Portland Gas Share Discussion Threads

[eacn] 02/7/2009 13:37

There will be an update on the pipeline and the well pad projects in July.

It is possible that we will get an update on the funding process at the same time since PTG should have agreed the timing and structure of the funding process by now, see the following paragraph from RNS of 20.04.09:

"The timing and structure of the new process will be agreed with interested parties prior to the formal launch of the process, expected in May 2009."

WE know that PTG was expecting the sale of equity in PGHL to occur later in 2009:

"Following a period of due-diligence by parties who have expressed an interest in the project, PG expects to conduct a sale of equity in the project, by way of auction if appropriate, later in 2009."

But from the same RNS we also know that PTG are not saying that the funding process will be completed in 2009:

"It is anticipated that the full funding process will be significantly advanced by the end of 2009 after due-diligence, project finance negotiations and completion of legal documentation."

Certainly if the EIB is involved it could take some time:

"The Company has entered into preliminary discussions with the European Investment Bank ("EIB") concerning project finance to support the joint venture funding."

So if you are exepecting an RNS in July confirming that funding has been secured you may be dissappointed.

[holism] 02/7/2009 12:51

Having failed before I am sure they would be anxious not to fail again, but timetables do slip!!

[mina123golf2] 02/7/2009 10:26

This is starting to look ominous. no news re financing. OR is there???

[eacn] 30/6/2009 20:01

Useful links providing an update on capital allowances for salt caverns:




Also, FWIW, Deloitte's view on gas storage post credit crunch

[scruff1] 26/6/2009 19:54

When we get pp in Ireland we have two lots of funding to secure!! Just baled out of RIFT after years. Similar thing. Discovered the gas but don't have the finance to develop it. Same scenario here. If we get a backer then sky's the limit. If we don't imo it's a matter of what price we get taken out - and it probably won't be great.

[eacn] 25/6/2009 10:51

mina123dolf2,

No updates from me, but I suggest that if you haven't already done so you should have a good look at the latest pesentations on the PTG web site.

Clearly everything rests on funding and we should get a hint as to how that is going in July when PTG have to make a decision on the procurement of the pipeline.

[chrismez] 24/6/2009 22:16

mini golfer - have you read the RNS's re 2 days of exhibitions on Larne and potential for obtaining PP over there etc etc? I'd say there's plenty going on here now that PTG has opened up the second front as it were.

[mina123golf2] 24/6/2009 18:02

Hardly any trades at all going through in the past couple of days. We seem to be back in the old pattern - a sudden rise followed by a slow drift back.The only goods news is that the highs are higher and the lows are also higher than the previous lows Does anyone have any news on funding or indeed news generally as to what is going on? EACN have you any updates?? you are normally at the "cutting edge" especially with PTG

[semoy] 24/6/2009 17:40

yes very q bingham, i purchased these at approx 55p after Investors Chronicle advised all to pull out in Feb/March due to the possibility of being unable establish funding given the credit crunch .... as you know, recently almost doubled and its tempting to sell yet the upshot appears massive. Hmmmm.

[bingham] 24/6/2009 15:38

Dam quiet here.

[scruff1] 10/6/2009 09:25

I thought that last night's tv programme on our growing dependence on Russian gas and our lack of gas storage capability may have affected today's share price . Obviously not.

[fegga] 09/6/2009 15:00

sell volume fairly light 29000 shares...

[bones30] 09/6/2009 13:35

Suspect if really bad news had leaked it would be down more than 10%

[rjpjordan] 09/6/2009 13:28

I think hold your nerve on this one, there seems to be a lot of selling on this today. Come July I'm hoping for some good news regards funding for the Portland project.

[bones30] 09/6/2009 13:22

I noticed 2 of the MMs disappeared from the bid. It actually hit 84p on the bid for a little bit.

[rjpjordan] 09/6/2009 13:21

Tree shake I hope!

[bones30] 09/6/2009 13:11

Woah - what's going on here?

[clearsoup] 03/6/2009 09:03

exemplary, as ever, eacn. Many thanks

[eacn] 02/6/2009 19:54

A copy of a post I made on the TR32 thread in response to some questions from Ptolemy (see post 2867):

A bit of background before I answer your various points.

The winter-summer gas price differential (which drives the "intrinsic" value of gas storage) is driven by varying consumer demand. The size of the differential is affected by availability of supply and the availability of gas storage. In a supply constrained market the greater the storage capacity available the lower the differential.

In a free market with constrained supply a balance will be reached where sufficient storage capacity is built to reduce this differential to the operating cost of storage plus a return on capital employed. This is broadly the situation in the US where there is a mature gas storage market and a captive supply of natural gas.

In the US a price differential continues to apply, which is why gas storage facilities are still widely used in the US, but the return on equity for the bulk of existing gas storage facilities has fallen as capacity has increased and there is no demand for new projects since available capacity has reached c. 25%. Indeed in times of falling demand marginal storage facilities are being mothballed.

[In passing I would note that 25% storage capacity is a natural upper limit in a gas storage market dependent upon depleted field facilities since the cycle times for such facilities are long and increasing demand by more than this amount in the summer period when gas is cheap and being stored distorts spot prices to such an extent that the differential over the storage cycle effectively disappears.]

Before the advent of large scale LNG, natural gas markets were purely continental since delivery was solely by pipeline. LNG is beginning to change that and will in future allow greater flexibility of supply in previously continent bound markets.

