forecast period. Increasing efficiency, changing driving behaviour and the penetration of alternative fuel vehicles, particularly EVs in China and India, will only partially curb demand growth.”
This translates into the following picture:
(VMT = vehicle miles travelled; AFVs are alternative fuel vehicles)
However, the World Oil Outlook also contains a “sensitivity case” in which “a more optimistic view is taken on the penetration of EVs with the assumption that annual EV sales reach 80 million by 2040. This would mean that three out of every five cars sold in 2040 would be electric.”
This is shown here:
Note that OPEC does not really believe that this “optimistic” (?) scenario is very likely to happen. It notes that “While it is interesting to analyze how oil demand would be impacted in this sensitivity, it is highly unlikely that EVs will penetrate the passenger car segment with this strength in less than 24 years. The level of investment, in terms of both the replacement of car fleet and the expansion of required infrastructure, as well as the required government support, would be rather prohibiting.”
Even so, in this “speculative case”, oil demand in 2040 is reduced by just 2.5 mb/d compared to the Reference Case, to total 108.6 mb/d.
The result is shown in this chart:
In other words, even in this scenario, oil demand will show comfortable growth, only levelling off after 2035.
But how realistic is the assumption that “annual EV sales reach 80 million by 2040”?
Note that in the reference scenario, OPEC assumes that there will be 235 million EVs on the road in 2040, including 126 million battery electric vehicles. In the sensitivity case, the projected number of EVs is 514 million.
No one knows of course what the future will look like. Interestingly, Bloomberg New Energy Finance (BNEF) projects that there will be 530 million EVs on the road in 2040:
Note that as this chart shows, OPEC actually lowered its projection of EVs in this year World Oil Outlook, compared to 2016, as Nathaniel Bullard observed in an article for Bloomberg New Energy Finance. But this is because it expects fewer cars on the road in general in 2040, regardless of whether they are electric or not.
The BNEF projection is close to the OPEC’s sensitivity case (not shown in the chart above). Another model-based projection, from US-based think tank Energy Innovation, expects 65% of car sales to be EVs in 2050, which is also in line with OPEC’s sensitivity case (60% in 2040).
As we saw above, even if BNEF and Energy Innovation (and OPEC’s sensitivity case) are right, this does not immediately spell the end of the oil sector. Nevertheless, let’s not forget all these projections run to 2040 – and that, if EV sales keep rising as a percentage of the total fleet, oil demand may well start to go down rapidly after 2040. Which is just two decades away.
Investment bank UBS published a report recently predicting that “almost every sixth car sold in the world will be electric by 2025”.
This is based on a survey among 10,000 consumers in the six largest car markets, which showed, according to UBS, that there is “a positive trend in consumer interest in electric cars (particularly in the fleet segment) whereas the popularity of diesel cars has dropped sharply.”
In addition, UBS raised its global EV sales forecasts to 16.5m (from 14.2m) in 2025, on (1) higher demand in China supported by survey data and regulation; (2) higher 2017 sales in several key markets.
“Our new forecasts imply 16% EV sales penetration in 2025, or almost every sixth car sold globally. We expect every third car sold in Europe to be electric by then”, says UBS.
UBS notes that “reasons not to Buy an EV are likely to become less relevant in key markets. Our higher EV sales forecast is supported by a wave of investments in new charging infrastructure – the lack of sufficient charging coverage is still a key reason for consumers not to buy an EV.”
“The high purchase price (#1 reason for not buying an EV) should also become less relevant as EV powertrain costs come down faster than expected. One in four consumers interested in buying an EV is ready to pay a premium.”
For the car lovers among you: the UBS survey showed that “BMW is the brand most exposed to Tesla’s success or failure. The BMW’s 3 series is seen as the closest competitor to Tesla’s Model 3 by consumers. Tesla has made the biggest progress in the survey as the most credible EV brand, at the expense of all other established brands save Mercedes.”
However, looking at future EV launches, UBS notes that “existing premium brands are still preferred over Tesla and the lack of a dense dealer network could put Tesla at disadvantage.”
As UBS notes, the purchase price of electric cars is still the major reason why most people don’t buy them. This is not likely to change in the short term.
