sa storage presentation...• lowest cost deliverability available to gas industry (gas plant...

SA Roundtable for Oil amp GasUnderground Gas Storage 101

November 30 2017By Glen Gill

Managing Director of Innovative Energy Consulting Pty LtdDirector of Australia Gas Storage Ventures Pty Ltd

Director amp Public Officer of Encana International Australia Pty Ltd (Encana Corporation)

Innovative Energy Consulting Pty Ltd 1

Myth 1Gas Storage is a Relatively New

Concept


Gas Storage ErarsquosThe ldquoHorse amp Buggyrdquo Era

Outdated Gas HoldersManufactured Gas Application

The ldquoModel Trdquo (1916-50rsquos)Underground Gas Storage Facility

Utilising Depleted Reservoirs


Gas Storage ErarsquosThe ldquoMustangrdquo

UGS utilising Pinnacle Reefs (1960rsquos in Michigan US UGS utilising high Quality Sandstones amp Horizontal

Wells (Alberta Canada mid 1980rsquos)

The ldquoFerrarirdquo Underground Gas Storage Facility

Utilising Salt Caverns (Germany amp US Gulf Coast)


Myth 2Depleted Reservoirs are the Best

Tool for UGS


Subsurface (Underground) Gas Storage

Pore Space Storage bull Naturally occurring reservoirsbull Porosity permeability closure drive

mechanism depth amp size are all important variables

bull Generally longer cycle less responsive storage facilities

bull 1 to 3 cycles per yearbull Max daily withdrawal rate is at best

2 of working gas inventorybull Traditional gas storagebull Originated in Ontario Canada in 2015

Man Made Cavernsbull Utilising either salt beds or salt domes (NaCl

rock salt or halite)bull Salt depth thickness purity amp areal extent

are all important variablesbull Short cycle very responsive storage facility

(many times per year)bull Max daily withdrawal rate is 10 of working

gas inventory bull State of the art gas storage bull Originated in Michigan US in 1961 (46 years

after reservoir storage)bull Liquid hydrocarbon storage in salt caverns

preceded gas by a decade


Salt Cavern Storagebull Over 2000 salt caverns used for hydrocarbon storage in

North Americabull Europe has over 1000 salt cavernsbull Excellent low-cost high performance storage containers for

natural gas amp liquid hydrocarbonsbull Impermeable material high pressure vessel amp unimpeded

flow of gas to and from the IW wellsbull Salt domes work best bedded salt is inferior host


Myth 3Gas Storage is Only Used for Meeting

Seasonal Gas Demand in Cold Climates


Application EvolutionOriginal Application (1950rsquos amp 60rsquos)

Gas Market RegionGas Supply Region (post 1980rsquos)

bull Driven by introduction of intense gas to gas competition

bull Efficiency improvementbull Minimise capital bull Maximise utilisation rates amp profit

marginsbull Western Canada Gulf of Mexico

region amp Russiabull Crown owners support this as

royalties increase Eastern Canada Northern US Europe amp Russia


Primary Margin Optimisation Opportunities

Upstream

bull Just in time well deliverability replacement bull Minimise gas production capacity levelbull Just in time reserve additions to offset gas sales (RP ratio)bull Maximise annual utilisation rate of gas production facilities

Midstream

bull Much more lsquoline packrsquo available to quickly resolve imbalances bull Access quick cycle gas storage capacitybull Increases market liquidity

Downstream

bull Maximise annual utilisation rate of LNG trainsbull Lower cost of gas to domestic end usersbull Reshape gas supply curve to meet fluctuating gas demand


Myth 4Any Depleted Reservoir Will Do


Depleted Reservoirs UGS Candidates

bull Vigorous screening process ndash lots of criteriaparametersbull Cannot force a reservoir to cycle gas at high ratesbull Most depleted reservoirs are not commercially amp technically viablebull Orders of magnitude more complicated than simply producing gas

from the original discoverybull Many smaller reservoirs preferable to one large one


