LNG producers look to build power plants

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