Five Energy Stories In Five Minutes

Wales

<figcaption><fbs-accordion class="expandable" current="-1"><p class="color-body light-text">An anonymous hooded male using a tablet computer to represent a cyber criminal. (Photo by: Loop <span class="plus" data-ga-track="caption expand">… [+]</span><span class="expanded-caption"> Images/Universal Images Group via Getty Images)</span></p></fbs-accordion><small>Universal Images Group via Getty Images</small></figcaption></figure><p>Meanwhile, in Utah, news came out that sPower, a&nbsp;<a href="https://www.eenews.net/stories/1061421301" target="_blank" class="color-link">wind and solar developer, was attacked last spring by hackers</a> that interrupted communications with a dozen wind and solar installations totaling 500 MW of capacity.&nbsp;&nbsp;No outages resulted from this denial-of-service attack, but assailants taking advantage of a known weakness in Cisco firewalls created a series of five-minute communications interruptions over a period of a half-day.</p><p>These types of headlines will be with us for years to come.&nbsp;&nbsp;It’s a cyber battlefield out there.</p><p><strong>Fracking industry increasingly a victim of its own success</strong></p><p>There’s nothing worse than becoming too efficient.&nbsp;&nbsp;Except perhaps having all of your competitors keeping up with your efficiency gains.&nbsp;&nbsp;Perhaps not surprisingly, given relentless increases in drilling efficiencies, the rapid growth in hydrocarbon output from multiple shale plays around the United States has resulted in a glut of natural gas.&nbsp; As a result, prompt month prices coming into the winter are abysmal.&nbsp;&nbsp;<a href="https://www.bloomberg.com/news/articles/2019-10-30/frackers-scrap-idled-equipment-amid-pullback-in-shale-drilling" target="_blank" class="color-link">Bloomberg reports that nearly half of the country’s fracking equipment will be sidelined shortly</a>, a victim of oversupply and soft prices.&nbsp;&nbsp;It’s not simply that equipment is being idled; a significant quantity is being scrapped, with drillers throwing in the towel.&nbsp;&nbsp;</p>

<p><em>More of this equipment is destined for the junkyard</em></p><figure class="embed-base image-embed embed-4" role="presentation">

Vaca Muerta Fracking Site

<figcaption><fbs-accordion class="expandable" current="-1"><p class="color-body light-text">AÑELO, NEUQUEN – SEPTEMBER 15: Chemical products used for oil extraction in the fracking system at <span class="plus" data-ga-track="caption expand">… [+]</span><span class="expanded-caption"> side the drilling rig at Vaca Muerta on September 15, 2014 in Añelo, Argentina. Vaca Muerta is a shale geological formation originally discovered by Charles Edwin Weaver in 1931 and confirmed by YPF in 2011. Several oil companies have presented projects to extract shale oil and shale gas. (Photo by Ricardo Ceppi/Getty Images)</span></p></fbs-accordion><small>Getty Images</small></figcaption></figure><p>A look at&nbsp;<a href="https://www.eia.gov/petroleum/drilling/pdf/dpr-full.pdf" target="_blank" class="color-link">the recent EIA charts</a> illustrates just how much rig counts have declined as output has soared.&nbsp;&nbsp;</p><p>As far as gas prices, which set the power prices on the margin in most wholesale markets, the implications are for low prices for the foreseeable future.&nbsp; While LNG export facilities under development will help pick up some of this slack, there’s just too much gas out there to expect any substantial price movement.&nbsp;&nbsp;Part of the ongoing problem has been associated gas, which is essentially free gas that comes along with valuable targeted oil.&nbsp;&nbsp;Despite the sidelining of a significant portion of the drilling fleet, don’t expect much to change in gas prices, or electricity prices (with the exception of short-term perturbations driven by regional weather-driven events) anytime soon.</p><p><strong>Shell gets it first U.S. offshore wind deal</strong></p><p>Last week, Massachusetts&nbsp;<a href="https://www.greentechmedia.com/articles/read/shell-and-edpr-win-second-massachusetts-offshore-wind-tender?utm_medium=email&amp;utm_source=Daily&amp;utm_campaign=GTMDaily" target="_blank" class="color-link">awarded a contract to Mayflower Wind for its 804 MW offshore wind project</a>, to be brought online by 2025.&nbsp;&nbsp;Although the Trump Administration has held up the Vineyard Wind project, pending an environmental review (hmm, any other energy projects being held up by the feds these days? I didn’t think so), it seems only a matter of time before the industry begins moving steel into water.&nbsp;&nbsp;Perhaps the most interesting thing about this award is the awardee: Mayflower is a joint venture between EDP Renewables and Shell.&nbsp;&nbsp;</p><p><em>The other Mayflower (who needs another pic of a turbine in the water?)</em></p><figure class="embed-base image-embed embed-5" role="presentation">