Myth 5Water Drive works Best


Myth 6Large Reservoirs work Best


Myth 7We need to Explore for Storage

Reservoirs


How to Find Storage Locations

bull Salt (halite) deposits show up on seismic amp are confirmed by wellsbull Thickness amp depth are key factorsbull High performance reservoir traps are found by screening depleted amp

producing reservoirsbull Production history is vitalbull The SA Gas Storage Exploration Licence procedure may fit CO2

Sequestration development projects but does not fit hydrocarbon storage development projects


Myth 8There are Bona Fide Gas Storage

DevelopersOperators in Australia


Gas Storage Evolution in Australia

Gas Cycling amp Upstream

Optimisation

bull Bass Strait Timor Sea Moomba amp Ballera (1960rsquos +)bull Liquids rich gas andor load leveling gas plantsbull JV operation to enhance profitability bull Gas Producer driven

Depleted Reservoir

bull Iona amp Mondarra facilities (1990rsquos +) in Victoria amp WA respectivelybull US companies TXU amp CMS built these facilities (not gas producers)bull Both facilities have recently been expandedbull Silver Springs (AGL) amp RUGS (GLNG JV) developed in Surat Basin Qld over past 5 years

Salt Cavern

bull Yet to be utilised in Australiabull World class salt deposits in SE QLD NT amp WAbull High performance in terms of both gas cycling and containmentbull Lowest cost deliverability available to gas industry (gas plant outages price arbitrage etc)

18Innovative Energy Consulting Pty Ltd

Benchmarking ndash Mondarra UGS Facility in WA

bull Reservoir produced 26 PJrsquos from 1972-94

bull Converted to UGS in 1994 by US based company

bull Acquired by APA in 2004bull 18 PJrsquos of stated working gas

capacitybull Max injection = 70 TJdbull Max withdrawal = 150 TJd


UGS Facility in Alberta developed by Encana bull 1st reservoir converted to UGS in

1988bull Followed by many expansions over

the next 15 yearsbull 7 depleted gas reservoirsbull 70600 HP provided by 22

compressorsbull 68 vertical IW wellsbull 50 horizontal IW wellsbull Commercial open access facility


AECO Gas Storage Facility Current Rating Comments

Working Gas Capacity

1350 PJ8X Mondarra

Nearly 150 of the cumulative gas prod from the 7 reservoirs

involved

Peak Withdrawal Rate

3500 TJd23X Mondarra

(gt40 X max Prod Rate during gas

production stage)

Peak Injection Rate2400 TJd

48X Mondarra

The Gap is Huge amp GrowingNorth America

bull UGS utilising depleted reservoirs pioneered in Canada (1915) followed by the US in 1916

bull gt1000 reservoirs used (up to 23 per storage facility)

bull UGS utilising salt caverns pioneered in in Canada (1963)

bull gt 500 salt caverns used for UGS (twice that for hydrocarbon storage)

bull gt12000 IW wells in US alone amp up to 170 IW wells per UGS facility

Australiabull Producer storage commenced in

1960rsquosbull UGS commenced in the 1990rsquos using

depleted reservoirsbull Very small capacity relative to gas

production rates when benchmarked to Russia Canada or the US

bull Old technology amp relatively poor facility performance

bull lt50 IW wells in lt20 reservoirs


Myth 9UGS Development Just Happens


In Realitybull Upstream petroleum companies own less than 5 of the worldrsquos gas

storage facilities (non-core business)bull Australiarsquos installed UGS capacity is extremely small compared to

other gas rich OECD countriesbull Both Iona amp Moomba exist because of past government interventionbull Access to gas pipelines is terrible in Australiabull No mechanism to obtain quality reservoirs (hoarding issue)bull Only rudimentary regulations for reservoir storage no regulations for

salt cavern storage


UGS Development

Technical Viabilitybull Reservoirs ndash Recovery Factor

Drive mechanism porosity permeability reservoir shape cap rock integrity hydraulic integrity size clusters

bull Salt ndash thickness depth purity areal extent bedded or domal availability of water supply for leaching

Commercial Viabilitybull Distance to major gas

pipelinestrading hubsbull Pipeline tariff ratesbull Access to uncongested capacitybull Proximity to gas hubbull Price signalsbull Diversity of customersbull Capex amp OC of facility


