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4 th APAC SMLNG Forum Economics of Small-Mid Scale LNG in Power and Non-power Neil Semple May 2015
The Lantau Group
4th APAC SMLNG Forum
Economics of Small-Mid Scale LNG in Power and Non-power Neil Semple May 2015
The Lantau Group
Agenda / Content
Introduction
The effect of falling oil prices on SMLNG economics
CNG and LNG in industry, transport and power
Wrap up
1
The Lantau Group 2
Key Points
Transport
• Need an agency or regulations to push the infrastructure build out to help reach critical mass.
• China market large and set to grow, Thailand needs pricing reform to get it on a firm base.
• Displacing liquid product with gas for heating and process use, not power.
• Room for SMLNG to serve remote loads that do not have a gas pipeline.
Industry
Gas pricing
• Many different domestic gas prices in Asia – what price to use?
• Level playing field with an analysis based on a reference price using imported LNG.
• Conclusion is that the incentive to change to CNG/LNG has narrowed following the fall in oil
and international LNG prices.
Power
• Horses for courses - small to mid-scale LNG for small to medium sized power plants switching
from diesel.
• Opportunities in particular in the archipelagoes of Indonesia and Philippines.
• But incentives, infrastructure and clear regulations are needed to make it work.
The Lantau Group
Agenda / Content
Key points
The effect of falling oil prices on SMLNG economics
CNG and LNG in industry, transport and power
Wrap up
3
The Lantau Group
0
5
10
15
20
25
2009 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2020
LN
G D
ES
pri
ce e
stim
ate
Historic June 2014 May 2015
Here’s the change in long term LNG prices following the crude oil price fall
4
Note: 2000 to present. Brent from ICE.
LNG assumes 13.5 slope and shipping of USD 1.0/mmbtu and regas of USD 1.0/mmbtu.
Real USD 15.1/mmbtu
Real USD 11.1/mmbtu
The Lantau Group
Level playing field - import it or locally produce it with delivery by land or sea
LNG Offloading
LNG Plant
Storage & Ambient Air Regas LNG Delivery by Truck
5
Source: Linde
Source: Linde Source: GasNor Source: GasNor
LNG Terminal
Source: PTT
The Lantau Group
0
2
4
6
8
10
12
14
16
18
20
Retail LNG Regas,Storage,Others
Truck Opex,Capex
LNG DES
US
D m
mb
tu
0
2
4
6
8
10
12
14
16
18
20
Retail LNG Regas,Storage,Others
Truck Opex,Capex
LNG DES
US
D m
mb
tu
What does the imported LNG price indicate for retail end user LNG pricing?
6
June 2014 May 2015 USD15.1/
mmbtu USD11.1/
mmbtu
USD19.5/
mmbtu USD15.0/
mmbtu
Source: TLG research
The Lantau Group
0
2
4
6
8
10
12
14
16
18
20
RetailLNG
Regas,Storage,Others
TruckOpex,Capex
LNGOpex,Capex
Feedgas
US
D m
mb
tu
0
2
4
6
8
10
12
14
16
18
20
RetailLNG
Regas,Storage,Others
TruckOpex,Capex
LNGOpex,Capex
Feedgas
US
D m
mb
tu
What’s the cost build up of domestic trucked LNG?
7
USD11.1/
mmbtu
USD15.1/
mmbtu
June 2014 May 2015 USD19.5/
mmbtu
USD15.0/
mmbtu
Source: TLG research
The Lantau Group
Downstream savings and upstream feed gas negatively impacted by lower
crude oil price
8
0
5
10
15
20
25
30
35
US
D/m
mb
tu
0
5
10
15
20
25
30
35
US
D/m
mb
tu
June 2014 May 2015
Fixed costs
unchanged
Hair cut for
upstream
Lower savings
Source: TLG research
The Lantau Group
Agenda / Content
Key points
The effect of falling oil prices on SMLNG economics
CNG and LNG in industry, transport and power
Wrap up
9
The Lantau Group
China unmet industrial demand for gas
• The amount of traditional petroleum product
used in industry is just under 50 mmtpa
equivalent.
• The industrial piped gas demand in China is
the equivalent of 55 mmtpa.
• So half the industrial market that is using
liquid product can be viewed as unserved by
gas.
• Pricing is relatively attractive to switch.
• Some potential users will prefer to wait for a
pipe to arrive.
• Some may be wary of new technology.
• But there is a market to go for based on our
analysis.
