UCL Australia Class of 2012 Research

UCL AUSTRALIA

The Next Generation

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From the Chief Executive

It is my pleasure to welcome you to University College London’s 2012 Australian graduation week.

This year we are privileged to have the UCL Provost, Professor Malcolm Grant CBE, preside over the graduation ceremony in what is likely to be his last official visit to Australia, before he retires in 2013.

The year has been another busy – but progressive – one for both staff and students alike. Enrolments grew, relationships with resource, energy and mining organisations extended and we continued to enjoy the support of students as they provided welcome and constructive thoughts and feedback on the MSc, one of the most unique graduate programmes UCL offers anywhere.

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This year we opened an office of the famed UCL Mullard Space Science Laboratory (MSSL) and created the UCL International Energy Policy Institute – both in Adelaide.

These commitments are a deliberate move to increase the research intensity of our campus in Australia, creating knowledge and a rich environment for our students.

I am proud to present our students and staff to you and thank you for the commitment and support towards UCL’s first overseas campus.

Best wishes

David Travers CHIEF EXECUTIVE 6 December 2012

Class of 2012 - List of Graduands

Candidates for graduation

MSc Ntasha Berry Nurul Chowdhury James Fung Chern Foo James George Ivory J W Conrad Mulherin Charles Ikenna Nweke Eduardo Carlesso Senger Kathryn Sara Siriram Guma Wau Jr Graduate Diploma Michael Ronald Fielding

Host Organisation

Graduate Certificate Gregory Palavo Balavue Karyn Biggs John Leonard Carrick Chambers Joanne Robyn Fox Claire Elise Halsey Randall Harvey Cathleen Cynthia Lousberg Artiom Moscaliov Richard James Peasgood Dean Powell Gary Vernon Rorke Bronwyn See Phillip Solomon Carlos Guillermo Sorrenti Stuart John Symons 3

Least-cost modelling

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Ntasha Berry

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ver the next decade the electricity market in Australia will undergo unprecedented changes because of technological innovation of new generation technologies, climate change policies and movements in fossil fuel prices. As a result of these changes the relative cost of generating electricity from new generation technologies could change substantially.

My research identified potential for new generation technologies in South Australia by considering the effect of key parameters; these being access to finance, carbon price, fuel price and stability of specific energy policies that could be deployed in the future.

I did this by considering the electricity generation market in South Australia and analysing the potential for new generation technologies in the context of the Clean Energy Future legislation and the expected rise in domestic gas prices.

In order to comprehend the effect of these changes on the electricity generation landscape in the future, my research analysed the prospects for new generation technologies

by considering the levelised cost of generating electricity from them. While the levelised cost of electricity is the appropriate tool for analysing the comparative costs of various generation technologies against each other, it fails to reflect the uncertainties which power systems are subjected to, at various levels.

Hence, in order to determine opportunities for new generation technologies under uncertainty in South Australia, I used least-cost generation expansion modelling, using PlexosŽ Desktop Edition – the power system modelling software

by Energy Exemplar. The objective of the least-cost generation expansion model was to determine a set of generation options from a range of technologies, which minimised the cost (operational plus capital) over time, considering the demand, carbon price, and gas price uncertainty in the future.

However, each technology has potentially decisive strengths and weaknesses which do not always get reflected in their cost estimates; hence this research has also considered the outlook of investors towards various technologies and subsequently identified their strengths and weaknesses.

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Bangladesh investment

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Nurul Chowdhury

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atural gas is the main, and one of the few, indigenous sources of energy in Bangladesh. However, with the production of gas not catching up with the rapidly increasing demand, an energy crisis is looming fast in the country. One of the reasons for the lack of growth in gas production is that Bangladesh has not been able to attract much investment in the offshore exploration and production business.

500 bcf scenario, although, broke even, had a very low return of 6%. Only the 1 tcf scenario had a healthy return of 19% on the investment and an NPV of $106 million. Using the model it was found that the minimum economic pool size was approximately 820 bcf. However, a recent study by Santos showed that the mean reservoir size in this area is only 51 bcf. As a result, Bangladesh needs to offer more relaxed terms to attract investment in the area.

My research project focussed on the fiscal terms of the production sharing contract (PSC) of Bangladesh to understand the reasons for the lack of interest from the international oil companies in investing in the country’s offshore areas.

Sensitivity analysis of the fiscal terms showed that an increase in gas price was favourable to the profitability of both the contractor and the government. A higher gas price would also give more ‘profit gas’ to the government which could be used to continue the gas supply to the subsidised sectors. Tax and profit gas split also contributed significantly to the profitability, while the cost recovery limit was less influential.

