Thursday, July 24, 2014

Orix Announces "Small Geothermal" Initiative

Orix, a major Japanese leasing group, has announced that it plans to develop and own up to 15 small geothermal plants in Japan.  Each plant would have around 2MW of capacity (typically available 24 hours x 7 days).  This was reported in Nikkei Shimbun and Bloomberg on July 23, 2014.

Apparently the projects would take overall 2-3 years each to develop, much faster than larger geothermal plants that (in Japan) can take up to 10 years, if they get done at all.  Plants under 7.5MW apparently do not require environmental assessments which typically require 3 to 4 years.

Japan is said to be the #3 country in the world in terms of geothermal resources, with over 23GW of potential, but actual operating geothermal plants cumulate to only 500MW, according to Nikkei.  In constrast, the U.S. as 3.4GW of geothermal in operation, Philippines 1.9GW, Indonesia 1.3GW.  Even small countries such as New Zealand and Iceland generate more geothermal power than Japan.

Siting is notoriously difficult given Japanese concerns (well-founded or not) that geothermal power may damage hot spring water resources.  Of course, there is a history of depletion of resources in some older geothermal fields in other countries, but there appear to be mitigation strategies as well.

One benefit of smaller projects is that they are often designed as "hot spring geothermal" -- teaming with the owners of hot springs (in Japanese "onsen") and using the same near- or at-surface resources, coopting any opposition that would otherwise arise.  The challenge is that many hot springs (onsen) use resources that are not sufficiently hot for geothermal.  Of course, larger geothermal plants typically use steam; but these new, smaller plants often use "binary" generators that function with water, at temperatures as low as 60-70 degrees celsius.

Orix has a large "mega solar" development business, with ambitious goals, hundreds of megawatts of solar PV projects built or under construction in Japan, and it also is entering the retail electricity sale and other related sectors.

Saturday, July 5, 2014

Japan LNG spot market prices drop like a rock

Nikkei reported this morning, July 5, that LNG spot market prices have fallen rapidly over the past 3 months and are now lower than any time since 2011 before the Fukushima accident, around US$11 per MMBTU, down 40% from their peak in February.

Why the drop?  First, LNG inventories of the Japanese utilities and of KOGAS (Korea's public gas utility) are now at high levels, with Japanese utilities inventories 13% higher than last year at 2.44 million metric tonnes.  Second, gas demand in Japan this March-May was lower than last year, supposedly reflecting warmer than usual late winter/early spring weather, and the start up of a large new TEPCO coal-fired plant.

But most important, the first "train" of a new LNG source came online in Papua New Guinea in May, a few months earlier than expected.  The new LNG infrastructure was developed with Exxon Mobil in the lead (and Japanese participation, of course) at a cost of US$19 billion.  Eventually, it will more than double the GDP (and export volume) of Papua New Guinea.  There are apparently has spot cargoes available, at least for now.

How much does this lower gas price help Japan?  Not a lot yet.  Currently 80% of Japanese LNG is imported under 10-20 year long term contracts priced off of middle Eastern crude oil.  Gas under those contracts is at around $15-16 per MMBTU, only down slightly from its peak.

But over the medium term, this can be a huge positive. Almost no Japan LNG imports were done via spot or shorter-term purchases prior to the Fukushima accident, and the fact that 20% of purchases are now under short-term contracts (defined as less than 4 years) is helping to develop a market.  The existence of functional, deep and broad wholesale markets is an essential step to creating competition in not only the gas and LNG business but also downstream electricity generation in Japan.