How to Attract Investment to UGS Sector

Gas Market Structurebull Summerwinter price spreadbull Liquid transparent gas market

with price volatility amp meaningful trading volume

bull Many market participants with access to transportation services

bull Ideally a gas futures market

Transmission bull Pipeline tariffs that are absent

market power amp non-discriminatory

bull Distance based forward haul tariffsbull Backhaul tariffs that are but a small

fraction of forward haul ratesbull Access to unused capacity on a low

price interruptible basis (uncongested pipelines)



Government Policybull Promote the sector amp encourage

independent storage operators over vertically integrated companies

bull Clear amp comprehensive regulations for reservoir amp salt cavern storage dev amp operations

bull Access to high quality depleted reservoirs amp salt deposits (currently hoarding is acceptable)

bull Possibly a market power test to determine if economic regulation is required

Social Licence bull Public education ndash national

interestbull Adopt amp ensure best in class

health amp safety standards bull Proper reporting of UGS

operationsbull Adopt amp ensure best in class

technical standards for UGS development amp operations


Myth 10Australia has sufficient UGS capacity


Canadarsquos Open Access UGS Capacity (2014) Bcf WGV470 Bcf in W Canada240 Bcf in E Canada820 Bcf Total

Bcf

2016 Canadian Average Gas Production 152 Bcfd2017 Eastern Australia Average Gas Production 56 Bcfd (37 of Canada)

Current Level of open access UGS Capacity in E Australia (5 of Canadarsquos WGV capacity amp only 2 of its max storage deliverability)


USA has 49X Cdn Storage Capacity Europe has 64X Russia has 30X amp Australia has 008X

29

Alberta Canadarsquos Explosive UGS Growth

01234567

1988 1994 2005 2008 2010

Deliverability (Bcfd)

Alberta gas production peaked in 2002 at 14 Bcfd but gas storage capacity continued to grow driven by larger share of unconventional production and less prolific conventional wells Gas storage max deliverability now exceeds 50 of the peak day production capacity of 140000 producing gas wells Throughout the period from 1988 to 2010 Alberta gas supplied essentially flat gas demand ndash the Alberta industrial market amp base load pipeline exports to US amp E Canada

050

100150200250300350400

1988 1994 2005 2008 2010

Working Gas (Bcf)

E Australia UGS capacity level (2017)

Innovative Energy Consulting Pty Ltd



Innovative Energy Consulting Pty Ltd ABN 81 122 373 719Australian Gas Storage Ventures ACN 610 582 253gleninnovativeenergycomau wwwinnovativeenergycomau

Mobile 0400772512 Tel +61 (7) 5435-8288 PO Box 1008 Maleny Qld Australia 4552

Glen W GillGlen has 35+ years of gas industry experience across the value chain from primarily North Americaand Australia Glen commenced his career as a petroleum engineer and then moved into thecommercial side of the gas business marketing trading business development and MampA Hethen moved into middle and senior management positions and his experience includes executivepositions with a number of world leaders in the gas industry and many years providing consultingservices to major end users of gas gas producers industry associations Government andmidstream infrastructure ownersoperators His underground gas storage experience spans 30years and he initiated amp led the pioneering of the first non-regulated gas storage facility in Canadawhich grew to become the largest natural gas storage facility and largest gas trading hub inCanada Glen has been involved in the development of both the Iona and the RUGS storagefacilities in Australia and he has been promoting the Boree Salt gas storage development projectin SE Qld for the past nine years Glen is also a co-founder of Australian Gas Storage Ventureswhich was established in early 2016 to provide a variety of storage services to Australiarsquos growinggas storage sector


Myth 1Gas Storage is a Relatively New Concept

Gas Storage Erarsquos


Myth 2Depleted Reservoirs are the Best Tool for UGS


Salt Cavern Storage

Myth 3Gas Storage is Only Used for Meeting Seasonal Gas Demand in Cold Climates

Application Evolution






Myth 7We need to Explore for Storage Reservoirs


Myth 8There are Bona Fide Gas Storage DevelopersOperators in Australia



UGS Facility in Alberta developed by Encana

The Gap is Huge amp Growing


In Reality

UGS Development




Canadarsquos Open Access UGS Capacity (2014) Bcf WGV


Slide Number 30

Slide Number 31

Myth 1Gas Storage is a Relatively New

Concept














Tool for UGS

































Upstream


Midstream


Downstream














Reservoirs












Optimisation


Depleted Reservoir


Salt Cavern
















1350 PJ8X Mondarra


involved




production stage)


