The burden likely to come with LNG imports

Thal Sandy Tun considers the high risk of the government’s new energy plan.

Recently, Frontier ran a news item on the revelation of the Myanmar government’s plan to meet growing domestic electricity demand in 2021 by allowing private investors to import LNG (liquefied natural gas). The Ministry for Electricity and Energy said the four gas-fired power plant projects, the very first of their kind, with their investment values totaling approximately US$5 billion, will add more than 3,000 megawatts of capacity to the national grid. This would double the current output in the country, a significant development where coal and hydropower generation have been confronted by widespread protests on the grounds of negative environmental and social impacts.

Only one third of the population in the country now has access to electricity and Myanmar needs to boost its electricity production in order to meet domestic demand as well as to attract foreign investment. The government sees LNG imports as the answer which I think should only be an interim solution.

Although it is still unclear at what prices the LNG will be bought by the government or how long the purchasing contracts will run or what the financing scheme will be, experts have warned that the projects are highly ambitious and costly and there are examples of such projects having failed to come to fruition in the past.

If imported LNG would be replacing (or supplementing) domestic sources, such as new natural gas development projects in the Rakhine Offshore Basin, the new plan can only be evaluated by understanding the nature of the current global LNG import regime currently being practiced.

LNG, simply, is natural gas which is turned into a liquid form for easy storage and transportation using ocean crossing vessels. In liquid form, natural gas will generally take up about 600 times less space than it will in its gaseous state, making it possible and commercially viable to transport over long distances.

Traditionally, gas pipelines are used to transport the gas to a market where it is needed. However, countries which cannot transport it in such a traditional way due to technical and financial challenges turn natural gas into LNG and transport it in dedicated LNG tankers across oceans.

Basically, there are suppliers and buyers in the LNG import market. A supplier of LNG brings natural gas from an oil and gas field to an LNG plant where it is converted into LNG through processes like purification and liquefaction. Then the LNG is transported in dedicated LNG carrier vessels using ocean routes to key markets and areas of demand worldwide. Fundamentally, LNG projects require construction of an LNG plant, sometimes called an LNG train, and key marine infrastructure such as an LNG terminal to load the LNG onto the vessels. These elements could cost millions of US dollars, in addition to the project development costs of a conventional upstream natural gas project.

On the buyer’s side, there is a need to ensure proper facilities exist where the imported LNG can be landed, offloaded, re-gasified and turned back into its original gaseous state, in order that the natural gas can be used for electricity production purposes. There are two main types of LNG landing facilities to choose from. The first one is called a Floating Storage and Regasification Unit (FSRU) which is a floating marine facility where LNG vessels can dock and offload LNG. The second type is an LNG receiving terminal which includes a marine jetty to offload LNG from vessels. The proposed projects in Myanmar are said to be furnished with a floating terminal to accept deliveries.

The difference is that an FSRU is used to import smaller volumes of LNG over a shorter period of time whereas an LNG receiving terminal is used to import larger volumes over a longer period of time. The FSRU option is generally a quicker option in terms of time to engineer, construct and commission it. In terms of cost, the FSRU ranges in hundreds of millions of US dollars although an LNG receiving terminal can cost in the billions. One thing to note is that the buyer of the LNG has to pay for these costs.

Therefore, if a project involving engineering, building and operating LNG receiving facilities is to be developed, the buyer of LNG, in this case the Myanmar government, will have to commit to buying the LNG over a longer period of time, more than 15 years generally. The reason is due to the high investment expenses linked with instituting LNG receiving facilities, with private companies wanting to ensure an attractive return on investment and sustainability of their projects. In addition, the prices of imported LNG will be future prices, which are more expensive than LNG spot prices and domestic natural gas prices. As a rough current comparison, the LNG spot price is approximately US$9.50/MMBtu while the price of domestic natural gas is about US$6/MMBtu.

Today, Myanmar has the capacity to generate about 3,000 megawatts of electricity. Hydropower accounts for about 60%, while thermal stations consuming domestic gas make up 40%, which is considered as both a balanced and a sustainable energy mix because of the fact that Myanmar has an abundance of rivers and natural gas reserves. Myanmar has four commercial offshore gas fields, of which 80% of the extracted gas is sent to Thailand, China and other countries. This arrangement was a critical source of foreign currency for the previous military government, back when domestic need for natural gas was low.

The Myanmar government is considering using liquefied natural gas (LNG) to generate power and meet the current shortage of electricity in Myanmar. It aims to procure more gas for developing new gas-fired power plants. At present, state-owned and privately run gas-fired plants are operating with limited natural gas supply.

From the point of view of time, using LNG to produce electrical power is currently the quickest option that is available because the engineering, construction, and commissioning of an FSRU to receive LNG from a supplier abroad can be achieved within about 3 years.

The main issue that using LNG to generate electricity will present to both the government and the general public is related to the very expensive price of LNG. This is particularly apparent when LNG is compared to other alternatives such as domestically available natural gas. Unless the most cost-effective LNG supply and most competitive LNG purchase prices are secured before entering into an LNG purchase agreement or electricity purchase deal, the government would likely have to bear the strain of heavy electricity subsidies. Most importantly, the growing cost of large amounts of LNG imports over a long period of time is likely to raise the prices of power and consumer goods which will hurt the general public the most, who are end users.

At the same time, the country risks ending up in a situation where we are inundated with electricity from imported LNG and the opportunity to use cheaper domestic natural gas effectively for power generation is diminished. In order to avert such a situation, domestic sources of natural gas, which are projected to become potentially available in 2023, should always be made a priority for the country in terms of future electrical power supply setup. It is locally available and cheaper, with a discount enjoyed by the government thanks to the nature of the prevailing production sharing mechanism.

To resolve the pressing power crisis, limited, short-term LNG imports are reasonable. However, the government should carefully weigh the costs of large-scale, long-term LNG imports, especially when domestic sources should be more readily available.

Thal Sandy Tun works for the Corporate Social Responsibility & Communications Department of MPRL E&P Pte Ltd. in Yangon. She has a B.A. in English from Yangon University of Foreign Languages and has also studied in Japan.