Markets
Tuesday, 11 October 2016 11:03 / Markets

Supply glut opens new LNG-to-power markets

Though Asian LNG prices for November delivery rebounded slightly over the past ten days, the oversupply persists and helps open new markets: Indonesia and Jamaica have chartered floating storage units (FSUs) to underpin power plant projects. Puerto Rico, Ghana, Bahrain and Bangladesh are tipped as the ‘next round of new importers.’

Unexpected shut-down of two of Nigeria’s power plants on Sunday has increased the number of idle plants to nine and made the nation’s electricity supply nosedive to just over 3,400 MW – a significant drop from last week’s average of 3,920 MW. The latest shut-downs, caused by gas shortages, affected the 625 MW Olorunsogo-II unit and the Trans-Amadi plant (25 MW).

“Unprecedented efficiencies” created by new technologies and more stringent energy policies will make per capita energy demand peak before 2030, according to projections by the World Energy Council (WEC). The “phenomenal rise of solar and wind energy” is seen to continue, while coal and oil will gradually fade out of the energy mix.

During the first six months of 2016, residential US electricity customers paid on average 12.4 cents per kilowatthour (kWh), or around 0.7% less than in the same period last year. If this trend continues for the rest of the year, EIA analysis shows that prices would decline for the first time since 2002.

Ashot Manukyan, Armenia’s minister of energy infrastructure, has dismissed reports in Russian that the government is planning to divest the Yerevan gas power plant as it allegedly owes $52.3 million to Gazprom for past gas supplies.

Pondering why the Czech-based companies EPH and PPF Investments have recently acquired all of Vattenfall’s former lignite power plant assets in eastern Germany, IEEFA data analyst Gerard Wynn suggests that the buyers don’t believe Germany will meet its 2030 emissions target. They think that another sector, not lignite, will bear this burden or they expect to be compensated for any forced early retirements of power plants.

Anticipating that South Africa’s proposed gas power projects will cost up to $3.7 billion, the Department of Energy (DoE) announced it will reveal a list of preferred bidders for the projects by the end of March 2017. DoE had issued an Independent Power Producer (IPP) program as the basis for the procurement of two projects totalling 3,000 MW.

Keen to clean up hazardous air pollution, the Chinese government is embracing nuclear power and seeks to shift from coal to gas generation – although fuel costs still make operators favour coal. As for new nuclear, China has an additional 20 reactors under construction, which, if completed, will add more than 22 GW to its existing capacity of 27 GW.

By the end of 2018, Qatar Electricity & Water Company (QEWC) plans to boost the emirate’s power generation capacity to 13.1 GW, up from currently 8.8 GW. Installed capacity is enough to meet demand of around 8.2 GW but rising energy use, particularly for air-conditioning and water desalination, makes new-build gas power plants a necessity.

Detroit-based DTE Energy has unveiled plans to spend up to $1.5 billion to construct new gas-fired generating capacity across the US as it needs to replace part of its coal power plants that are due to be phased out by 2023. The utility said it will file a full application for the new-builds with Michigan regulators in mid-2017.

Signing of a £18 billion contract for electricity offtake from the Hinkely Point C nuclear project is burdening rate-payers with higher costs than new gas power stations would have done, the UK government had to admit. Analysts at Barclays Bank estimated EDF will generate a 7.2% rate of return – even if the project would come in 25% over budget and was completed four years late (by 2029).

Though imported cost of coal and LNG has declined, power prices in Japan keep rising. According to data from Japan's 10 major utilities, the average retail electricity price rose for four consecutive fiscal years (2011–14). LNG prices fell by 37% and coal prices fell by 19% in fiscal 2015 but Japan's retail electricity price eased of by merely 2%.

Doreen Power, a privately-run utility in Bangladesh, has contracted MAN Diesel & Turbo to supply three 18V 48/60TS engines for a 56.7 MW baseload power plant near Dhaka. “48/60’s can be retrofitted to 51/60s without any major effort,” a MAN spokesman said, but cautioned about Bangladesh’s current gas supply constraints.

Shale oil and gas production from the Appalachian Basin's Utica play has hit 3.5 Bcf/d this June, jumping from very low levels of 0.1 Bcf/d in December 2012. The surge in output from the vast Utica play keeps a lid on US natural gas prices and incentivise more power station operators to shift from coal to gas. The capacity factor for CCGTs has risen to 56% and is expected to increase further.

Even though thermal coal prices increased by nearly 50% this year, the effect on fuel switching is not enough to make the use of LNG economically viable for power generators. For coal-to-gas switching in Asia, analysts say that LNG would have to fall by another third from its recent lows around $6/mmBtu.