Energy needs are changing in Asia. Might liquefied natural gas be the solution?
When Abdel Fattah el-Sisi became President of Egypt in 2014 one of his main pledges was to find a solution to widespread energy shortages that left parts of the country in darkness several times a day for hours at a time.
Energy demand at the time was some 20 percent higher than supply, according to some estimates, and the energy shortage meant severe disruption for businesses as well as the general public.
A number of factors contributed to energy shortage in Egypt. Population growth – by some estimates to the tune of 1 million people in the first six months of 2015 – and increasingly hot summers, which caused a surge in airconditioning usage, contributed to the crisis, as did increasing urbanisation and a growing economy. In addition, depletion and a lack of new exploration and developments also influenced production. Furthermore, supply was capped by the foreign companies that operate many of Egypt’s natural gas reserves, who were owed billions of dollars by the Egyptian government. The solution was to start importing liquefied natural gas (LNG), the government found. However, the country needed the infrastructure to receive, store and regasify the LNG. Enter BW Group.
“Historically Egypt has been a net energy exporter but significant energy shortages have meant the country is now a net importer,” explains Yngvil Åsheim, Managing Director of BW Group’s LNG division. The company bid on and won a tender to build and operate a floating storage and regasification unit (FSRU) in Egypt’s Ain Sokhna port to allow the country to import LNG. The project – a state-of-the-art new built 170.212 cubic metre FSRU with associated infrastructure – took just three months to deliver from contract signing, a world record.
“To put this number into perspective, it usually takes 2-3 years from green light to implementation,” explains Ms Åsheim. “But energy is so important for stability so the Egyptian government was determined to find a solution quickly. Implementing the right infrastructure can be done very quickly and efficiently if all parties work together. What is typically delaying the process is if the regulatory setup is not in place.”
Ms Åsheim speaks from experience. BW Group is one of the world’s leading players in the tanker, gas and offshore segments. With a history dating back to 1935, BW Group today employs more than 5000 people worldwide and has offices in Singapore, Norway, Denmark, USA, China, Bermuda, India, the Philippines and Cyprus. The company’s LNG division is among the biggest in the segment.
“Our LNG division has two activities,” says Ms Åsheim. “The first is traditional LNG shipping where we
transport LNG in specially built vessels and the second is the building and operation of floating import terminals, so called FSRUs, where we receive, store and regasify the LNG before it is sent ashore.”
The processes involved are highly technical. LNG is natural gas cooled down to minus 163 degrees Celsius to liquefy it. In liquefied form, the gas’ volume is decreased by 600 times, making it easier – and safer – to transport. The FSRU in Ain Sokhna is the world’s most utilised, receiving 60 cargoes in its first year of operation. At its peak in summer, it received new LNG shipments every 3-4 days. Once the LNG shipment reaches the FSRU, it is heated to around 5-10 degrees Celsius and sent out via high pressure gas lines. The unit produces 4.5 million tonnes of LNG per annum (by comparison, Singapore uses 6 million tonnes annually) and the output generates around 5,000 megawatt of power. The case for natural gas Prompted by what some call “the shale revolution”, natural gas production has increased significantly over the past decade. As a result, many countries, including the USA, Russia and Australia, export huge amounts. “Ten years ago we looked at importing gas to the USA; now they are exporting,” notes Ms Åsheim. “The challenge is demand. A lot of countries lack the infrastructure and the technology to import the gas, which was the case in Egypt, and that is where we come in. The FSRUs are cost efficient and requires limited additional infrastructure and minimal footprint on land.”
According to Ms Åsheim, the reasons for importing gas are manifold. Environmental concerns is one of them; CO2 emissions from natural gas combustion is around 50-60 percent less than for coal. Other countries have completely different motives for importing, she explains. “For example, Lithuania can get all the gas it needs from Russia but it’s a political issue, they want energy independence. Some countries import gas as a way to complement renewable energy sources such as wind, hydro or solar power. LNG can be a good match to renewables. When there is less wind or sun, LNG can be an alternative source because it is reliable.” LNG in Asia Several countries in Asia have projects in various stages of development to import LNG via FSRUs. According to the International Energy Agency (IEA), most Asian countries will need to import more gas to meet demand growth, as production (when relevant) fails to grow at the same pace as consumption. According to an IEA report released in 2014, over the medium term, half of the anticipated increase in gas consumption will require additional imports. However, projects often suffer from poor planning and lengthy implementation, says Ms Åsheim. “A lot of the times, projects are being delayed due to issues related to risk,” she says. “There are issues regarding supporting infrastructure, power plants not being built, political and regulatory obstacles. Thailand, Hong Kong, Philippines, Myanmar and Vietnam have all been talking about implementing FSRUs Indonesia already has two FSRUs in operation and several planned.”
According to Ms Åsheim, the case for LNG in Asia is strong. Energy needs are growing rapidly and there is an increasing emphasis on cleaner energy. However, there are several obstacles as well. Cost is one of them. “Energy prices have gone down and they will likely stay relatively low. Coal is cheap so it is difficult to compete if you think only about costs,” she says. In addition, she notes, while demand is there, volume remains relatively low so countries cannot benefit from economies of scale.
“The only exception would be China,” she says. “China is determined to use LNG as an alternative to coal and they have built land based terminals to support their needs. They have taken the long term view and have been willing and able to make the investment.” Above: The LNG Tanker BW Pavilion Leeara of Singapore at almost 100,000 tons deadweight built in 2015.
Energy needs are changing in Asia and elsewhere. Might liquefied natural gas be the solution?