Barcelona - Seeking new ways to market their
product, producers of liquefied natural gas are turning to an age-old
technique: packaging.
As demand
for electricity booms in developing nations from South Africa 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 projects planned globally 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 offer their
input as partners.
“That 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 in an interview. “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 metric tons a
year by 2019, or about 13 percent more than the market needs, according to
Sanford C. Bernstein & Company. Developing nations will boost demand for
gas and power by more than 2 percent annually to 2040, while consumption in
richer countries is close to stagnation, according to the International Energy
Agency.
That’s
spurring the industry to seek new marketing tools.
Read also: Clarity at last for LNG power programme
“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, in a telephone interview. “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
Africa unit.
Europe’s
biggest engineering company have expressed interest in South Africa’s
$3.7 billion gas-to-power program, initially planned at two ports. The new
system will help diversify the nation’s generation mix that’s reliant on coal
for more than 75 percent of its power generation. An initial 3 000 megawatts 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 percent to $8.30 this week, while prices in southwest Europe rose
6.3 percent to $8.50, according to World Gas Intelligence in New York.
Such
projects, which can use either a floating storage and regasification 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 $1
billion or more depending on the plant’s capacity, according to Anne-Sophie
Corbeau, a research fellow at the King
Abdullah Petroleum
Studies & Research Center.
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 an FSRU that will be provided by
Hoegh. LNG supplies are set to start in 2019 and will be delivered via a
40-mile pipeline to an initial 600-megawatt 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, managing director 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 timescale.”
BLOOMBERG