Fuel for Thought – 22 Jul 2011

22 Jul, 2011

The option value of flexible older capacity: National Grid’s recent contract with Centrica for idled gas plant capacity may be a sign of things to come. The UK faces the combination of a rise in intermittent capacity, increasingly uncertain investment signals for new flexible plant and the looming closure of 11.5 GW of flexible LCPD opt out capacity. As the UK capacity margin tightens, the optionality associated with older flexible plant presents an interesting value proposition.

EDF delays Flamanville nuclear plant (again): With the public and political mood shifting against nuclear power, the delivery of a new generation of European nuclear reactors is increasingly tied to the success of the EDF/Areva development of the Flamanville plant in France. Project delays and budget overruns do not bode well for EDF’s efforts in France or for the UK government’s reliance on nuclear plant as a cornerstone for delivery of its low carbon electricity market plans.

The future for Carbon Capture and Storage? The IEA projects that CCS will need to account for 20% of all CO2 reductions if the 2050 goal of a 50% reduction in emissions is to be met. If CCS technology is to be successfully commercialised, Europe and the US will need to bear the brunt of the cost. But the sense of urgency in the US is dying with a shift in focus towards emissions reductions from unconventional gas and EU member states are dragging their feet. It is increasingly difficult to be optimistic about large scale deployment of CCS technology.

Why should European energy markets care about Argentina? Most European buyers of LNG are looking nervously to the east towards China and India. But the recent long term LNG commitment between Qatar and Argentina sees the emergence of a new force in global LNG demand. Argentinean GDP growth, currently running at more than 8%, will increasingly be fuelled by imported LNG. This is likely to add an interesting new dynamic to Atlantic basin LNG trade over the next decade.

Picture of the week:

Shell’s floating liquefied natural gas (FLNG) platform to be situated 200km off Western Australia’s Kimberley Coast. The ship which is currently under construction in South Korea will weigh six times as much as the biggest US aircraft carrier and has been built to withstand a ‘1 in 10,000 year storm’, which should be of some comfort to the crew who will need to operate it in a region known locally as ‘cyclone alley’.