Power shift

Power shift

Delivering reliable energy supply as well as cleaner air is a growing challenge. Renewables can only do so much, leaving gas as the main option.

The LNG receiving terminal operated by PTT Plc at Map Ta Phut in Rayong is the country's only gas import site. PTT aims to make the terminal Southeast Asia's trading hub for liquefied natural gas. Photo courtesy of PTT Plc
The LNG receiving terminal operated by PTT Plc at Map Ta Phut in Rayong is the country's only gas import site. PTT aims to make the terminal Southeast Asia's trading hub for liquefied natural gas. Photo courtesy of PTT Plc

Energy is vital for countries seeking to power and sustain economic growth. But as the world feels the heat of climate change, the energy industry is under pressure to undertake a major transition. Somehow, it must find ways to ensure that consumption can continue without interruption but with far fewer negative consequences for the environment.

Rapid technological advances across a variety of industries, meanwhile, are enabling society's quest for sustainability at an unprecedented pace. The resulting transition is causing an epochal shift in how the world's population consumes energy and natural resources.

Asia has far outpaced the rest of the world in energy consumption to serve its rising prosperity. But a growing desire for cleaner air is pushing demand for greener energy. Natural gas, mainly in the form of liquefied natural gas (LNG), is seen as one of the best options to serve the transition, say industry executives.

"One of the biggest challenges our industry is facing is the need to balance rising energy demand, while reducing the environmental impact from our carbon footprint," said Phongsthorn Thavisin, president and CEO of PTT Exploration and Production Plc (PTTEP), Thailand's largest oil and gas explorer.

Among the fossil fuels that will still account for almost 80% of total energy demand in 2040, natural gas is showing the highest growth and becoming a key to a clean energy transition, he said at the Future Energy Asia 2020 forum in Bangkok last month.

"More challenges are arising from oil-price volatility from geopolitical tensions, trade conflicts, shale oil production and even from the coronavirus outbreak which has had such a significant impact on energy consumption as well as the global economy," he added.

LNG is much cleaner than diesel and other fossil fuels in terms of carbon emissions, said Alan Lau, president director of PT Anglo Euro Energi Indonesia and a member of the United Nations Economic Commission for Europe.

"However, according to some studies, processing LNG at processing plants still emits 10% of carbon into the environment," he told Asia Focus on the sidelines of the three-day energy event.

LNG, he said, accounts for 23-25% of Asia's energy consumption and is gradually replacing coal in the energy mix, although coal still has a dominant role. Lack of infrastructure is the main reason for low gas utilisation in the region.

Recently, LNG prices have dropped significantly given slower demand in China, making it the best option to make energy affordable for all, noted Mr Lau.

"Most of the consumers in Asia are in China and China has been on a slowing trend over the past few years. Coupled with the prolonged (US-China) trade war, along with the (Covid-19) virus, demand for gas has dropped significantly," he said, adding that Japan and South Korea have been traditional LNG buyers in Asia.

"China also has its own gas with new offshore fields as well as onshore ones in western China. In the future, China may import less gas, depending on how things develop locally."

At present, Asian countries that have coastlines import gas from Australia, Siberia in Russia, Middle Eastern countries such as Qatar, as well as the United States. According to Cheniere Energy, the largest LNG exporter in the US, Asia Pacific will account for around half of all global gas demand growth over the next two decades.

The International Energy Agency (IEA) estimates that Asia Pacific will be responsible for 65% of all global energy demand growth over the same period, said Douglas Wharton, Cheniere Energy's vice-president for origination and marketing in Asia, based in Singapore.

"This will result in Asia Pacific representing nearly 65% of LNG demand growth through 2030 and likely beyond. South Asia, China and Southeast Asia including Thailand are expected to represent three of the four largest importing regions worldwide by 2030," he said.

The US, he said, delivered 37 million tonnes of LNG to the regional market in 2019, making it the third largest LNG exporter after Qatar and Australia. Based on projects under construction, US capacity is set to exceed 100 million tonnes by the end of 2026, likely to make it the largest LNG exporter.

Cheniere has seven LNG liquefaction and purification facilities, known in the industry as trains, operating at two facilities located in the Gulf of Mexico and two trains under construction, which would bring total capacity to 45 million tonnes of liquefaction by 2023. The Houston-based company accounted for 80% of US LNG exports last year, said Mr Wharton.

"The IEA states that US LNG is helping to accelerate a shift toward a more flexible, liquid global market," he said. "This transformation of the LNG market creates a huge opportunity for gas users in Asia.

Increased LNG usage, he added, would help improve air quality in Asia, where urban air pollution has become a serious threat.

China records about 1.6 million premature deaths a year as a result of air pollution. India, meanwhile, is home to seven of the 10 most polluted cities in the world.

"Interregional LNG trade to Asia, plus growing renewables and improving energy efficiency help displace more polluting fuels from the energy mix, significantly reducing air pollutant emissions in the region," he said.

PTTEP is pursuing new opportunities through gas-to-power projects in the domestic market of electricity-hungry Myanmar, says president and CEO Phongsthorn Thavisin. Supplied/PTTEP

RENEWABLE DRIVE

According to Wood Mackenzie, a global energy and mining research and consultancy group, energy demand will keep rising through to 2040. "With a rising population but moderating intensity, global energy demand will slow. It will increase from 13 billion TOE (tonnes of oil equivalent) to 16 Btoe in 2040," the company said in its Energy Transition Outlook 2019.

The increase works out to just 1% a year, half of the rate of the past decade. Since 2010, aggregate demand growth in Asia Pacific gas been around 35% but it has been nearly flat in North America and Europe. "In economies like India, large populations will be connected to the grid using a coal-heavy fuel mix," the report added.

