| Gas Storage - The Resurrection | Oilretire

24th Aug '09 by oilretire

22 comments 7816 reads

No point repeating what has gone before other than to say Esmond/Gordon ended up back to 100% Encore.

I have always thought the GS project might come to something, but I thought it could be years before we would see news of any progress. Looks like I am wrong on that, thanks to sivadnoj on ADVFN, news of an independant review has appeared on Upstream on the 21st Aug.

http://www.upstreamonline.com/archive/?action=search&dateType=normal&searchString=encore

Helix to provide Esmond review

EnCore enlists Aberdeen-based consultant for revised project

UK junior EnCore Oil has appointed Helix RDS to provide an independent assessment of the viability of a revised plan to develop the Esmond gas storage project in the UK North Sea.................

"We have reworked possible development options on the project and have recently commissioned Helix RDS to provide an independent assessment of the technical viability of the project, which could then lead to further studies," said chief executive Alan Booth.

Booth said work is under way to redesign a development plan for Esmond to account for partial repressurisation of its lower reservoir.

Aberdeen-based Helix will peer review and, where necessary, refine the scheme.

Booth said EnCore hopes to carry out a detailed reservoir simulation study this summer, and, "assuming the results support our planned development scheme we will examine how we might achieve best value for our shareholders".

Chairman Mike Lynch added: "We are now at the stage where we have a project for which we need a new partner or a new owner in order for it to be progressed.

"We still firmly believe in the technical viability of the asset, but recognise that its value is dependent on others seeing the value, as we do, of this asset in a market which is crying out for gas storage."

http://www.helix-rds.com/EnergyServices/HelixRDS/Capabilities/tabid/160/Default.aspx

Which is part of

http://www.helixesg.com/

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oilretire

31st Aug '09

Out of the original proposed 145 bcf gas storage facility, did anyone manage to establish what percentage of the storage volume was safely in the upper unpressurised zone and what percentage was in the lower zone that has been subjected to repressurisation?

ohisay

My working hypothesis -rightly or wrongly- has been that Esmond contained 100bcf of the 145bcf Esmond/Gordon overall gas storage and that if 1/3 was "repressurised" that would leave 65bcf for a storage facility.

I guess they could assume an additional 2/3 of Gordon (as an analogue) but it seems to me that would have to be tested -can't see that being done though as Esmond was quite an expensive test.

As I recall they were looking at £1.2BN capex for the original scheme (incl. cushion gas) so that would have to come down dramatically for 65bcf to wipe its face.Then again it depends how many times they might recycle.....

Still looks very iffy to me with so many variables to take account of.

JPGH

Ohisay

AFAIAA the original CAPEX of £1.2 billion did not include for cushion gas (as cushion gas is not considered to be a capital item).

I'd say CAPEX has come considerably since the 2007 report/investigation by AMEC as equipment costs, labour rates and steel prices have relaxed a lot since then. However to repressurise part of Esmond reservoir will require additional equipment and costs not foreseen when original study was carried out. Hard to say where they are with the cost for this.

doverbeach

17th Sep '09

http://www.encoreoil.co.uk/assets_cm/files/PDF/agm_2009_pres...

see slide 8 in todays AGM presentation:

EnCore now operator and 100% equity holderfollowing Petronas’ withdrawal
Reconfigured gas storage project using Esmond alone. 100 - 130bcf capacity
Requires dewatering/depressurisation of lower reservoir.
Capital costs not materially impacted
Timing of full capacity utilisation is the main impact on NPV.
Helix/RDS have confirmed our technical evaluation.
Requires a reservoir simulation model to be built – ongoing with Senergy, should be
complete before year end.
Subject to confirmation of ‘ResSim’ then we will be looking to market the project in Q1 2010.
Cost to get to marketing decision point £100-125k.

The reason there are no extra capital costs is that most of them are in drilling and these would remain the same. However it will take longer to repressurise so the pay back will be delayed affecting the NPV.

The upper part of the reservoir is about 20-25% - which would be too small on its own.

AB commented that during the Ukraine /Russia dispute this year Rough storage had been 80% depleted.

db,

did AB or anybody get a feel for quantity of repressurisation gas needed for lower reservoir (in addition to cushion gas for whole project)?

God but this share requires great patience just to hang in there.....

18th Sep '09

The question wasn't asked. He was queried about whether the project would be significantly more expensive because of repressurisation and he said IIRC - Marben was also there so perhaps he can add to this) the capex wouldn't be but the payback would be longer.