Bloomberg New Energy Finance (BNEF), a think tank that firmly believes in the bright future of EVs, reports that “battery prices need to drop by more than half before electric vehicles will be competitive with cars powered by internal-combustion engines.”
That’s likely to happen by 2026, notes BNEF, “when the cost for lithium-ion battery packs is projected to fall to about $100 per kilowatt hour.” The findings, summarized in the chart below, are based on a two-day Future of Energy Summit organized by BNEF in Shanghai.
With regard to technology, BNEF notes that the “focus of the industry has moved from lithium-ion batteries using liquid electrolytes to solid-state ones, which address the need for safer and more powerful energy storage.”
Toyota has said it’s working to commercialize the technology in the early 2020s, and Dyson says it will build an electric car using solid-state batteries in three years. The British company plans to invest one billion pounds ($1.3 billion) to develop the car, plus the same sum to create solid-state batteries for it. That investment would outpace those made by other major EV makers such as Tesla.
Panasonic, BYD and LG Chem are the top manufacturers of lithium-ion batteries for EVs, according to BNEF.
Shares in companies such as lithium-salt maker Stella Chemifa and Sociedad Quimica y Minera de Chile, which mines chemicals including lithium, are on the rise.
The average cost of cars powered by fossil fuels is about $28,000, a figure that will probably rise to about $30,000 by 2030, based on estimates by Bloomberg New Energy Finance.
To become cheap enough to replace that fleet, electric vehicles will rely on a 67 percent drop projected for battery costs in the next nine years:
As everyone knows, China is the number one EV as well as battery producer. The country has now closed the battery cells and cathodes industries to foreign investments, BNEF notes! Only companies based in China are allowed to be active in batteries.
By contrast, China has opened up its hydrogen fuel cell sector – no doubt to close it later after the technology has become mature.
Recent findings in the Netherlands, one of the leading EV countries in the world, confirm that the growth of electric mobility is still slower than many EV enthusiasts would like to see.
A recent survey by the Dutch Automobile Association ANWB shows that just 0.2% of the total number of cars is electric, and only one out of seven people is considering buying an electric car.
The Dutch government has announced that it wants only EVs to be sold from 2030 on, but the head of the ANWB says this is probably unrealistic. He noted that consumers still find EVs too expensive and their driving range too limited.
Europe is not entirely standing still of course when it comes to the development of batteries, EVs and other alternative fuel technologies.
In the UK the government has recently selected a site in the West Midlands for the location of a newly to be built EV battery manufacturing plant, reports Cleantechnica.
A partnership between WMG, the University of Warwick, Coventry and Warwickshire Local Enterprise Partnership, and Coventry City Council has been awarded £80 million to establish a new National Battery Manufacturing Development Facility (NBMDF),” the University of Warwick writes.
The announcement was made by Greg Clark, Secretary of State for Business, Energy and Industrial Strategy, while attending an energy conference on the University of Warwick campus on 29 November.
The UK does not have any battery manufacturing capability at this moment. Clark said “The new facility … will propel the UK forward in this thriving area, bringing experts from academia and industry together to deliver innovation and R&D that will further enhance the West Midlands’ international reputation as a cluster of automotive excellence.”
The European Commission in October announced the formation of a “battery alliance” with the intention of creating a full value chain for EV batteries in Europe. In view of China’s protectionist behaviour, this might not be a bad idea.
Meanwhile when it comes to hydrogen production from renewables, Europe is also taking initiatives. In Germany, H&R Ölwerke Schindler has opened the world’s largest “dynamic hydrogen electrolysis”, in Hamburg.
According to a report on Cleantechica, the new facility, which cost €10 million to develop and is based around the use of the PEM technology (Protone Exchange Membrane), will be capable of producing some several hundred pounds of hydrogen per year (from electricity and water). The hydrogen will be used to “add value” to products at the nearby refinery — thanks to the use of a Siemens-built electrolyzer with 5 MW of electric capacity.
“The idea behind the new facility is to produce hydrogen when there is a surplus of grid electricity — meaning that when renewable energy production is so excessively high that electricity that would otherwise be wasted can be utilized (battery energy storage facilities can potentially accomplish something similar, by the way). Reportedly, around 2% of potential electric power in Germany is currently lost due to overproduction.”
