4th APAC SMLNG Forum

Economics of Small-Mid Scale LNG in Power and Non-power

Neil Semple
May 2015

The Lantau Group

Agenda / Content

Introduction

The effect of falling oil prices on SMLNG economics

CNG and LNG in industry, transport and power

Wrap up

1 The Lantau Group

Key Points

Many different domestic gas prices in Asia what price to use?

Level playing field with an analysis based on a reference price using imported LNG.
Gas pricing
Conclusion is that the incentive to change to CNG/LNG has narrowed following the fall in oil
and international LNG prices.

Displacing liquid product with gas for heating and process use, not power.
Room for SMLNG to serve remote loads that do not have a gas pipeline.
Industry

Need an agency or regulations to push the infrastructure build out to help reach critical mass.
China market large and set to grow, Thailand needs pricing reform to get it on a firm base.
Transport

Horses for courses - small to mid-scale LNG for small to medium sized power plants switching
Power from diesel.
Opportunities in particular in the archipelagoes of Indonesia and Philippines.
But incentives, infrastructure and clear regulations are needed to make it work.

2 The Lantau Group

Agenda / Content

Key points

The effect of falling oil prices on SMLNG economics

CNG and LNG in industry, transport and power

Wrap up

3 The Lantau Group

Heres the change in long term LNG prices following the crude oil price fall

25

20
LNG DES price estimate

Real USD 15.1/mmbtu

15

10
Real USD 11.1/mmbtu

Historic June 2014 May 2015

5

0
2009 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2020

Note: 2000 to present. Brent from ICE.

LNG assumes 13.5 slope and shipping of USD 1.0/mmbtu and regas of USD 1.0/mmbtu.

4 The Lantau Group

Level playing field - import it or locally produce it with delivery by land or sea

LNG Terminal

LNG Delivery by Truck LNG Offloading Storage & Ambient Air Regas

Source: PTT

LNG Plant

Source: GasNor Source: GasNor

Source: Linde

Source: Linde

5 The Lantau Group

What does the imported LNG price indicate for retail end user LNG pricing?
June 2014 USD19.5/ USD15.1/ May 2015
20 mmbtu mmbtu 20
USD15.0/ USD11.1/
18 18
mmbtu mmbtu
16 16

14 14

USD mmbtu
USD mmbtu

12 12

10 10

8 8

6 6

4 4

2 2

0 0
Retail LNG Regas, Truck Opex, LNG DES Retail LNG Regas, Truck Opex, LNG DES
Storage, Capex Storage, Capex
Others Others

Source: TLG research

6 The Lantau Group

Whats the cost build up of domestic trucked LNG?
June 2014 USD19.5/ USD15.1/ May 2015
20 mmbtu 20
mmbtu
18 18 USD15.0/ USD11.1/
mmbtu mmbtu
16 16

14 14
USD mmbtu

USD mmbtu
12 12

10 10

8 8

6 6

4 4

2 2

0 0
Retail Regas, Truck LNG Feedgas Retail Regas, Truck LNG Feedgas
LNG Storage, Opex, Opex, LNG Storage, Opex, Opex,
Others Capex Capex Others Capex Capex
Source: TLG research

7 The Lantau Group

Downstream savings and upstream feed gas negatively impacted by lower
crude oil price
June 2014 May 2015
35 35

30 30

25 25 Lower savings Fixed costs

unchanged
USD/mmbtu

USD/mmbtu
20 20

15 15
Hair cut for
10 10 upstream

5 5

0 0

Source: TLG research

8 The Lantau Group

Agenda / Content

Key points

The effect of falling oil prices on SMLNG economics

CNG and LNG in industry, transport and power

Wrap up

9 The Lantau Group

 Industry

China unmet industrial demand for gas

China
60 The amount of traditional petroleum product
used in industry is just under 50 mmtpa
equivalent.
50
Non-specified The industrial piped gas demand in China is
oil products
the equivalent of 55 mmtpa.
40 Fuel oil
So half the industrial market that is using
mmtpa

Diesel liquid product can be viewed as unserved by

30
gas.
Kerosene Pricing is relatively attractive to switch.
20

LPG Some potential users will prefer to wait for a

10 pipe to arrive.
Crude oil
Some may be wary of new technology.
0
1 But there is a market to go for based on our
Source: IEA
analysis.

Notes: 55 mmtpa = 75 bcma or 7,5 bscfd

10 The Lantau Group
 Industry

Southeast Asia unmet industrial demand for gas

Vietnam Indonesia Thailand
9 9 9
Non-
8 8 8
specified
7 Oil 7
7 Fuel Oil
Products
Fuel Fuel Oil
6 6
mmtpa

mmtpa
Oil 6

mmtpa
Diesel
Diesel
5 5 5
LPG
LPG
4 4 Diesel 4
3 3 3
2 2 LPG 2
1 1 1
0 0 0
Source: IEA
1 1 1

Unmet demand twice the size of
piped gas to industry of 0.9 mmtpa
or 120 mmscfd maybe a role for
an LNG terminal and delivery by
pipeline or truck onshore.
11 The Lantau Group
Unmet demand 50 percent of
piped gas to industry of 15
mmtpa equivalent or 2 bscfd
unserved demand probably met
by mix of truck, ship and pipeline.
Unmet demand only 15 percent of
piped gas to industry of 12 mmtpa
equivalent or 1.6bscfd unserved
demand probably remote and met
by trucked LNG.
 Transport

We have all heard about air pollution in China what can gas do to help?

Generally natural gas vehicles - less carbon

dioxide, less particulates, less sulphur dioxide,
less nitrogen dioxide than traditional petroleum
products.

Close to 25 percent of PM2.5 from vehicles.

Policy drive to switch to natural gas to improve

air quality.

