28/11/24
LNG use poses risk to Cambodia's energy security: IEEFA
Singapore, 28 November (Argus) — Cambodia's increasing reliance on LNG for power
generation could be detrimental to its energy security because of instability in
LNG markets, according to Institute for Energy Economics and Financial Analysis
(IEEFA). Rapid economic growth and electrification have led to Cambodia's
electricity demand growing by 16pc/yr since 2009, according to IEEFA's report
released on 26 November. Its power generation is mostly from hydropower and
coal, but the country aims to boost its gas-fired power generation to meet its
decarbonisation targets. Cambodia has a net zero by 2050 goal, and aims to reach
70pc renewable energy generation by 2030. The share of coal in Cambodia's power
mix was 45pc in 2023, with hydropower representing 44pc, solar 5pc and imports
from neighbouring countries making up the remaining 6pc. The country in 2021
declared that it would not build new coal plants beyond those already approved.
Natural gas had not played a role in the country's power mix until recently, but
"optimism has grown in recent years regarding the ability of new LNG-to-power
projects to help the country meet rising electricity demand," stated the report.
Gas operator Cambodian Natural Gas imported the country's first LNG shipment in
2020 from China's state-owned firm CNOOC, according to IEEFA. The firm also
planned to complete a 1,200MW LNG-fired power plant and a 3mn t/yr import
terminal by 2023, although there has been no progress as of June this year.
Cambodian officials in November 2023 announced the cancellation of a 700MW coal
project, which will be replaced with a 800MW gas-fired power plant instead.
Cambodia is seeking to build these large LNG-fired power plants because of
concerns over the intermittency of renewables such as wind and power, and LNG is
viewed as a suitable transition fuel for grid reliability. The government
expects LNG-fired capacity to reach 900MW by 2040, which would require roughly
840,000 t/yr of imports. When considering long-term wholesale prices of $8-16/mn
Btu, Cambodia's LNG import bill could range between $361mn-722mn/yr, according
to IEEFA. Some forecasts estimate that Cambodia's LNG-fired capacity could rise
to as much as 2,700MW by 2040 and 8,700MW by 2050, stated the report. This would
entail import requirements of 2.53mn t/yr in 2040 and 8.14mn t/yr in 2050. The
fuel import costs for 2,700MW of LNG-fired capacity could amount to
$1.08bn-2.17bn. LNG volatility LNG markets have been volatile over the past two
years, because of factors such as geopolitical tensions and outages at supply
facilities. Other emerging Asian economies such as Pakistan and Bangladesh faced
fuel and power shortages because they have been unable to secure affordable LNG
supplies, and this "demonstrates the evident risks of LNG importation for
developing countries," states the report. Cambodia already has one of the
highest electricity tariffs in Asia at $0.16/kWh, so higher LNG prices could
require higher tariffs. LNG prices in Asia have been roughly $14/mn Btu and
would have to fall below $5mn/mn Btu to compete with other electricity sources,
according to IEEFA, but these low price levels are rare. The ANEA price, the
Argus assessment for spot LNG deliveries to northeast Asia for the front-half
month, stood at $15.08/mn Btu on 27 November. Cambodia's LNG demand and
LNG-fired power plant expansions remain uncertain, so long-term offtake
commitments will be challenging and the country will likely have to initially
source cargoes from the sport market, according to the report. But the spot
market poses risks in terms of supply security and price stability. Establishing
an LNG supply chain also entails rigid long-term contracts that lock in fossil
fuel infrastructure for decades. By Prethika Nair Send comments and request more
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