Some hopeful news for lithium-ion batteries: in the scientific journal Nature Communications researchers at Samsung have reported what could be a significant advance.
As the technical magazine Engadget notes, “When it comes to lithium-ion batteries, you can have fast charging speeds or high capacities — take your pick. Now, Samsung researchers, working with Seoul National University, have figured out how to give batteries both qualities thanks to our old friend, graphene. By coating the electrodes with a thin, popcorn-shaped layer known as a graphene ball, they were able to produce a battery that could fully charge in just 12 minutes with up to 45 percent more capacity. The research, if it pans out, could lead to lighter and faster-charging electric vehicles.”
“The problem with current lithium-ion tech is the dreaded side reactions that can wear away the electrodes, especially if the battery is charged too quickly. Researchers have found that nanomaterials like graphene can reduce the wear and tear on them, while simultaneously increasing their conductivity. The problem is that coating electrodes uniformly has proven to be a challenge, and many efforts have resulted in an undesirable tradeoff by increasing charging speeds but decreasing capacity.”
“Samsung’s approach is to use a material assembly called a graphene ball to coat nickel-rich cathodes and lithium-based anode materials. The thin, popcorn-like substance can be coated onto the cathode evenly, making it more effective, while also giving the anode a capacity boost.
That technique increased both the stability of the battery and its conductivity, ‘improving the cyclability and fast charging capability of the cathode substantially,’ the researchers note. What’s more, they hit energy densities of nearly 800 Wh/L, around the same as Li-ion batteries today used by Tesla and others.”
According to the researchers, the process “would not require a substantial change” to current manufacturing techniques for advanced lithium-ion batteries like the ones used in EVs.
“Batteries that can fully charge in 12 minutes would make EVs a hell of a lot more practical, even if capacities remain unchanged”, notes Engadget.
Of course this is not the first time a major advance like this has been announced, but, says the article, “maybe, Samsung’s manufacturing expertise could actually turn the research into something useful.”
ENERGY WATCH #3 by Karel Beckman
Tillerson, Rasmussen and Putin: playing politics with energy supplies
December 5, 2017
As I am writing this edition of Energy Watch, U.S. Secretary of State Rex Tillerson, the former CEO of ExxonMobil, is in Brussels attending a NATO Foreign Ministers Meeting. He will also be meeting the EU High Representative for Foreign Affairs and Security Policy Federica Mogherini and the foreign ministers of the EU-28, before going on to Vienna and Paris for other meetings.
In a speech on 28 November at the Wilson Center in Washington D.C., Tillerson expressed his “support” for Europe’s desire to reduce its energy dependence on Russia.
“The Ukraine crisis … made clear how energy supplies can be wielded as a political weapon”, said Tillerson. “Enhancing European energy security by ensuring access to affordable, reliable, diverse, and secure supplies of energy is fundamental to national security objectives. The United States is liberalizing rules governing the export of liquefied natural gas and U.S.-produced crude, and we’re eager to work with European allies to ensure the development of needed infrastructure like import terminals and interconnecting pipelines to promote the diversity of supply to Europe.”
Tillerson notes that “in July, President Trump announced at the Three Seas Summit that the United States will provide technical support for Croatia’s Krk Island project. The United States will continue to support European infrastructure projects, such as LNG-receiving facilities in Poland and the Interconnector Greece Bulgaria pipeline, to ensure that no country from outside Europe’s Energy Union can use its resources or its position in the global energy market to extort other nations.”
He added that “We continue to view the development of pipelines like the Nord Stream 2 and the multiline TurkStream as unwise, as they only increase market dominance from a single supplier to Europe.”
Although according to Tillerson “Europe and the United States seek a normalized relationship with Russia”, that country “has shown it seeks to define a new post-Soviet global balance of power, one in which Russia, by virtue of its nuclear arsenal, seeks to impose its will on others by force or by partnering with regimes who show a disregard for their own citizens, as is the case with Bashar al-Assad’s continuous use of chemical weapons against his own people.”
