In October, the Cambodian conglomerate Royal Group broke floor on a 900-megawatt (MW) electrical energy era undertaking within the Botum Sakor district, on the nation’s south-western coast. If it’s accomplished and operating by 2027, the undertaking would turn out to be the nation’s largest operational energy plant, and its first to run on gasoline.
Cambodia doesn’t produce its personal gasoline, so the undertaking requires the infrastructure to import the gasoline in its chilly, liquid type, then reheat it for combustion within the plant. A 2023 report by the Financial Analysis Institute for ASEAN and East Asia (ERIA) advocates for liquefied pure gasoline (LNG) to play a serious position in Cambodia’s power future.
It is a dangerous proposition. In recent times, different nations within the area that depend on imported LNG have struggled to take care of power safety and affordability. This has been resulting from world market disruptions and skyrocketing prices. Cambodia’s foray into LNG markets will due to this fact require cautious strategic foresight and planning to scale back power prices, enhance reliability and help financial progress.
Quite a few questions stay, nonetheless, concerning prices and procurement, the position of LNG-fired electrical energy within the nation’s energy combine, and the usage of doubtlessly cheaper options. With out clear solutions, Cambodia’s economic system may discover itself uncovered to the big prices and volatility of worldwide LNG markets.
How will Cambodia purchase LNG and what’s going to it price?
New consumers akin to Cambodia sometimes purchase LNG from spot markets or by means of multi-year contracts. The latter establishes volumes and pricing strategies throughout the contract’s time period. Each of those acquisition choices entail dangers for power safety and price.
Shopping for from the spot market means Cambodia may import shipments at any time when wanted relatively than committing to set contracts. The nation would pay the prevalent world market worth on the time of the acquisition.
This may be dangerous during times of risky costs. Since 2020, spot costs have fluctuated between US$1 per million British thermal items (MMBtu) and US$100/MMBtu – that interprets to a swing of between roughly US$4 million and 375 million for a typical, 72,000-tonne LNG cargo.
Contracts alleviate these considerations by setting a pricing method, sometimes tied to a share of the worldwide oil worth. This reduces worth volatility, narrowing the price vary of LNG cargo deliveries. Nevertheless, contracts additionally stipulate inflexible “take-or-pay” phrases, which means Cambodia should both “take” the LNG or “pay” a penalty if the LNG is unneeded. Since LNG’s position within the Cambodian power system remains to be unsure, the nation may discover itself paying vital penalties.
Importantly, LNG is prone to be costly below each approaches. Costs below each spot and contract preparations are at present two to 3 occasions as excessive as coal. Our current Institute for Vitality Economics and Monetary Evaluation (IEEFA) research estimates that, at present costs, working one 900MW, LNG-fired energy plant at baseload ranges may price as a lot as KHR 2.95 trillion (US$730 million) for the gasoline alone. This exceeds Cambodia’s total 2022 coal import invoice.
Cambodia may pay a premium on present costs and battle to entry reasonably priced LNG provides as a result of it’s a brand new market entrant with restricted bargaining energy, unsure gasoline necessities and a decrease demand profile. In 2022, the Russian invasion of Ukraine induced world LNG costs to skyrocket, as rich European and Northeast Asian consumers outbid rising markets for restricted provides.
Pakistan and Bangladesh, for instance, had been usually unable to afford LNG shipments, leading to gasoline shortages and energy outages that devastated key financial sectors. In 2024, costs stay nicely above historic ranges, and each nations are nonetheless struggling to finance their ballooning LNG import payments. Consequently, in early 2023 Pakistan introduced it will cease constructing LNG-fired energy vegetation.
What affect will LNG have on electrical energy costs?
Integrating costly LNG into the Cambodian energy combine may have knock-on results on electrical energy costs, hindering the federal government’s efforts to scale back these charges.
At present spot market costs, LNG-fired electrical energy may price greater than 5 occasions that of current photo voltaic tasks within the nation, or about double the speed of present coal and hydro contracts. For instance, IEEFA estimates that LNG-fired electrical energy may price US$0.17 per kilowatt-hour at present LNG costs. In the meantime, Cambodia has attracted photo voltaic tasks that produce electrical energy priced at US$0.026 per kilowatt-hour.
LNG gasoline costs would probably must fall beneath US$4.8/MMBtu to compete with coal and renewables. Nevertheless, world costs have not often fallen this low. Most producers require a promoting worth of US$8/MMBtu or extra to service debt and earn a return – and LNG costs are unlikely to fall to aggressive ranges for the Cambodian energy sector.
Different Asian nations, akin to Vietnam and the Philippines, are grappling with the affect of uncompetitive LNG imports upon their electrical energy charges. It’s slowing down LNG-to-power improvement and placing increased stress on end-user tariffs.
Cambodian customers already pay among the many highest charges for energy in Asia. With LNG costs unlikely to compete with renewables or baseload coal vegetation and the federal government prioritising electrical energy affordability, the position of LNG vegetation within the energy combine stays unsure.
What’s the different?
Cambodia must correctly assess whether or not a baseload LNG-to-power undertaking is critical to attain its power targets. These targets embody sustaining an reasonably priced energy provide and producing 70 per cent of the nation’s energy from renewable sources by 2030, up from 50 per cent in 2023.
The present impetus for LNG improvement seems to be pushed by considerations that wind and photo voltaic assets don’t present uninterrupted, dispatchable energy. LNG is seen as an integral ingredient to help the grid reliability as electrical energy demand rises and the facility system turns into more and more reliant on renewables enroute to decarbonisation.
Nevertheless, with wind tasks solely beginning to materialise and photo voltaic making up a mere 5 per cent of Cambodia’s energy combine, there’s ample alternative for each wind and photo voltaic to develop with out jeopardising grid operations. Nations can sometimes combine as much as 15 per cent of the electrical energy combine with wind and photo voltaic era with solely minor modifications to the grid.
Furthermore, reaching its 70 per cent renewables goal would require Cambodia to restrict its utilisation of baseload LNG-fired energy vegetation. It will make it tough for the nation to decide to long-term LNG contracts. This uncertainty will problem Cambodia’s capacity to configure LNG infrastructure and the mandatory contracts in a method that ensures each power safety and affordability.
Cambodia should scale its LNG undertaking aspirations in order that LNG-fired energy doesn’t put the federal government’s power targets out of attain. Doing so would permit stakeholders to pursue LNG contracts and infrastructure plans which might be best-suited to ship Cambodia’s power targets.
This text was initially revealed on Dialogue Earth below a Inventive Commons licence.