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China
0
10
20
30
40
50
60
1
mm
tpa
Non-specifiedoil products
Fuel oil
Diesel
Kerosene
LPG
Crude oil
Source: IEA
Industry
Notes: 55 mmtpa = 75 bcma or 7,5 bscfd
The Lantau Group
Southeast Asia unmet industrial demand for gas
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Vietnam Indonesia
Unmet demand twice the size of
piped gas to industry of 0.9 mmtpa
or 120 mmscfd – maybe a role for
an LNG terminal and delivery by
pipeline or truck onshore.
0
1
2
3
4
5
6
7
8
9
1
mm
tpa
Non-specifiedOilProductsFuel Oil
Diesel
LPG
0
1
2
3
4
5
6
7
8
9
1
mm
tpa
FuelOilDiesel
LPG
0
1
2
3
4
5
6
7
8
9
1
mm
tpa
Fuel Oil
Diesel
LPG
Unmet demand 50 percent of
piped gas to industry of 15
mmtpa equivalent or 2 bscfd–
unserved demand probably met
by mix of truck, ship and pipeline.
Unmet demand only 15 percent of
piped gas to industry of 12 mmtpa
equivalent or 1.6bscfd –unserved
demand probably remote and met
by trucked LNG.
Thailand
Source: IEA
Industry
The Lantau Group
We have all heard about air pollution in China – what can gas do to help?
• Generally natural gas vehicles - less carbon
dioxide, less particulates, less sulphur dioxide,
less nitrogen dioxide than traditional petroleum
products.
• Close to 25 percent of PM2.5 from vehicles.
• Policy drive to switch to natural gas to improve
air quality.
• State related enterprises encouraged to invest in
infrastructure.
• Tax on petrol and diesel has increased as crude
price have fallen, but not on natural gas.
• Currently China has applied standards similar to
Euro IV in 2014.
– Meanwhile in the EU Euro VI comes in by Sept
2015 and sets tighter emission standards raising
question marks over the future of diesel.
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Source: Reuters
Transport
The Lantau Group
One delivery method is LCNG which is competitive against diesel
• This illustrates the cost stack for LCNG.
• Similar to CNG but with delivery of the fuel as
LNG then turned in to CNG on site.
• World price for LNG.
• Distribution cost.
• Vehicle conversion.
• Efficiency loss.
• Retailing/dispensing.
• Some savings to share.
• But less than before.
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LCNG
0.0
5.0
10.0
15.0
20.0
25.0
30.0
US
D/M
MB
tu
5.5 USD/mmbtu
Source: TLG research
Transport
The Lantau Group
0
10
20
30
40
50
60
70
80
90
40 60 80 100 120 140
An
nu
al co
st
of
run
nin
g a
ta
xi, '0
00 y
uan
Brent price, $/barrel
Comparison of annual cost for CNG- versus petrol-fueled taxis
Petrol-
fueled taxi
Retrofitted CNG
taxis (3 years
payback)
China – economics of gas in transport
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Source: TLG research
Transport
0
50
100
150
200
250
300
350
400
450
500
40 60 80 100 120 140A
nn
ua
l co
st
of
run
nin
g a
HD
T,
'000 y
uan
Brent price, $/barrel
Comparison of annual cost for LNG- versus diesel-fueled HDT
Diesel-
fueled HDT
Retrofitted LNG
HDT (6 years
payback)
The Lantau Group
Thailand gas in transport growing but uneconomic – so far
15
0.0
0.5
1.0
1.5
2.0
2.5
3.0
2004 2006 2008 2010 2012 2014
mm
tpa
CNG in Transport CNG cost analysis
Volumes have grown but the PTT loses money at the current price. If the PTT recovers its costs, that would probably be
based on a weighted average cost of gas. Proper economics would dictate a higher price based on LRMC of gas, LNG.
That would lower the price advantage of CNG but still leave savings. But perhaps critical mass reached by then.
Source: EPPO
Transport
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-5
0
5
10
15
20
25
Current Interim Stage Long Term
US
D m
mb
tu
Marketing MarginNGV Opex and CapexGas PriceConversion CostEfficiency LossService StationNGV PriceDiesel Price
The Lantau Group
There are a number of ways to get LNG into small and mid scale remote power
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LNG Plant LNG satellite
terminal
Port
Rack of gas
engines or CCGT /
OCGT
LNG
LNG
LNG
Port
Onshore – This mainly applies
to Indonesia and involves
taking gas (CBM or
conventional) from small, even
stranded, fields and trucking it
to a user such as a small power
plant.