The Mayflower II In An Icy Plymouth Harbor

<figcaption><fbs-accordion class="expandable" current="-1"><p class="color-body light-text">PLYMOUTH, MA – JANUARY 22: Ice covered rocks frame the Mayflower ll at it’s berth in Plymouth <span class="plus" data-ga-track="caption expand">… [+]</span><span class="expanded-caption"> Harbor, frozen in place by ice covered waters as the wind was blowing over 25 mph over the water, with the temperature in the low teens. (Photo by John Tlumacki/The Boston Globe via Getty Images)</span></p></fbs-accordion><small>Boston Globe via Getty Images</small></figcaption></figure><p>Shell joins the other European energy giants Equinor (the hydrocarbon artist formerly known as Statoil) and Orsted (née DONG, or Danish Oil &amp; Natural Gas) in transitioning towards the clean energy economy.&nbsp;Unlike most of the U.S. majors, such as ExxonMobile (algae?&nbsp;&nbsp;For real?) who seem determined to hang on to hydrocarbons and fulfill their eventual destiny as dead men walking, some of the European companies are taking the critical steps to morph with the evolving energy landscape.&nbsp;&nbsp;</p><p>Some are using their expertise in huge oil and gas projects to drive the offshore wind industry, while also utilizing their downstream customer-focused distribution networks to move into clean mobility.&nbsp;&nbsp;They are also making many of the strategic acquisitions to take commanding positions in the new industries as they develop.&nbsp;&nbsp;Last July,&nbsp;<a href="https://www.wsj.com/articles/oil-giant-shells-pivot-to-electricity-could-bring-investors-less-sizzle-11563015600" target="_blank" class="color-link">Shell announced its aspiration to become the world’s largest electric power company</a>.&nbsp;&nbsp;The Mayflower Wind award is another significant milestone in that direction.&nbsp;</p><p><strong>No Wake Zone for Orsted</strong></p><p>Speaking of Orsted, the company admitted to a major screw-up that would impact output of its offshore wind fleet versus expected results (and its share price tumbled 8% as a consequence).&nbsp;&nbsp;It transpired that an internal endeavor to better understand long-term output “<a href="https://www.rechargenews.com/wind/1870219/orsted-shares-plunge-on-offshore-wind-production-warning" target="_blank" class="color-link">has led us to conclude that our current production forecasts underestimate the negative impact</a> of two effects across our asset portfolio, the blockage effect and the wake effect.”</p><p><em>Your wake is unwanted</em></p><figure class="embed-base image-embed embed-6" role="presentation">