He also said that the size of the reervoir (once it wa over a minimum) wasn't the most important thing, what mattered was the time taken to get the gas in and out.. So a smaller than 100-125 storage - he mentioned 70 or 80 but I think this was just plucking a figure as an example - could be the optimal size if the time taken to get the last therm out of the larger storage was so long that no=one would pay for it.

marben100

23rd Sep '09

Hi JPGH,

Not sure I understand the technicalities here properly... but isn't it a case of pumping water OUT of the lower reservoir and replacing it with cushion gas? I guess you may need a small amount of over-pressure to keep the water out but isn't the volume of gas required (at STP) roughly the same as if water ingress hadn't occurred, just that it takes more time to gradually pump in the gas, whilst the water is slowly pumped out (so as not to damage the reservoir)?

Over the period that this process takes place (years, I guess), the usable volume for gas storage will progressively increase, until the original volume (or a figure close to it) is attained and all the water has been removed. Considering the economics, it might make sense to only pump the water out in the summer months. Hey, wonder if you could actually use the water as a piston and not need as much cushion gas??!!

Am I talking b****cks? :0)

TIA,

Mark

SW10Chap

In reply to marben100 (post #9)

Hey, wonder if you could actually use the water as a piston and not need as much cushion gas?

I know you addressed this to JPGH and I should probably stay out of it because it really isn't my area, but I imagine that the fact gas moves a great deal faster through a reservoir than water will be the main reason for not doing so.

Yours interferingly,

SW10

Thanks SW10 - yes, that makes sense, of course - scrap the "piston" idea, I'm sure the rate of water movement through the reservoir would be too slow for such a purpose.

Sorry I didn't respond to db's earlier comment: what db heard is what I heard too - totally agree. AIUI the key issue is payback time, rather than cost. Besides technical confirmation of the project, what is needed to realise value is for an operator to take a view that gas storage will become increasingly valuable in the future as supplies throughout Europe become more constrained. It needs someone with deep pockets, prepared to consider a long time horizon. Not too many of those about in Europe, unfortunately.

25th Sep '09

Mark,

Reservoir engineering is not my forte at all (surface facilities is my "area") but I thought from various BB threads and postings from 2008 or so (from when EO. announced that the lower reservoir had repressurised and was full of water) that there are 2 possible schemes to get water out

(i) produce the water to surface (almost like producing oil except at much higher rates) through 2 or so wells. This requires topside water treatment equipment as well as additional wells (and possibly using some exotic materials i.e. not carbon steel). Not knowing the presures, eventually they may have to use downhole pumps to get the water out. Whilst that is happening EO. can use the upper depleted section as per normal but overall the gas storage volume is reduced when cpmpared to teh originally though t 150 bcf volume. Over time this lower storage volumecan be augmented bit by bit, as reservoir engineers declare more and more of lower section to be usable (need to redrill/recase/reperforate the injection/withdrawal wells to access the deeper zones) until the lower section.

(ii) displace water using gas, as you suggested above. I am not sure how effectiv ethis will be though and may be cost prohibitive as the topsides compressor will need to be more powerful and bigger (has 2 jobs ......to displace water at high pressure, to provide cushion gas to upper section).

There are a few UKNS reservoir engineer types in the office next week so I'll ask them for an opinion also or if they have heard any "gossip" about the current plans for this reservoir (The Res Eng community is small, one of them takes a leak and they all get to know).

4th Oct '09

Already posted this on M&A, but one comment of interest for here too.....

http://scotlandonsunday.scotsman.com/energyutilities/Oil-mergers-set-to-resume.5701519.jp

.........he is calling for the gas sector to be given a boost. Stanton said that investment is needed in both gas storage and production.

REO100

5th Oct '09

Article in the weekend press, with the opening line -

Just five hours' worth of gas storage capacity will be built in the UK over the next two years

Over the coming months there will probably be plenty of media scrutiny and the UK's apparent lack of development in this area.

http://www.guardian.co.uk/business/2009/oct/04/gas-storage-capacity-five-hours

StrollingMolby

16th Oct '09

New presentation up on the Encore website re Esmond Gas Storage, made at UKTI 'Gas Storage Opportunities in the UK' Seminar on 13 October 2009:

http://www.encoreoil.co.uk/assets_cm/files/PDF/encore_gas_storage_presentation_from_oct_2009.pdf

17th Oct '09

Fantastic find, SM! Contains all the details of the project and economics. Disappointing that the best IRR at the best estimate of future tariff remains below 20%. This may not be enough to attract a private sector partner - however a far sighted utility may view it as a strategic investment, essential to reduce the risk of huge spikes in future gas costs, which would undoubtedly arise WITHOUT sufficient gas storage. If that is factored in, the economics may look rather different...