In its infancy, LNG was very expensive and was only used in extremis when network pressure was low. Today large scale LNG is in sight and the cost of LNG will fall, albeit that it will remain more expensive than local sources of natural gas.

In the US LNG will have a limited impact while gas supply continues to be broadly in balance with demand, but at times of particularly high demand LNG has a role even in the US because it can be released into the network at much greater rates than available from depleted fields when spot prices spike.

This ability to rapidly release gas into the network at times of high demand is called the "extrinsic" value of gas storage, and is an important part of the business model for low cycle time facilities such as Portland.

Low cycle times are rarely available from depleted fields (Caythorpe in the UK is an exception), and even where they are available they usually only apply to a proportion of the storage volume, since in depleted field storage the pressure drops as gas is withdrawn from the store and the rate of injection into the network falls. Depleted fields such as Rough in the North Sea have no extrinsic value to speak of because the cycle time (for injection and withdrawal of the entire storage capacity) is nearly a full year.

The extrinsic value of a short cycle store will depend upon spot price volatility. In the UK and in the US the base case for short cycle storage indicates that operators can expect their extrinsic revenue to be at least equal their intrinsic revenue, so for a facility such as Portland the owners can expect to charge at least double the price charged for storage at say Rough.

In the UK there are plenty of depleted fields in the North Sea, but the cost of development is high. Not only do these fields have to be connected to the network, but they have to be partially filled with gas ("cushion gas") in order to create the necessary base pressure needed to operate a gas store. While the recent budget has allowed developers to claim capital allowances on cushion gas, and proposed changes in the network operating procedures should allow depleted field operators to connect to the network at lower cost from say 2013, these costs are very significant and reduce the ROI for such fields.

Furthermore depleted fields can often prove a minefield since depletion of the field often leads to aquifer issues, witness the tale at Esmond and Gordon (see the EO. thread for further details).

While offshore development only requires planning where gas is beached, onshore development in the UK is greatly limited by planning issues. Although onshore stores are cheaper to develop the pipeline of projects in the UK is limited and many of these projects remain obstructed. While the government could use the Gas Act to unclog the system, to date they appear reluctant to do so.

The UK no longer has 'captive' gas supplies and will soon be required to compete head to head with other European countries for continental gas.

So in answer to your questions:

A. Imo the gas price differential in the UK will not disappear in 5 to 10 years. If it were to follow the US example the intrinsic value of gas storage might decrease to a base case of 15p a therm in today's money if storage capacity was 20% to 25% of annual demand, but the prospects for that occurring in the UK in the next 10 years are tantamount to zero given the current pipeline of projects.

My view is that natural gas supply will continue to be constrained in Europe by Russian ambition, natural depletion of existing fields and increased overall demand for gas. In these circumstances intrinsic values should increase until they meet the natural ceiling imposed by the price of LNG. While LNG prices will fall as more and more Middle Eastern projects capture gas, the cost of compression and transport will continue to ensure that there should be at minimum a 20p intrinsic value for storage.

In Portland's case it is important to add in the extrinsic value, which should at least double revenues. Indeed in volatile markets, which we can expect for the foreseeable future while gas storage capacity grows, extrinsic value could be double the intrinsic value in at least 1 out of every 3 years.

In calculating the value of a facility, given the discount rates used, the first 5 years of operation have a disproportionate effect on returns. Portland will be one of the first short cycle facilities to come on stream in the UK and the largest by capacity. I therefore expect it to benefit from a significant first mover advantage in obtaining extrinsic returns. So even if intrinsic, and by implication extrinsic, values fall over the next 10 to 15 years, I expect the Portland case to be a strong one.

B. There are numerous North Sea depleted fields but for the reasons outlined above the cost of development is non-trivial. IRR's on these projects are usually no better than 10% to 15% and are dependent upon longer term strength in intrinsic values. Portland by comparison is likely to generate a 20% IRR.

Having looked carefully at many of the mooted North Sea projects I am confident that there will not be a glut of offshore depleted capacity in the next 10 years. Even if I was wrong Portland is effectively in a different market.

C. LNG will become more important but the cost differential between pipeline supply and LNG will remain. Even if this fell to an average of 20p over the annual cycle there would still be room for gas storage.

D. Portland should be in a high price zone immediately before funding, and was there in May 2008 following planning and anticipation of funding. The share price reached 430p but today is at 110p having bottomed at 40p. On an announcement of funding, or in the run-up to such an announcement I would expect the share price to reach at least 200p (it could spike higher), depending on the terms of the deal. .

I agree that during the construction phase the share price should fall but there will be some additional support from the Larne project newsflow. That said, I would certainly think of selling a proportion of my holding should funding be agreed.


Sorry to be so long winded.

[chrismez] 02/6/2009 17:10

Liking the look of this chart short term eacn ... coiling up nicely ... set to blow methinks - as you say good chance of a gap up somewhere down the line here.

[eacn] 02/6/2009 02:39

Another good day. A chartist might say that if we break 120p it would stand a fair chance of gapping up to 260p. On fundamentals that is possible if we get an announcement on funding, but that could still be a month or two away and remains an 'if' rather than a 'when'.

[asil nadir] 29/5/2009 13:12

Yes - noticed that with a few stocks but the key here i think is the constant higher highs and higher lows - that graph chart looks startling!

[junior21] 29/5/2009 12:53

I agree that this could push forward in the coming weeks but past intra day rises seem to pull back later in the afternoon, just an observation.

[asil nadir] 29/5/2009 12:35

Why junior? I think this could accelerate over the coming days and weeks. Love this thread.....so quiet!