Liquefied natural gas (LNG) producers are under increasing pressure to compete on a cost basis with other fuels, but new technologies and new approaches to sales contracts could support further LNG market growth.
Electricity generation is viewed as one potential growth market for LNG, with the trend for independent power projects (IPPs), financed by the private sector, offering LNG industry a stepping stone into a new era.
LNG power prospects
Richard Guerrant, president of Mobil Power Inc., is convinced LNG-fired power schemes could prosper in developing economies, where there is rapid growth-particularly in Asia-inadequate domestic gas supplies, and tightening environmental legislation. Another key factor is recent improvements in gas-fired power generation efficiency.
Guerrant on Mar. 18 told delegates at the second annual conference on natural gas at Doha, Qatar, that worldwide power demand is projected to double during the next 15 years, with 1.14 million MW of new capacity to be built outside North America by 2010.
Of this new capacity, Guerrant reckons IPPs could capture 40%, or 400,000 MW.
Asia top market
The Asia-Pacific region is expected to be the largest growth area for new power schemes. Here, 490,000 MW of new capacity is forecast by 2010, with 300,000 MW potentially open to IPPs.
"Many countries have policies to encourage IPPs," said Guerrant. "There has been a 15-20%/year growth in investment in IPPs since the early '90s, with Asia and U.K. being where most of this activity has taken place.
"Because we believe developing countries will continue to encourage competition, and because these countries face a lack of funding, we calculate that IPPs will capture 40% of the new market."
While the IPP penetration rate of 40% is expected to apply to Asia as a whole, Guerrant said there are likely to be big differences in take-up levels from country to country.
A recent bidding round for power projects in Japan received only 10% of bids in terms of capacity from IPP schemes. A similar round in Thailand received almost all bids from IPP proposers.
"There is no LNG-fired IPP anywhere yet," said Guerrant. "Some are close, but no one has yet put the whole of the chain together. We believe it will happen soon because of the economic and environmental benefits of natural gas and because, in comparison with coal, LNG can be more competitive to generate electricity because of new technology."
A current gas-fired combined-cycle generation plant has a thermal efficiency of 55%, but a new turbine is being devloped by General Electric that will raise efficiency to 60%, said Guerrant: "Coal-fired plants have an efficiency still higher, but LNG could capture a significant percentage of the IPP market."
Enron's push
Richard Bergsieker, managing director of Enron Development Corp., told delegates his company expects to be first to begin operation of an LNG-fired IPP, a 500-MW plant in Puerto Rico. He said the company is in the process of closing financing on the project.
Enron has developed nine power plants around the world under joint ventures or build, own, operate, and transfer (BOOT) projects with combined capacity to generate 4,400 MW of electric power.
The company has 23 electricity generating projects in development around the world, said Bergsieker, with combined output capacity of 20,000 MW.
Bergsieker said that if LNG is going to work for IPP schemes, then Southeast Asia must be the prime area, since the region is at the hub of the LNG industry.
Guerrant said Mobil has 14 IPPs under consideration, with focus markets being Turkey, China, Taiwan, Philippines, and India. The company has bid successfully to build one IPP in Turkey and two in China.
Bergsieker said that for LNG-fired IPPs to take off, the costs of power plants, liquefaction, and shipping must come down, as must the costs of project finance.
He added that because IPPs are typically relatively small in capacity, LNG producers must be flexible about sales contracts and consider deals with a number of BOOT schemes to achieve critical mass.
Greater efficiencies
Yoshitsugi Kikkawa, engineering consultant at Japan's Chiyoda Corp., told how combining LNG and power plants can improve thermal efficiency for power generation even further.
Kikkawa explained that the constant power demand of an LNG plant, as opposed to the cyclic daily load of a power plant, could improve thermal efficiency of a power plant if LNG production and power generation were combined. By keeping a high average load on the power plant that would lead to a reduction in per-unit power generation cost.
Chiyoda has studied a hypothetical plant in the Middle East, designed to produce 6.9 million metric tons/year of LNG and generate 800 MW of electric power, from feed gas costing $0.50-1/MMBTU.
The researchers showed the LNG plant would cost $2 billion on a stand-alone basis and $1.9 billion for a combined plant. Also, with a feed gas price of $1/MMBTU, it would cost $2.26/ MMBTU to produce LNG in a stand-alone unit compared with $2.25/ MMBTU in a combined LNG/power plant.
Similarly, it would cost 2.8¢/kw-hr to generate electricity in a stand-alone unit, and 2.4¢/kw-hr in a combined LNG/power plant, with $1/MMBTU feed gas.
Gas competition
Back in the world of less-futuristic LNG plans, however, delegates were reminded that LNG and natural gas have not won the battle to be power generation industry's fuel of choice.
Yuzuro Aoki, representative managing director of Tohoku Electric Power Co. Inc., Japan, told delegates the country imported 44 million metric tons of LNG in 1995 and will raise imports to 53-54 million metric tons in 2000 and 58-60 million metric tons in 2010.
Natural gas, imported as LNG, will increase its share of Japan's primary energy supplies from 10.6% in 1992 to about 12.8 % in 2000, at which level it is expected to remain until 2010.
Aoki said that while power generation capacity is forecast to expand in Japan, coal will take more of the incremental market than LNG, because improvements in coal-burning technology have effectively canceled out the environmental advantage LNG had.
"As a result," said Aoki, "in future selection of fuel for power generation, economic efficiency will be the most important factor. Electric power utilities will find themselves in an extremely competitive environment, and unless LNG prices can be maintained at levels that enable LNG to compete with other fuels such as coal, which is now recognized as economically efficient, LNG will lose its competitiveness in the market."
During 1995-2005, Japan's total electricity generation capacity is expected to rise from 201,340 MW to 276,200 MW. LNG-fueled plant capacity currently amounts to 43,540 MW and is expected to reach 69,080 MW in that period, while coal-fired capacity will increase from 20,140 MW to 42,240 MW.
Coal-fired plants will see the greatest percentage increase for power generation in Japan, with hydroelectric and nuclear expected to retain market share as total market capacity increases.
"With regard to LNG-fired thermal power," said Aoki, "although plant capacity will increase, the capacity utilization is expected to decline, owing to a change in the form of thermal power operation from conventional middle-load facilities to middle-peak facilities.
"In addition, operations are expected to be highly efficient as a result of the replacement of LNG-fired thermal power and the bringing into practical use of new processes, such as advanced combined-cycle power generation.
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