48X Mondarra



















salt cavern storage


UGS Development

































Bcf





29


01234567

1988 1994 2005 2008 2010



050

100150200250300350400

1988 1994 2005 2008 2010

Working Gas (Bcf)














Salt Cavern Storage
















In Reality

UGS Development






Slide Number 30

Slide Number 31













Tool for UGS

































Upstream


Midstream


Downstream














Reservoirs












Optimisation


Depleted Reservoir


Salt Cavern
















1350 PJ8X Mondarra


involved




production stage)


48X Mondarra



















salt cavern storage


UGS Development

































Bcf





29


01234567

1988 1994 2005 2008 2010



050

100150200250300350400

1988 1994 2005 2008 2010

Working Gas (Bcf)














Salt Cavern Storage
















In Reality

UGS Development






Slide Number 30

Slide Number 31
































Upstream


Midstream


Downstream














Reservoirs












Optimisation


Depleted Reservoir


Salt Cavern
















1350 PJ8X Mondarra


involved




production stage)


48X Mondarra



















salt cavern storage


UGS Development

































Bcf





29


01234567

1988 1994 2005 2008 2010



050

100150200250300350400

1988 1994 2005 2008 2010

Working Gas (Bcf)














Salt Cavern Storage
















In Reality

UGS Development






Slide Number 30

Slide Number 31












Reservoirs












Optimisation


Depleted Reservoir


Salt Cavern
















1350 PJ8X Mondarra


involved




production stage)


48X Mondarra



















salt cavern storage


UGS Development

































Bcf





29


01234567

1988 1994 2005 2008 2010



050

100150200250300350400

1988 1994 2005 2008 2010

Working Gas (Bcf)














Salt Cavern Storage
















In Reality

UGS Development






Slide Number 30

Slide Number 31











Optimisation


Depleted Reservoir


Salt Cavern
















1350 PJ8X Mondarra


involved




production stage)


48X Mondarra



















salt cavern storage


UGS Development

































Bcf





29


01234567

1988 1994 2005 2008 2010



050

100150200250300350400

1988 1994 2005 2008 2010

Working Gas (Bcf)














Salt Cavern Storage
















In Reality

UGS Development






Slide Number 30

Slide Number 31














1350 PJ8X Mondarra


involved




production stage)


48X Mondarra



















salt cavern storage


UGS Development

































Bcf





29


01234567

1988 1994 2005 2008 2010



050

100150200250300350400

1988 1994 2005 2008 2010

Working Gas (Bcf)














Salt Cavern Storage
















In Reality

UGS Development






Slide Number 30

Slide Number 31



















salt cavern storage


UGS Development

































Bcf





29


01234567

1988 1994 2005 2008 2010



050

100150200250300350400

1988 1994 2005 2008 2010

Working Gas (Bcf)














Salt Cavern Storage
















In Reality

UGS Development






Slide Number 30

Slide Number 31

UGS Development

































Bcf





29


01234567

1988 1994 2005 2008 2010



050

100150200250300350400

1988 1994 2005 2008 2010

Working Gas (Bcf)














Salt Cavern Storage
















In Reality

UGS Development






Slide Number 30

Slide Number 31



























Bcf





29


01234567

1988 1994 2005 2008 2010



050

100150200250300350400

1988 1994 2005 2008 2010

Working Gas (Bcf)














Salt Cavern Storage
















In Reality

UGS Development






Slide Number 30

Slide Number 31

29


01234567

1988 1994 2005 2008 2010



050

100150200250300350400

1988 1994 2005 2008 2010

Working Gas (Bcf)














Salt Cavern Storage
















In Reality

UGS Development






Slide Number 30

Slide Number 31












Salt Cavern Storage
















In Reality

UGS Development






Slide Number 30

Slide Number 31

sa storage presentation...• lowest cost deliverability available to gas industry (gas plant...

Documents