Offshore – This involves
transporting the LNG in ISO
tanks (inside standard 40 TEU
container frames) on a shipping
line from the source of LNG to a
port and then by truck to the
end users power station.
Offshore – The capital
expenditure builds up as the
end user demand profile rises
and a dedicated ship on a milk
round would need to deliver
ISO tanks to port and then by
truck to the power station.
Offshore – Once demand has
reached such a scale that small
ISO containers are no longer
practical and a dedicated LNG
carrier with large in-built ISO
tanks would transport the LNG
to storage tanks (onshore or
floating) and then possibly by
pipe to the power station.
Port
Power
Source: TGE, Linde, TLG research
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2
3
4
The Lantau Group
0
5
10
15
20
25
1
US
D m
mb
tu
Vaporisation
Storage
Delivery by truck
ISO containers
Shipping
Liqufaction &StorageUpstream gas
However you cut it up there is some headroom – but enough to get the switch?
17
• Based on our analysis to date small scale LNG
would under cut diesel and usually fuel oil used in
existing plants.
– In this case the LNG is loaded onto ISO containers.
Shipped to a port. Trucked to the end user. So
smaller size plant up to about 25 MW.
– Other options for larger plants produce roughly the
same number, but would require different
infrastructure such as milk round delivery of LNG on
small carriers to floating or onshore storage and
regasification.
Costs of small scale LNG to reach a small power
plant Scenario characteristics
Diesel price
Pursuable value gap
Power
Source: TLG research
2
The Lantau Group
New gas engine undercuts existing diesel genset
• This assumes the comparison is between an
existing slightly inefficient diesel genset and a
new efficient gas engine.
• Except at very low capacity factors it makes
economic sense to replace the diesel gensets
with new gas engines using regasified LNG.
• The impediments include:
– end users do not see price signals to push
power suppliers to make the change
– price signal too small to encourage change and
investors unwilling to invest in new infrastructure
– lack of clear enabling regulations
– concerns about a new supply chain
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0
50
100
150
200
250
10 20 30 40 50 60 70 80 90
US
D M
Wh
Capacity Factor (Percent)
Power
Diesel genset only
variable costs
New gas engine variable
and fixed costs
The Lantau Group
Indonesia – large amount of remote diesel fired power plants – but what portion
can be served profitably with small scale LNG?
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• Close to 2,000 MW of
effective diesel-fired power
plants outside Java.
– Mostly small gen-sets
and open cycle gas
turbines and consume
close to 5.2bn litres of
diesel a year, or the
energy equivalent of 3.8
mmtpa of LNG.
• Need to drill down and devise
a systematic approach to
screen these opportunities.
PLN’s power plants by type and region
Source: PLN
Power
The Lantau Group
Opportunities in the Philippines are emerging in many locations
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• On the plus side, the prices for diesel and fuel oil in
the Philippines follow world market prices
• There should be a clear economic case to displace
some of those fuels currently used in power with
regasified LNG
• Of the 16 GW total grid capacity, there is 3 GW of
on-grid power plant using diesel or fuel oil.
• As part of the Philippines Gas Master Plan we
assessed the level of demand and the delivery
system that might make it economic to displace
those other fossil fuels with regasified LNG in
Visayas and Mindanao.
• But fuel cost pass through arrangements do not
incentivize incumbents to save on fuel costs by
changing technology.
Power
The Lantau Group
Agenda / Content
Key points
The effect of falling oil prices on SMLNG economics
CNG and LNG in industry, transport and power
Wrap up
21
The Lantau Group 22
Wrap up
Transport
Industry
Gas pricing
Power
• To reach critical mass we need an agency or regulations to push the
infrastructure build out – a ‘build it and they will come’ approach.
• Clear that SMLNG could serve remote loads that do not have a gas
pipeline.
• Incentive to change to CNG/LNG has narrowed following the fall in oil
and international LNG prices.
• Opportunities with challenges in archipelagoes of Indonesia and
Philippines.
The Lantau Group
Thank you!
For more information please contact us:
By email
Neil Semple
By phone +852 2521 5501 (office)
+66 81 821 9801 (mobile)
By mail 4602-4606 Tower 1, Metroplaza
223 Hing Fong Road,
Kwai Fong, Hong Kong
Online www.lantaugroup.com
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