“The dissolution of the Soviet Union liberalized Russian society and created new trade opportunities that benefit Russians, Europeans, and Americans”, said Tillerson. “But Russia has often employed malicious tactics against the U.S. and Europe to drive us apart, weaken our confidence, and undermine the political and economic successes that we have achieved together since the end of the Cold War. Playing politics with energy supplies, launching cyber attacks and disinformation campaigns to undermine free elections, and serially harassing and intimidating diplomats are not the behaviors of a responsible nation. Attacking a neighboring country and threatening others does nothing to improve the lives of Russians or enhance Russia’s standing in the world.”
I will leave my readers to form their own judgement of U.S. foreign (energy) policy, but I can’t help noticing that, well, the things Tillerson is accusing Russia of, such as attacking other countries, are, let’s say, not unknown to the U.S. As for using energy as a political weapon, isn’t president Trump stated policy aim to achieve “energy dominance”?
Interestingly, Tillerson in his speech goes on a tour d’horizon of the entire world, but it doesn’t seem to occur to him that it may not be the task of the United States to run the world. At least, I never voted for that proposition and I don’t think anyone ever has.
But of course for Tillerson there is no contradiction, since the U.S., in his view, does not want power for any ulterior motives – such as selling arms or other goods, or simply exercising power – it only wants to do the right thing for everyone.
Tillerson’s hero, apparently, is ex-president Theodore Roosevelt, who in Tillerson’s view acted purely disinterestedly in his support for Europe. “President Roosevelt was beloved in Europe”, says Tillerson, “because of his vigorous commitment to the continent in the years before and during World War I.”
“What motivated Theodore Roosevelt’s rejection of neutrality and an ardent commitment to the defense of Europe?” asks Tillerson. “We can see the answer in something Roosevelt told the U.S. Congress in 1904, and I quote, ‘A great free people owes it to itself and to all mankind not to sink into helplessness before the powers of evil.’ Roosevelt knew that the defense of freedom demanded action from free nations, confident in their strength and protective of their sovereignty.”
Does Tillerson really believe in this sanitized version of history? You don’t have to be a Marxist to see that commercial interests (and racial superiority) had something to do with Roosevelt’s “ardent commitment” to “action from free nations”.
He presided over a dirty war in the Philippines that left 200,000 people dead. In his first annual message to Congress in December 1901, he said: “The same business conditions which have produced the great aggregations of corporate and individual wealth have made them very potent factors in international commercial competition. . . . America has only just begun to assume that commanding position in the international business world which we believe will more and more be hers. It is of the utmost importance that this position he not jeopardized, especially at a time when the skill, business energy, and mechanical aptitude of our people make foreign markets essential. Under such conditions it would be most unwise to cramp or fetter the youthful strength of our Nation.”
Not surprisingly, former NATO chief Anders Fogh Rasmussen is, like Tillerson, opposed to the Nord Stream 2 project.
After German foreign minister Sigmar Gabriel defended Nord Stream 2 on a visit to St Petersburg on 29 November, and, a day later, the Danish government adopted a law that will allow the country to prevent the pipeline from running through its territory, Rasmussen said in an interview with Bild, that Nord Stream 2 is a “weapon” of the Kremlin.
BILD asked: “German Foreign Minister Sigmar Gabriel sees the Nord Stream 2 project as an important part of Europe’s energy supply network. How would you describe the project?”
Rasmussen: “A trap that Germany is walking into, with serious consequences for its European neighbours. Nord Stream 2 is the flagship project in Russia’s campaign to keep Europe dependent on its gas, to consolidate its influence in the heart of the EU, and to deprive Ukraine of gas transit fees that it needs to make the European transformation that Germany has rightly been encouraging.”
According to Rasmussen, “Gas is not the only thing that will flow through the pipeline; Russian influence will flow too. Europe is seeking to diversify away from its dependence on Russian gas, which Moscow has deployed as a political weapon in recent years. Russia currently supplies 34 percent of European gas. With Nord Stream 2 that would increase to around 40 percent. Meanwhile the EU is spending over five billion Euros as part of its efforts to diversify away from Russian energy. With one policy, Germany is backtracking on all the good work that the EU has carried out.”