The energy mix, it said, is changing only gradually and the world risks relying heavily on fossil fuels for decades to come. "We forecast coal, gas and oil will still contribute to around 85% of primary energy supply by 2040, compared with 90% today."

Resource availability, infrastructure and cost competitiveness (absent a carbon price) have been keeping fossil fuels resilient, it added. "We also see the potential for protectionism to creep into other areas of the economy, hastening the need to focus on domestic resources, including fossil fuels."

Nonetheless, renewables are the fastest-growing source of energy supply by far. "The accelerating capacity build-out is changing the power sector landscape," it said, adding that wind and solar would contribute 24% of the power supply by 2040 compared with 7% today.

Alex Whitworth, Wood Mackenzie's research director, told Asia Focus that overall, the share of fossil fuels in Southeast Asia's energy supply is 81% and is expected to rise to 82% as more coal and gas power plants come online in the near future.

"After 2025 we expect more pressure to be put on coal plant development so this trend could turn around in the longer term," he said. "Meanwhile, there is rapid growth in renewable energy in the region although currently this contributes to below 1% of total energy supply."

As of 2018 there were only about six gigawatts of wind and solar power installed in Asean, but this is expected to grow to at least 25 GW by 2025 with annualised growth of 22%. "By 2030 we expect the renewable installed base could double again to 50 GW as the economics of solar power become very competitive in the region," said Mr Whitworth.

"Asean does not have very good conditions for wind power compared to other regions but solar radiation is very high near the equator, so we expect that about 80% of new renewable energy capacity in the region will be from solar, and only 20% from wind."

The Wood Mackenzie report also noted that although the competitiveness of renewables is improving, there are practical limitations to reaching a fuel mix in which solar and wind make up 50% or more. "We see growth in energy storage to almost 600 GW. But without long-duration storage, on a much higher scale, high solar and wind yields negative prices and grid shape, design and stability issues.

"Beyond capacity markets and auctions, value creation in renewables still doesn't look as remunerative as the best oil and gas developments."

LNG prices have dropped significantly given slower demand in China, says Alan Lau, president director of PT Anglo Euro Energi Indonesia. SUPPLIED

POWERING MYANMAR

Among the markets in Southeast Asia, companies are seeing good potential, particularly in Myanmar where electricity outages remain a big headache for factories, businesses and households. Electricity demand growth is projected to average 11% a year until 2030, according to Daniel Wiedmer, Greater Mekong unit head for Private Sector Infrastructure Finance at the Asian Development Bank (ADB), citing World Bank estimates.

"In the next 10 years, power generation is forecast to increase from 3.1 GW currently to 12.6 GW so that is huge growth," he said. "The ADB has estimated that US$2 billion per year should be invested in the sector to realise that. The stakes are really high. There is a lot of potential there but the question is how we actually get there.

"For example, we believe that there is immense potential for very cheap solar in Myanmar. The potential is estimated at 35,000 MW, along with 100,000 MW in hydropower potential. Currently, hydropower is 60% of the generation mix in Myanmar and solar is very small."

PTTEP, which has operated in Myanmar for over three decades, is also seeking a bigger market opportunity there. The Myanmar government has set an ambitious target of 100% electrification by 2030, compared with just 30% in 2015. Government figures claim the rate reached 50% at the end of last year.

"We are looking to expand our business along the gas value chain, and currently we are pursuing a gas-to-power project in Myanmar," said Mr Phongsthorn.

The plan involves feeding natural gas from the Zawtika and Myanmar M3 fields to supply new power plants. Pending Myanmar government approval of a feasibility study and project framework, the two sides would then negotiate a power purchase agreement and the Thai company would carry out preliminary engineering work.

"This is a rather new approach as we will not be waiting for the demand or the market to materialise," he said. "Instead, we can identify opportunities and create the market for our existing gas projects.

"With Myanmar's Electrification Vision 2030, I am certain that we will continue to be an engine of growth to propel economic development and create long-term value for the two nations."

Natruedee Khositaphai, executive vice-president for the Strategy and Business Development Group at PTTEP, said gas-to-power projects would allow the company to add value to Myanmar's domestic gas resources at a time when Thailand's demand for gas from Myanmar is slowing.

"Normally, following the discovery of big fields in the past, gas has been delivered to Thailand as the major market, but what we are seeing now is that Thailand will not require as much gas from Myanmar as we did before.

"What we've tried to think of is how we can capture the domestic market for the gas. We have discovered that there are some more marginal fields that we cannot develop further without a big investment, so we have tried to find a market for these small fields.

"We call this an indigenous gas-to-power project as we are not focusing on (imported) LNG but rather domestic gas to add value to the gas and create a new market."

Unstable power supply from the state grid has prompted businesses to invest in diesel generators, pushing up their electricity costs even more. The government, even in an election year, has raised electricity tariffs by threefold -- the first increase in five years -- to fund grid investment. The World Bank warned that the country needs about $2 billion in annual spending on electric power infrastructure.

"Really gas has to be the way forward because for base-load power, it is far more environment-friendly than the other fossil fuel options," said Tony Segadelli, managing director and chief engineer at the power plant and renewable energy consultant Owl Energy.

"There is indigenous gas and there are a lot of exploration rights that have been issued. But there is a need to have a reality check to find out if the exploration opportunities are real or whether there is actually far less than there was expected to be," he acknowledged.

The US is poised to become the world's biggest LNG exporter, says Douglas Wharton, vice-president for origination and marketing in Asia of Houston-based Cheniere Energy. Photo: Louis Goh

The Sabine Pass LNG terminal owned and operated by Cheniere Energy in Cameron Parish, Louisiana, is the largest receiving and regasifying terminal in the world. Supplied/Cheniere Energy


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