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.
