LNG pro­duc­ers look to build power plants

The Star Early Edition - - BUSINESS NEWS - Anna Shiryaevskaya and Paul Burkhardt

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, 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 for every link in the chain.

As many as five projects planned glob­ally may be de­vel­oped as in­te­grated LNG-topower, ac­cord­ing to the US 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 as Hoegh LNG Hold­ings of­fer their in­put as part­ners.

“That will be the ma­jor growth driver for LNG de­mand go­ing for­ward,” said Ana­tol Fey­gin, the chief com­mer­cial of­fi­cer at Che­niere, which is in­volved in an LNG-to-power project in Chile. “It’s a model we are look­ing to repli­cate glob­ally.”

Global LNG pro­duc­tion is ex­pected to gen­er­ate a record sur­plus of 46 mil­lion tons a year by 2019, or about 13 per­cent more than the mar­ket needs, ac­cord­ing to San­ford C Bern­stein. 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 is spurring the in­dus­try to look for 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.”

A new gas plant was more ef­fi­cient than a coal plant. It was at least two years quicker to build and helped cut emis­sions, said Sabine Dall’Omo, the chief ex­ec­u­tive of­fi­cer at Siemens’s South Africa unit.

Port plants

Siemens has ex­pressed in­ter­est in South Africa’s $3.7 bil­lion (R50bn) gas-to-power pro­gramme, ini­tially planned at two ports. 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.

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 $1bn or more depend­ing on the plant’s ca­pac­ity, ac­cord­ing to Anne-So­phie Cor­beau, a re­search fel­low at the King Ab­dul­lah Petroleum Stud­ies & Re­search Cen­ter.

Che­niere’s in­vest­ment in the Chile project was not “sim­ply an in­vest­ment op­por­tu­nity”, but a back­bone on which it can ex­pand pro­duc­tion ca­pac­ity in the US, Fey­gin said.

“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 time scale.” – Bloomberg

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