Fuel for Thought – Feb 3rd

03 Feb, 2012

Positive fallout from Nabucco shake up:  The Nabucco pipeline project has been the EU’s preferred option for diversifying European gas supply into the Caspian basin.  But the project has looked increasingly unrealistic given a hefty €8bn cost, a lack of contracted gas and capital constraints facing the consortium leader RWE.   The recent announcement by Turkey and Azerbaijan to build a new pipeline through to the Bulgarian border (TANAP) is a death blow for Nabucco in its original form.  But the fallout is likely to be positive, driving a repositioning or consolidation amongst the consortiums competing to deliver Caspian gas.  RWE may well still play a key role in the final solution, but it is likely to be via a leaner project involving a broader co-operation given the current environment of capital constraints and economic uncertainty.

Practical challenges to nuclear power:  We have set out the case several times in this column for including nuclear power in the low carbon generation technology mix.  But nuclear development projects face some tough practical challenges.  Given the costs and risks associated with nuclear projects, it is clear that there is a requirement for substantial government support for any new plant to be built.  Financing is particularly difficult given project risk profiles and essentially relies on government guarantees or market structures that ensure that consumer bear the cost.  Although the UK, France and the US are trying to push ahead, public support for these measures in first world countries has clearly dwindled in the aftermath of the Fukushima disaster.  As a result the prospects for nuclear generation having a meaningful impact on global decarbonisation of the power market are focused on growth in developing countries, as explored in a recent report by Platts.

The troubles with transmission:  The growth in renewable generation projects, particularly onshore and offshore wind, is placing a huge strain on the capacity of transmission network owners to keep up with infrastructure upgrades.  The UK’s National Grid is a good example of a network company that is being faced with a large increase in connection applications, network upgrades and public consultations.  To date Grid has preferred to use overhead pylons wherever possible to limit the cost and development time for upgrades.  However Grid may now face the additional challenge of an increasing public push for underground cables.  A recent report from the Independent Planning Commission presented cost estimates for underground cables which were substantially lower than Grid’s own estimates of underground cables (in the order of 10-20 times the cost of pylons). 

Picture of the week:

Cheniere Energy’s Sabine Pass LNG facility in Lousiana.  Construction of a liquefaction facility is due to commence this year to facilitate the export of US gas by the middle of the decade.