SMI Shale Gas Environmental Summit 23 May 2012

Shale Gas Environmental Summit 2012

Getting shale gas to market

23rd May 2012

John Baldwin Managing Director CNG Services Ltd john.baldwin@cngservices.co.uk www.cngservices.co.uk 07831 241217

Getting shale gas to market

• • • • • • •

Shale gas locations and the UK gas grid Connection to the National Transmission System Connections to the Local Transmission System Gas Quality Requirements The CV issue Timetable for New Entrants Conclusions

CNG Services Ltd • Supports projects to inject biomethane into the gas grid – Developer of Didcot project for Thames Water, SGN and Centrica – Working on 30 further biomethane injection projects in UK

• CNG as a fuel for trucks

– Owner of UK’s largest CNG station in Crewe – Developing national network of CNG stations on high pressure grid to fuel HGVs

• Supporting development of onshore gas fields and gas storage projects – Wingas Gas Storage Project at Saltfleetby – Ryedale Gas Field Project – Halite Gas Storage Project at Preesall

We are independent from all makers of plant, vehicles, clean-up, compression....we help clients get the best solution for their projects

BG Group Kazakhstan • In July 2010 we commissioned the first CNG filling station in Kazakhstan • 200 buses ordered for Asian games • CNG is the solution to air quality

Most major cities have air quality problems and so make CNG the fuel of choice for buses.....we should have CNG buses in London, we have none

Crewe CNG Station • We re-opened our Crewe CNG filling station in August • Filling 5 CNG dual fuel trucks for GIST/M&S, 3 for Waitrose/John Lewis and 1 for Tesco • http://www.youtube.com/watch?v=orxBtoXyjos

Largest grid supplied CNG station in UK – takes gas from 4 bar grid and so uses 20% less electricity compared to 0.2 bar grid

Didcot – UK’s First BtG Project

Digesters

Propane Storage

Gas bag

Propane Injector

Telemetry

Energy and quality measurement

CSL – Designer and Project Manager H2S and Siloxane filters

Biogas upgrader

Flow of biogas - 100 m3/hr First gas to grid on 3rd Oct 2010

Shale gas locations and the UK gas grid

The NTS appears to be wherever there is shale gas

Connection to the National Transmission System • The physical connection to the NTS must be completed and commissioned and the measurement equipment must be validated – This is straightforward, £1.5 Million, no major issues

• The operational Network Entry Agreement (NEA) detailing the conditions for gas to flow must be signed – Only one issue of consequence – gas quality – see later

• Shippers must have obtained sufficient transmission entry capacity via the relevant entry capacity mechanisms and have the necessary contractual rights to use that capacity – This is location dependent, capacity may be available or a long term capacity bid may be required – NG funds the capex but the gas producer underwrites the costs through use – NG will also fund the cost of the ‘extension’ of the NTS to the producer’s facility (as Milford Haven LNG) but this may add time to the programme, may be better for the producer to provide this pipeline

There is an established process – for many shale gas areas NTS Capacity exists due to declining UKCS flows

Local Transmission System

Scotland SGN

North of England NGN UK DISTRIBUTION NG

Wales & the West WWU

South of England SGN

There is 6,000 km of LTS – it may be that shale gas producers start off injecting gas into LTS until production builds up

Connections to the Local Transmission System • Biomethane goes mostly into 2 – 7 bar pipelines • Ofgem led Energy Market Issues for Biomethane (www.gasgovernance.co.uk/emib) has reviewed the connection process for biomethane flows • •

Worth reading EMIB Final Report Shale gas producers need to have their own version of EMIB to identify regime adjustments to lower overall costs and risks

• Key decisions: • • •

Add propane to meet Flow Weighted Average CV Lower standards of accuracy for small flows (0.5 MJ/M3) Producer funds/owns, operates all entry plant (gas quality, CV, flow, odorant)

• Issues for shale gas producers: • •

Capacity in LTS may not exist and reinforcement may not be possible (as capacity is limited to downstream gas demand) Addition of propane to meet FWACV – is this required – see later

Gas Quality Requirements • Gas Safety (Management) Regulations set out gas quality, basic parameters for shale gas producers are: – – – –

No H2S Dry gas Wobbe within a range Total inerts (CO2/N2) limit (7%)

• North Morecambe for example, has high N2 and has to liquefy methane to reduce the N2 • Shale gas likely to be like Southern North Sea gas?

Generally there should be no issues with these for shale gas – the key cost issues are high levels of CO2 and N2

The CV issue • The big issue is Calorific value – UK FWACV is typically 39.5 MJ/M3 as a result of rich LNG/Norwegian gas dominating supplies – 100% CH4 is 37.78 MJ/M3 – So even if shale gas was 100% CH4 it would be around 8% lower in CV – This would require around 4% propane flow or 10% propane energy – Propane costs 140 p/therm but gas is worthy 60 p/therm so major opex

• There are no NTS entry points that have a minimum CV range – all are in range 36.9 i 32.3 MJ/m3, hence for NTS there is no legal basis for propane addition – No customer can get gas at more than 1 MJ/M3 less than the FWACV. – So if 10 million therms into an LDZ at 39.5 MJ/M3 and 1 therm at 36.9 MJ/M3. everyone in the LDZ gets billed at 37.9 MJ/M3 – Consequences of this would be huge costs in shrinkage (the difference in actual energy of 39.5 and the billed energy of 37.9 is the ‘cost’ that is smeared across the industry

Technical solution is to have much smaller charging zones and more CV measurement within the grid – technically possible, just needs investment in shippers billing systems and in low cost CV measuring devices

Timetable for New Entrants • Critical path likely to be planning consent for shale gas production facilities • NTS connection – key issue is connection pipeline and any upstream reinforcement (if required) – Advisable to meet NG at early stage to understand the issues and options

• LTS connection – depends on level of flow – We are working with National Grid to bring down costs and time for LTS Connections to support biomethane injection and use of LTS to supply CNG stations to fuel trucks

Aside – Well to Wheel CO2 • For trucks running on diesel, well to wheel CO2 emissions based on: – Oil production and refining – Diesel transport to bunker site – Emissions from engine

• For shale gas into the NTS or LTS and out to fuel dual fuel diesel-natural gas trucks, we estimate a 30% reduction in well to wheel emissions – Natural gas lower CO2 anyway – Keep diesel engine efficiency – UK shale avoids 15 - 20% CO2 hit from making and re-gasifying LNG

We need UK shale gas to meet our low CO2 transportation targets

Conclusions • UK has an NTS/LTS system that cost £15 billion – This facilitates shale gas as invariably NTS-LTS is close by

• No material issues associated with shale gas into NTS as far as shale gas producer is concerned – Capacity likely to exist – Clear processes

• Adjustment to NTS CV regime will be appropriate to reduce smearing costs due to CV • LTS entry may require propane addition but could be an option for early cash flows The shale gas prize is lower CO2 emissions for UK plc and reduced oil importation costs if we shift trucks to natural gas