Record glut looms in liquiefied natural gas

Published Jan 18, 2017

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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

 

 

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