“Russia also gets to hurt central European states like Slovakia, and particularly Ukraine”, Rasmussen argued. “With Nord Stream 2 it can bypass these reliable transit states and, in Ukraine’s case, deprive them of around 2 billion Euros in transit fees per year – equal to six percent of the country’s entire budget revenue. Germany has rightly invested in Ukraine, to make it a more secure and stable country with a reform process that brings it closer to the EU; yet the government gives with one hand and takes away with the other if they allow this pipeline.”
I won’t repeat the arguments I have made before on Energy Post, where the discussion around Nord Stream 2 has been very active, but Rasmussen contradicts himself when he says that a) Russia is building Nord Stream 2 to shift transit away from Ukraine and b) Nord Stream 2 is making Europe more dependent on Russia. A shift in transit does not translate into more dependence. It is not possible to say that Nord Stream 2 will increase European dependence on Russian gas to “around 40 percent”. Gazprom does not have guaranteed sales in Europe – it all depends on how the market will evolve. As to calling Ukraine, a “reliable” transit state, well, that’s hardly credible.
Rasmussen also said, “concerned customers of these companies [German companies Uniper and Wintershall which are investing in the pipeline] should be asking them a different question: why are they having to pay to build a pipeline that they don’t need, just to please Moscow? German gas demands can easily be met within the existing Nord Stream 1 pipeline and other pipelines running across Eastern Europe, so this is nothing short of a Putin vanity project paid for by German consumers.”
Again, Rasmussen appears not to understand economics. He seems to think that Uniper and Wintershall can simply translate their costs into higher rates for their customers. That ignores how markets work.
As to the decision by the Danish parliament on 30 November, Reuters reports that this “could allow it to ban Russia’s Nord Stream 2 gas pipeline from going through its waters on grounds of security or foreign policy.”
The measure “amends Denmark’s regulatory framework to allow the authorities to cite security or foreign policy as reasons to block a pipeline. Previously these were not valid grounds for objection.”
Currently, the proposed route goes through Danish waters, but “the pipeline consortium is investigating an alternative route north of the Danish island Bornholm which would run in international waters and therefore not be impacted by a potential Danish ban.”
The re-routing could, however, delay the project. The aim of Nord Stream 2 is to become operational end of 2019, as the transit contract with Ukraine expires.
The European Commission meanwhile remains committed to supporting the so-called Southern Gas Corridor – in particular the transport of gas from Azerbaijan through Turkey to Greece and Italy – despite the questionable human rights record of the Azerbaijan government.
Climate Home News revealed recently that European Commission vice president Maroš Šefčovič and climate and energy commissioner Miguel Arias Cañete sent a letter to president Werner Hoyer of the European Investment Bank, urging him to support the Southern Gas Corridor. The EIB is “considering loans in excess of €2 billion to two sections of the pipeline, from Azerbaijan to western Turkey and from Greece to southern Italy”.
The letter, dated 13 July 2017, said the project was “vital and irreplaceable” for the diversification of EU gas sources and security of supply, notes Climate Home News. “Europe’s commitment must therefore not wane,” Šefčovič and Cañete wrote, adding they hoped the EIB – and the European Bank for Reconstruction and Development (EBRD) – would give financial backing to the pipeline “thereby to exemplify that European Union patronage over the Southern Gas Corridor continues”.
The EBRD already approved a $500m loan to the project in October.
Environmental NGO’s oppose the loans because they regard them as fossil fuel subsidies.
ENERGY WATCH #4 by Karel Beckman
A vision of a North Sea offshore wind paradise
December 5, 2017
Dutch transmission system operator Tennet has published the results of several studies into how offshore wind farms in the North Sea can best be connected to the grids of the surrounding countries.
The research has confirmed what Tennet announced earlier: that it would be economically efficient to build an artificial island for DC-to-AC converters for offshore winds far from the coast. Such an island could also be used for maintenance facilities and facilities to convert wind power into hydrogen.
In addition, Tennet says it may be a good idea to build what it calls a WindConnector, a facility that would work as a kind of roundabout of offshore wind in the North Sea. It would connect up different wind farms in the North Sea and would be used to route the power to the location that needs it most.
