LNG producers offer a single-chain solution for energy demand

Barcelona/Johannesburg — Seeking new ways to market their product, producers of liquefied natural gas (LNG) are turning to an age-old technique: packaging.

As demand for electricity booms in developing nations from SA to Chile, LNG producers are offering to supply both fuel and a power plant in partnership agreements that can lock in consumption of their product for years. For their customers, primarily governments, it means dealing with a single entity responsible for every link in the chain.

As many as five planned global projects may be developed as integrated LNG-to-power, according to the Houston-based law firm Baker Botts. LNG producers Cheniere Energy and Total have package deals either in the works or discussed, while power-plant constructor Siemens, and vessel providers such Hoegh Holdings, offer their input as partners.
"This will be the major growth driver for LNG demand going forward," Anatol Feygin, chief commercial officer at Cheniere, which is involved in an LNG-to-power project in Chile, said. "It’s a model we are looking to replicate globally."

 

Record glut
Global LNG production is expected to generate a record surplus of 46-million tonnes a year by 2019, or about 13% more than the market needs, according to investment and research firm Sanford C Bernstein. Developing nations will boost demand for gas and power by more than 2% annually until 2040, while consumption in richer countries is close to stagnation, according to the International Energy Agency.
This is spurring the industry to seek new marketing tools. "What’s going on here is the convergence of drivers in the power sector on one hand and the LNG sector on the other," said Robin Mizrahi, a London-based partner at Baker Botts. "The key driver on the LNG side is LNG suppliers looking for new markets."

 

 

Moment’s notice
A new gas plant is more efficient than a coal plant, is at least two years quicker to build, and helps cut emissions, said Sabine Dall’Omo, CEO at Siemens’s South African unit. Europe’s biggest engineering company has expressed interest in SA’s $3.7bn gas-to-power programme, initially planned at two ports. The new system will help diversify the country’s generation mix that’s reliant on coal for more than 75% of its power generation. An initial 3GW at the ports are expected to add capacity in the aftermath of the managed blackouts in 2015.
Plunging gas costs also make the fuel even more attractive to developing nations. The average LNG price will probably drop to $3.8 per million British thermal units next year, according to Energy Aspects’ forecast. Spot LNG in northeast Asia fell 14% to $8.30 this week, while prices in southwest Europe rose 6.3% to $8.50, according to World Gas Intelligence in New York.
Such projects, which can use either a floating storage and re-gasification unit to import LNG or land-based infrastructure, are often considered an interim option until nations develop their own gas resources. A combined solution may cost $1bn or more depending on the plant’s capacity, according to Anne-Sophie Corbeau, a research fellow at the King Abdullah Petroleum Studies and Research Centre in Saudi Arabia.
Chile plant
Cheniere’s investment in the Chile project is not "simply an investment opportunity", but a backbone on which it can expand production capacity in the US, Feygin said. The first exporter of LNG from the US in more than four decades will have exclusive rights to deliver the fuel for 15 years to a floating storage re-gasification unit that will be provided by Hoegh. LNG supplies are set to start in 2019 and will be delivered via a 64km pipeline to an initial 600MW gas-fired power plant.
The first such deal was pioneered in Malta last year by the trading unit of State Oil Company of the Azerbaijan Republic as a means of breaking into the LNG market.
"The focus on LNG to power projects is very logical from a supplier’s perspective," said Martin Lambert, MD at Brightlands Energy, an industry consultant outside London. "New power generation is one of the few ways, if not the only way, to create enough demand in the required time scale."

Bloomberg/BDlive