Boating No Wake zone to protect Manatees in canal at Crystal River Florida

<figcaption><fbs-accordion class="expandable" current="-1"><p class="color-body light-text">Boating No Wake Zone To Protect Manatees In Canal At Crystal River Florida. (Photo By: MyLoupe/UIG <span class="plus" data-ga-track="caption expand">… [+]</span><span class="expanded-caption"> Via Getty Images)</span></p></fbs-accordion><small>Universal Images Group via Getty Images</small></figcaption></figure><p>The blockage effect has to do with the slowdown of wind as it nears the turbine blades, and the wake effect is the effect of wake on the downstream turbines, both between and within wind arrays.</p><p>The effect is significant: Orsted lowered its estimated lifecycle returns by .5%&nbsp;from 7.5-8.5% to 7.0-8.0% from&nbsp;the&nbsp;seven projects it&nbsp;has&nbsp;won.&nbsp;&nbsp;Perhaps the most important element of the company’s recent announcement was this single sentence:&nbsp;“We believe that underestimation of blockage and wake effects is likely to be an industry-wide issue.”&nbsp;&nbsp;As bid prices continue to fall, industry margins and profitability will inevitably decrease.&nbsp;&nbsp;The industry can ill afford to make these kinds of mistakes. At the same time, increased scale and productivity signal a bright future.</p><p><strong>Plans for a 700 MW green hydro plant powered by wind</strong></p><p>On the heels of some other large potential projects to convert renewables into hydrogen (such as Siemens and others&nbsp;<a href="https://www.pv-magazine.com/2019/10/08/siemens-backs-5-gw-green-hydrogen-plan-for-australia/" target="_blank" class="color-link">planning to export 5GW of solar to Asia</a>), there is news of&nbsp;<a href="https://www.rechargenews.com/transition/1870430/offshore-wind-to-power-giant-green-hydrogen-carbon-neutral-aviation-fuel-plant" target="_blank" class="color-link">the Westküste 100 project</a> (that’s West Coast, to you) involving EDF Energy, Orsted and industrial heavyweight Thyssenkrupp.&nbsp;The undertaking would involve a 700 MW Orsted offshore wind farm (I hope they get the economic models right) producing carbon-free aviation fuel by 2030.</p><p><em>Almost like having fewer blades: 40% of German wind wasted last year</em></p><figure class="embed-base image-embed embed-7" role="presentation">

Damage to wind turbine

<figcaption><fbs-accordion class="expandable" current="-1"><p class="color-body light-text">A wrecked wind turbine on farm land in the village of Conisholme, Lincolnshire. (Photo by Chris <span class="plus" data-ga-track="caption expand">… [+]</span><span class="expanded-caption"> Radburn – PA Images/PA Images via Getty Images)</span></p></fbs-accordion><small>PA Images via Getty Images</small></figcaption></figure><p>The project will be at the site of an oil refinery in Germany, and is meant to demonstrate how wind farms can exploit excess wind power (apparently, in Germany last year, 40% was dumped) and convert it into useful energy.&nbsp;&nbsp;The initial pilot will employ a 30 MW electrolyzer to split water into hydrogen and oxygen (the same thing we all did in Intro Chem in high school).&nbsp;&nbsp;The hydrogen will then be mixed with carbon dioxide from a nearby cement plant to synthesize kerosene jet fuel for the Hamburg airport.&nbsp; With every passing day, H2 looks like a bigger piece of our energy future.</p>”>

OK, here we stand in early November looking back at the energy happenings in the last week of October.  Once again, I’ve taken the liberty of identifying what I feel to be the top 5 stories from last week, based on their longer-term implications for the multi-trillion dollar global energy transition (an evolution Morgan Stanley estimated will involve $50 trillion of investments over the next three decades).

The hoodies (not Bill Belichik’s) are back at it

Yep, we’re back to the picture of the guys in the black hoodies again: Respected cyber-security firm Dragos reported in a blog last week that hackers were able to infiltrate an Indian nuke in Tamil Nadu, but were unable to access the industrial controls systems. The Dragos investigation outlined an event that occurred sometime in September and late October, with the Nuclear Power Corporation of India Limited confirming a malware infection on an administrative network.  According to an October 28 social media post, the adversary was able to get access to the domain controller (which performs authentication and user authorization across the system).   According to Dragos, such access would allow intruders to steal data, “and make changes to a target system,” but “insufficient evidence exists to indicate this occurred.” So far, it does not appear that hackers gained access to critical controls systems, which could potentially create a critical threat.

You can tell them by their hoodies

Meanwhile, in Utah, news came out that sPower, a wind and solar developer, was attacked last spring by hackers that interrupted communications with a dozen wind and solar installations totaling 500 MW of capacity.  No outages resulted from this denial-of-service attack, but assailants taking advantage of a known weakness in Cisco firewalls created a series of five-minute communications interruptions over a period of a half-day.

These types of headlines will be with us for years to come.  It’s a cyber battlefield out there.

Fracking industry increasingly a victim of its own success

There’s nothing worse than becoming too efficient.  Except perhaps having all of your competitors keeping up with your efficiency gains.  Perhaps not surprisingly, given relentless increases in drilling efficiencies, the rapid growth in hydrocarbon output from multiple shale plays around the United States has resulted in a glut of natural gas.  As a result, prompt month prices coming into the winter are abysmal.  Bloomberg reports that nearly half of the country’s fracking equipment will be sidelined shortly, a victim of oversupply and soft prices.  It’s not simply that equipment is being idled; a significant quantity is being scrapped, with drillers throwing in the towel.  