A financial model was used for my research in which three reserve scenarios of 100 bcf, 500 bcf and 1 tcf were developed using data from previous Santos exploration programs in the area. The results showed that at the current fiscal terms, both 100 bcf and 500 bcf scenarios were uneconomic with negative NPV. The 100 bcf scenario did not even break even, while

My research recommends Bangladesh offers a better combination of fiscal terms to attract new investments and also to incentivise reinvestments by existing investors.

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Precautionary principle not helping Queensland water 8

James Foo

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ne of the most prominent principles underlying environmental law is the precautionary principle – at its core lies the idea that decision-makers should be taking steps to address the threat of serious and irreversible harm before scientific evidence has been established to prove that the harm will occur.

My research found the implementation of this important legal principle in the energy and resources industry in Australia produces inconsistent results. Further, in Queensland specifically, its implementation through adaptive management may not necessarily

protect Queensland’s groundwater resources.

The application of the precautionary principle is especially aimed at containing the potential impacts of new technologies, as the full impacts on society may not be fully appreciated. Its application to the coal seam gas industry is especially pertinent, given the introduction of relatively new production techniques into new environments. However, there are significant concerns about the uncertainties of coal seam gas production, especially in relation their potential impacts on Queensland’s groundwater resources.

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Korea fills LNG needs 10

Joohong Huh

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orea is unlikely to require any further immediate LNG contracts with Australia, following its overseas investment in LNG exploration and production and its influence on international LNG projects.

While Korea was the second largest LNG importer in world this year, my research found Korea’s policies for the energy sector, including, gaining security of supply, approaches to environmental issues, choices of fuel mix in power generation, investment in infrastructure and deregulation of electricity and gas markets

have all contributed to a scenario where it is unlikely to invest further in Australian LNG projects.

Australia currently has the most LNG projects under-construction globally and is heading towards becoming the world’s largest LNG exporter by 2020, my dissertation discusses the future Australia-Korea relationship and analyses historical and current natural gas demand and supply structure in Korea and factors that influence gas consumption.

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Remote Sensing

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James Ivory

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hotogrammetry models can be a highly effective geotechnical remote sensing and risk management tool in mining operations, developing discrete fracture network (DFN) models for managers.

Modern photogrammetry, applied as a tool for open-pit mines, holds a variety of uses from structural rock defect identification to volumetric stockpile surveys. Its competitive advantage is the result of minimal disruptions to regular mining activities, rapid data acquisition, ease of defect identification through high resolution image overlays, compliance with safety regulations and relative low cost.

The DFN approach involved the derivation of structural defect measurements from a series of photogrammetry models – a practice largely untested prior to this project.

Mapping data and models were the result of an in-depth site study conducted at the limestone quarry at BHP Billiton’s Olympic Dam mine in South Australia. Subsequent data analysis and validation supported a comprehensive assessment of photogrammetry, as well as a contribution to the efforts of the Olympic Dam project team through: DFN rock wedge slope stability analysis, a geotechnical database specific to the Andamooka Limestone and photogrammetry procedures/workflows.

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Quantifying risk in Africa investment

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Conrad Mulherin

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he CBA has identified six countries in sub-Saharan Africa – Botswana, Ghana, Namibia, South Africa, Tanzania and Zambia – as jurisdictions of opportunistic interest for mining project finance. These countries are considered the most prospective in terms of resource potential, governance, legal framework and economic stability in a region of the world positioned for substantial growth.

However, while country risk analysis is inherently subjective and qualitative, my research sought to efficiently quantify a portion of the process to enable sensible conclusions. Ultimately, I found Botswana to be the most promising jurisdiction to enter the sub-Saharan mining project finance sector based on a combination of mineral potential, legal clarity, reasonable commercial strength and political stability.

In order to address country risks affecting project finance, I developed a research model

to evaluate four basic categories of risk: political, commercial, technical and legal. The model considered the six countries of interest and identified key sources of information that addressed risk categories.

Categories were weighted according to their influence on the overall decision-making process. The Country Risk Index was designed to quantify the level of risk and rank the sub-Saharan countries based on their attractiveness to mining project finance. The index comprised surveys and rankings that are most relevant to the four risk categories and to African mining investment. Establishing a foundation on which to build a country risk framework has significance in contributing to ongoing sub-Saharan due diligence for CBA. The Country Risk Index identifies risk areas of particular strength and weakness in the countries examined and prognosticates on risk trajectories based on historical results.

