Understanding Challenges to Realising the Potential of LNG to Power
(Room Garuda 8, 1st Floor)
18 Sep 18
4:00 PM
-
5:30 PM
Tracks:
TRACK A - Trends, Projects and Strategies
Until recent years, LNG was considered an aspirational fuel source for small or emerging markets in Asia. LNG to power projects are increasingly seen as a viable option to help address power supply shortages, and concerns about energy security and diversity. Factors contributing to this shift include: (a) the relative availability of LNG in an oversupplied global market; (b) oil prices that remain subdued; (c) the rise of 'portfolio' LNG players that can respond flexibly to challenges with LNG to power projects; (d) the availability of FSRU/FSU and scalable technology that allow cost effective and versatile solutions for markets with low or variable demand; and (e) regasified LNG's benefits as an efficient and 'cleaner' fuel source. Despite growing popularity, LNG to power projects face a number of challenges that, if not addressed, could prevent developing markets from realising their potential benefits. This presentation identifies some key challenges and explores solutions. Some of the key challenges include: (a) helping project participants (LNG suppliers, terminal operators, IPPs and power offtakers) understand the unique risks for an LNG to power project and achieving a workable allocation of those risks, including addressing concepts such as: (i) 'use or pay' and 'hell or high water', which typically underpin the investment of a project company in terminal or FSRU infrastructure; (ii) 'project on project' and intercreditor risk, particularly when using project finance; and (iii) how fuel supply risk can best be allocated and shared; and (b) managing the pass through of costs arising through the LNG supply chain and regasification process to end users through a PPA (compared with traditional fuel), particularly given the cyclical nature of LNG market pricing and the trend towards periodic LNG price reviews and the inconsistency of those factors with the pricing under a typical long term piped gas sales agreement and the typical tariff structure under a PPA.