In a press release on 28 November, Tennet notes first of all that the currently standardized connection method – based on AC technology – is the best solution for connecting wind farm zones located relatively close to the Dutch coast to the grid.
“The electricity generated at these wind farms is transported to a Tennet transformer platform, and then via 220 kV Alternating Current (AC) cables buried in the seabed to an onshore high-voltage substation located near the coast. Each of these standardized connection systems has a capacity of 700 MW, and will also be used by Tenne6 to connect the Borssele wind farm zone (2 × 700 MW) as well as the Hollandse Kust (zuid) (2 × 700 MW) and Hollandse Kust (noord) (700 MW) wind farm zones to the national high-voltage grid. The onshore grid then transports the renewable electricity to the end-users.”
For wind farms further offshore, however, Tennet concludes that the use of DC connections will be more efficient. It has investigated two options for this:
- The first option is to use offshore converter platforms to convert the alternating current produced by the wind farms into direct current for efficient transport to the onshore grid. In Germany, Tennet has gained extensive experience in using DC connections in combination with converter platforms; seven such platforms are already in operation, while another two are under construction.
- The second option is based on the construction of an artificial island instead of platforms. This allows the DC converters to be placed and maintained on solid ground. With sufficient scale it is more advantageous to realize one artificial island instead of multiple platforms. This saves money and thus contributes to a further cost reduction for wind energy at sea.
Such an artificial island could also facilitate the building of a so-called WindConnector link to the UK, notes Tennet.
A WindConnector is “an electricity connection that not only makes it possible to transport offshore wind energy to the onshore grid of one country, but also interconnects the markets of different countries. This can take the form of a direct connection from a wind farm zone to a neighbouring country, or an interconnection between two different wind farm zones. In addition to transporting wind energy, such a configuration would also facilitate international electricity exchange. The infrastructure can be used in less windy conditions, and would therefore be utilized more efficiently.”
The graphs below show how it would work:
In another press release which came out on the same day, Tennet reports that “a study by Pöyry, commissioned by TenneT and The Crown Estate, concludes that multi-use assets [such as the WindConnector] hold the potential to lower the cost of energy for consumers by reducing need for, and making more efficient use of, offshore grid infrastructure.”
The study “identifies potential capital savings of up to €1.8bn and increased asset utilisation from 45-50 percent up to 80 percent. The modelling undertaken by Pöyry suggests the value of market-to-market flows enabled more than offsets the investment required to install the additional infrastructure required to link the markets.”
Tennet adds, however, that “current regulatory frameworks present restrictions on multi-use of offshore transmission assets. In order to realise the maximum potential benefits, amendments to the regulatory frameworks would be needed. The option of allowing offshore wind transmission assets to participate in market-to-market activity through national arrangements could provide an opportunity for incremental advancement of the WindConnector concept, without the need for pan-European reforms required for full hub concepts.”
To realise these plans, Tennet has formed a partnership with Danish TSO Energinet, Tennet’s sister company in Germay (Tennet GmbH) and Dutch gas transmission system operator Gasunie, called the North Sea Wind Power Hub Consortium.
The Port of Rotterdam announced on 28 November that it will be joining the consortium as the fifth partner.
In the long term, the vision of the consortium is to build a number of large-scale wind collection hubs “feeding and connecting multiple North Sea countries”.
The idea is to build a number of ‘Power Link Islands’ with interconnections to the countries bordering the North Sea. These islands “will be able to accommodate a large number of links to wind turbines and/or offshore wind farms, and facilitate the distribution and transmission of wind-generated electricity via direct-current connections to the North Sea countries. These connections – so-called ‘Wind Connectors’ – will not only transmit wind power from the wind farms to the hub/island, but will simultaneously serve as interconnectors between the energy markets of the aforementioned countries, enabling them to trade electricity across their borders.”
On a Power Link Island, wind power can also be converted to sustainable hydrogen for large-scale transport to shore or for storage or buffering purposes. “Power-to-gas conversion is expected to play an important part in the further analyses of the North Sea Wind Power Hub system”, says the Consortium – which explains the interest of gas TSO Gasunie.