In the context of the current valuation of EnCore at virtually their cash position it seems hard to believe that the market gives absolutely no value to this project. Whilst I would not know where to begin to suggest a credible value surely such details now provide this is viable and as mentioned above is more likely to be considered a strategic investment. Dare I mention there is also the potential of Cladhan and Catcher in Q2 2010. This should make things interesting in seeing whether the company can execute their stated buyback plan. I personally believe it will become increasingly difficult for them to buy shall we say in size at the 14.5p level. That is not a negative criticism of management more an observation that the SP should perhaps not be at this level and as we approach 2010 the SP might start to factor in some of the excitement of the upcoming drills.
Lastly if management cannot execute the buyback and some become interested in EnCore's assets surely this would be a sitting duck - I believe management were quite clear at the AGM that the company was up for grabs. With a little patience this does look an attractive investment with limited downside.

MrTrousers

6th Jan '10

The BBC website had some gas storage comment yesterday.

The UK has the equivalent of eight days worth of gas usage left in storage, the Conservative Party has claimed. Shadow energy secretary Greg Clark called for more storage capacity and said the UK lacked "essential back-up plans".

Full article here.

I didn't see much follow-up discussion but maybe another week of bad weather might bring the topic back to the fore.

8th Jan '10

In reply to MrTrousers (post #18)

More on this on the Scotsman's website.

ENERGY Secretary Ed Miliband conceded yesterday that the UK needed more gas storage, after the National Grid warned for the second time this week that supplies could run out.

The first wave of gas cuts hit factories and industry across the country yesterday. Vauxhall's car plant at Ellesmere Port and British Sugar's refineries at Bury St Edmunds and Newark were among nearly 100 facilities that had their energy supplies cut.

Things seem to be getting a little more frantic.

In reply to MrTrousers (post #19)

There was a rather more contrarian view in the Independent today suggesting it was more a matter of distribution than supply as such.

http://www.independent.co.uk/news/business/comment/david-prosser-talk-of-a--gas-crisis-is--just-hot-air-1861331.html

Still it's done the Encore price no end of good - up 15% today .(Can't believes it's not related )

So, Mr Prosser claims:

This isn't a question of supply, but distribution. What National Grid did yesterday was put in place plans it has for when its network is operating at full capacity and can no longer keep up with demand, reducing supplies to some customers in order to prioritise the domestic market.

But the official word from National Grid is this:

The purpose of the Gas Balancing Alert (GBA) is to provide a signal to the market that demand-side reduction and/or additional supplies may be required to avoid the risk of entering into a Network Gas Supply Emergency. The trigger level for a Gas Balancing Alert is based on a combination of the absolute Supply & Demand levels and the impact of a potential breach of a Safety Monitor. The GBA will not cover the likelihood of Interruption to manage Transportation Constraints.

The basic trigger level for the alert is set by the anticipated available (non storage) supplies into the network plus storage deliverability. The base case assumptions for non storage supplies are consistent with those published in the Winter Consultation Report and form the basis behind the September Safety Monitor requirements.

A GBA will be issued when forecast daily demand for D-1 > Trigger Level. This will be published on the Prevailing View.
Additionally all storage sites with 2 or more days of deliverability will be included within the GBA Trigger Level. If a storage site is forecast to be depleted to such a level that there will only be 2 days (at maximum withdrawal rate) left in storage above the Safety Monitor level by the end of the current gas day, the trigger level will be reduced by the maximum withdrawal rate for that storage site.

Methinks Mr Prosser is talking out of his proverbial. ;0)

It is a BALANCING alert, not a capacity alert.

Cheers,

emptyend

10th Feb '10

According to the local news in East Anglia, a planning application has just been submitted for the Baird Gas Storage project, which I see is conveniently summarised here: http://www.bairdgasstorageproject.com/offshore.php

Baird, an existing natural gas field 86 kilometres off the North Norfolk coastline, has a reservoir located about 2,700 metres under the sea bed and is capable of holding a total storage capacity of 1.7 billion cubic metres.

The stored gas will be available to be piped back into the National Transmission System at rates of up to 40 million cubic metres a day during peak periods of demand. This is equivalent to about 10% of the total gas demand in Britain during the coldest days in winter.

Hadn't seen other projects mentioned previously, though I've not been paying attention.

Gas Storage - the resurrection

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