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Capacity planning

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Charles Nweke

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ncontrolled penetration of wind capacity into the Australian electricity network could result in increased emissions and production costs in the system, according to my capacity expansion planning (CEP) modelling.

CEP selects the optimal mix from competing generation options, but requires a shift from orthodox methods proven to be effective in the past. My thesis assessed the viability of an exhaustive method of modelling demand in CEP (with chronology retained), against

the backdrop of ongoing enhancements in computing performance. The traditional modelling of load demand using Load Duration Curve approximation was also measured against increasing level of intermittent generation, using a South Australian electricity model.

While I found uncontrolled penetration of wind could force up costs and emissions, the more detailed chronological method was better able to manage such unfavourable investment paths.

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Making project contracts better

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Eduardo Senger

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il and gas project contracts should have greater flexibility and a higher level of owner involvement and influence over their lifecycle to help mitigate relational risk between owner and contractor, according to my research.

This could be achieved through improved project owner management competence and in particular project monitoring that in turn promotes relational reciprocity and trust between contract parties – key elements for successful project delivery.

Industry statistics report that more than 65% of megaprojects are failing to meet their sanction promise which can bring all sorts of problems to an organization. This poor industry performance can be generally attributed to the level of definition and planning achieved during the Front End Loading (FEL) phase.

contract approach is no longer suitable. This type of contract has been widely used as a way of transferring execution risks to contractors and because of its potential to minimize total installed costs while providing project owners with some certainty in regards to overall costs. However, my research suggests today contracts need to be designed with flexibility to adapt to changes throughout the project lifespan without compromising the economics of the project.

This research analyses the relationship between the level of definition achieved during FEL and contracting strategies, with a view towards creating successful project performance. I found many problems of information asymmetry between owner and contractor, contract risk management and the importance of project controls for effective contracting.

The traditional model of engineering, procurement and construction lump-sum

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Renewable energy market

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Kathryn Siriram

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ncreasing energy efficiency, raising public awareness and education are the most practical, readily implementable and least costly approaches to developing a renewable energy industry in Trinidad and Tobago.

The Trinidad and Tobago Government has committed to fully developing the country’s renewable resources in its Renewable Energy Policy Framework and recognises the supporting role of energy efficiency in pursuing a sustainable development path. Trinidad and Tobago should ideally be able to overcome challenges involved in developing a successful renewable energy industry stemming from past experience in growing its petroleum sector. However, no significant progress has been made due to local barriers and Trinidad and Tobago is struggling to determine how to develop its local renewable industry.

Trinidad and Tobago’s petroleum resources are the country’s principal drivers of economic growth and development and will continue to play a major role in the foreseeable future.

Power generation, industrial activity and transport are largely reliant on these resources.

Growing local demand has led to considering renewable energy, energy efficiency measures and alternative transport fuels.

My research looked at how Australia has created a prosperous renewable energy market through the implementation of numerous renewable, energy efficiency and carbon abatement policy measures and instruments.

There are lessons for Trinidad and Tobago in designing its own strategies to advance the local renewable industry by analysing reasons for the successes and failures of these various Australian initiatives.

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Regulated monopolies fail efficient pricing

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Guma Wau Jr

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lectricity pricing structures should allow regulated natural monopolies to recover at least the efficient cost of providing a network service, while also providing a signal to consumers about the costs of consumption.

That is, firms regulated under weighted average price caps must derive network charges on the basis of their standalone and avoidable costs to reflect the cost to connect an additional customer to the network. My research finds that where costs are properly signalled to consumers and where consumers are aware of the price and practically able to respond, consumption should be efficient – this indicates efficient price. Regulated firms show some degree of efficient pricing but to get perfection may not be feasible given the dynamics of the industry.

The research stems from the key question confronting policy makers: do regulated natural monopoly firms set efficient prices?

Conventional economic theory attests that efficient price is achieved when deadweight loss is minimised. This is achieved when firms price at marginal costs. But this hypothesis falls short of reality of a highly dynamic situation where economic interactions are not always in equilibrium. In particular, pricing at marginal cost fails the revenue adequacy criterion. Could it be that conventional economic justification of marginal prices is flawed? Some economists have identified the shortfall of marginal pricing and further set out improvement mechanisms and proposed alternative approaches such Ramsey pricing and two-part tariff as a way to correct the shortfall subject to some theoretical conditions.

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