More of this equipment is destined for the junkyard

A look at the recent EIA charts illustrates just how much rig counts have declined as output has soared.  

As far as gas prices, which set the power prices on the margin in most wholesale markets, the implications are for low prices for the foreseeable future.  While LNG export facilities under development will help pick up some of this slack, there’s just too much gas out there to expect any substantial price movement.  Part of the ongoing problem has been associated gas, which is essentially free gas that comes along with valuable targeted oil.  Despite the sidelining of a significant portion of the drilling fleet, don’t expect much to change in gas prices, or electricity prices (with the exception of short-term perturbations driven by regional weather-driven events) anytime soon.

Shell gets it first U.S. offshore wind deal

Last week, Massachusetts awarded a contract to Mayflower Wind for its 804 MW offshore wind project, to be brought online by 2025.  Although the Trump Administration has held up the Vineyard Wind project, pending an environmental review (hmm, any other energy projects being held up by the feds these days? I didn’t think so), it seems only a matter of time before the industry begins moving steel into water.  Perhaps the most interesting thing about this award is the awardee: Mayflower is a joint venture between EDP Renewables and Shell.  

The other Mayflower (who needs another pic of a turbine in the water?)

Shell joins the other European energy giants Equinor (the hydrocarbon artist formerly known as Statoil) and Orsted (née DONG, or Danish Oil & Natural Gas) in transitioning towards the clean energy economy. Unlike most of the U.S. majors, such as ExxonMobile (algae?  For real?) who seem determined to hang on to hydrocarbons and fulfill their eventual destiny as dead men walking, some of the European companies are taking the critical steps to morph with the evolving energy landscape.  

Some are using their expertise in huge oil and gas projects to drive the offshore wind industry, while also utilizing their downstream customer-focused distribution networks to move into clean mobility.  They are also making many of the strategic acquisitions to take commanding positions in the new industries as they develop.  Last July, Shell announced its aspiration to become the world’s largest electric power company.  The Mayflower Wind award is another significant milestone in that direction. 

No Wake Zone for Orsted

Speaking of Orsted, the company admitted to a major screw-up that would impact output of its offshore wind fleet versus expected results (and its share price tumbled 8% as a consequence).  It transpired that an internal endeavor to better understand long-term output “has led us to conclude that our current production forecasts underestimate the negative impact of two effects across our asset portfolio, the blockage effect and the wake effect.”

Your wake is unwanted

The blockage effect has to do with the slowdown of wind as it nears the turbine blades, and the wake effect is the effect of wake on the downstream turbines, both between and within wind arrays.

The effect is significant: Orsted lowered its estimated lifecycle returns by .5% from 7.5-8.5% to 7.0-8.0% from the seven projects it has won.  Perhaps the most important element of the company’s recent announcement was this single sentence: “We believe that underestimation of blockage and wake effects is likely to be an industry-wide issue.”  As bid prices continue to fall, industry margins and profitability will inevitably decrease.  The industry can ill afford to make these kinds of mistakes. At the same time, increased scale and productivity signal a bright future.

Plans for a 700 MW green hydro plant powered by wind

On the heels of some other large potential projects to convert renewables into hydrogen (such as Siemens and others planning to export 5GW of solar to Asia), there is news of the Westküste 100 project (that’s West Coast, to you) involving EDF Energy, Orsted and industrial heavyweight Thyssenkrupp. The undertaking would involve a 700 MW Orsted offshore wind farm (I hope they get the economic models right) producing carbon-free aviation fuel by 2030.

Almost like having fewer blades: 40% of German wind wasted last year

The project will be at the site of an oil refinery in Germany, and is meant to demonstrate how wind farms can exploit excess wind power (apparently, in Germany last year, 40% was dumped) and convert it into useful energy.  The initial pilot will employ a 30 MW electrolyzer to split water into hydrogen and oxygen (the same thing we all did in Intro Chem in high school).  The hydrogen will then be mixed with carbon dioxide from a nearby cement plant to synthesize kerosene jet fuel for the Hamburg airport.  With every passing day, H2 looks like a bigger piece of our energy future.

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