State related enterprises encouraged to invest in

infrastructure.

Tax on petrol and diesel has increased as crude

Source: Reuters price have fallen, but not on natural gas.

Currently China has applied standards similar to

Euro IV in 2014.
Meanwhile in the EU Euro VI comes in by Sept
2015 and sets tighter emission standards raising
question marks over the future of diesel.

12 The Lantau Group

 Transport

One delivery method is LCNG which is competitive against diesel

LCNG This illustrates the cost stack for LCNG.

30.0
5.5 USD/mmbtu
Similar to CNG but with delivery of the fuel as
25.0 LNG then turned in to CNG on site.

20.0 World price for LNG.

15.0 Distribution cost.

USD/MMBtu

10.0 Vehicle conversion.

5.0
Efficiency loss.

0.0
Retailing/dispensing.

Some savings to share.

But less than before.

Source: TLG research

13 The Lantau Group

 Transport

China economics of gas in transport

Comparison of annual cost for CNG- Comparison of annual cost for LNG-
versus petrol-fueled taxis versus diesel-fueled HDT
90 500

Annual cost of running a HDT, '000 yuan

Annual cost of running a taxi, '000 yuan

80 450

Petrol- 400
70 Diesel-
fueled taxi
350 fueled HDT
60
300
50
250 Retrofitted LNG
40 Retrofitted CNG
HDT (6 years
taxis (3 years 200
payback)
30 payback)
150
20
100

10 50

0 0
40 60 80 100 120 140 40 60 80 100 120 140
Source: TLG research Brent price, $/barrel Brent price, $/barrel

14 The Lantau Group

 Transport

Thailand gas in transport growing but uneconomic so far

CNG in Transport CNG cost analysis

3.0 25

20
2.5

15
2.0

USD mmbtu
mmtpa

10
1.5

5
1.0
0
Current Interim Stage Long Term
0.5
Marketing Margin
-5 NGV Opex and Capex
Gas Price
0.0 Conversion Cost
Efficiency Loss
2004 2006 2008 2010 2012 2014 -10 Service Station
NGV Price
Source: EPPO Diesel Price
Volumes have grown but the PTT loses money at the current price. If the PTT recovers its costs, that would probably be
based on a weighted average cost of gas. Proper economics would dictate a higher price based on LRMC of gas, LNG.
That would lower the price advantage of CNG but still leave savings. But perhaps critical mass reached by then.
15 The Lantau Group
 Power

There are a number of ways to get LNG into small and mid scale remote power
Rack of gas
LNG satellite
LNG Plant engines or CCGT /
terminal
OCGT
Onshore This mainly applies
to Indonesia and involves
LNG taking gas (CBM or
conventional) from small, even 1
stranded, fields and trucking it
to a user such as a small power
plant.
Offshore This involves
transporting the LNG in ISO
Port LNG tanks (inside standard 40 TEU
container frames) on a shipping 2
line from the source of LNG to a
port and then by truck to the
end users power station.

Offshore The capital

expenditure builds up as the
end user demand profile rises
LNG and a dedicated ship on a milk
Port round would need to deliver 3
ISO tanks to port and then by
truck to the power station.

Offshore Once demand has

reached such a scale that small
ISO containers are no longer
practical and a dedicated LNG
carrier with large in-built ISO 4
Port tanks would transport the LNG
to storage tanks (onshore or
floating) and then possibly by
pipe to the power station.
Source: TGE, Linde, TLG research

16 The Lantau Group

 Power

However you cut it up there is some headroom but enough to get the switch?

Costs of small scale LNG to reach a small power

Scenario characteristics
plant
Based on our analysis to date small scale LNG
would under cut diesel and usually fuel oil used in
Diesel price 25
existing plants.
Pursuable value gap In this case the LNG is loaded onto ISO containers.
20 Shipped to a port. Trucked to the end user. So 2
smaller size plant up to about 25 MW.
Vaporisation
Other options for larger plants produce roughly the
USD mmbtu

15 Storage same number, but would require different

Delivery by truck infrastructure such as milk round delivery of LNG on
small carriers to floating or onshore storage and
10 ISO containers regasification.
Shipping

5 Liqufaction &
Storage
Upstream gas

0 1

Source: TLG research

17 The Lantau Group

 Power

New gas engine undercuts existing diesel genset

This assumes the comparison is between an

250 Diesel genset only existing slightly inefficient diesel genset and a
variable costs new efficient gas engine.

200

Except at very low capacity factors it makes

economic sense to replace the diesel gensets
USD MWh

150
with new gas engines using regasified LNG.
New gas engine variable
and fixed costs
100
The impediments include:
end users do not see price signals to push
50 power suppliers to make the change
price signal too small to encourage change and
investors unwilling to invest in new infrastructure
0
10 20 30 40 50 60 70 80 90 lack of clear enabling regulations
Capacity Factor (Percent) concerns about a new supply chain

18 The Lantau Group

 Power

Indonesia large amount of remote diesel fired power plants but what portion
can be served profitably with small scale LNG?

PLNs power plants by type and region

Close to 2,000 MW of
effective diesel-fired power
plants outside Java.
Mostly small gen-sets
and open cycle gas
turbines and consume
close to 5.2bn litres of
diesel a year, or the
energy equivalent of 3.8
mmtpa of LNG.
Need to drill down and devise
a systematic approach to
screen these opportunities.

Source: PLN

19 The Lantau Group

 Power

Opportunities in the Philippines are emerging in many locations

On the plus side, the prices for diesel and fuel oil in
the Philippines follow world market prices

There should be a clear economic case to displace

some of those fuels currently used in power with
regasified LNG

Of the 16 GW total grid capacity, there is 3 GW of

on-grid power plant using diesel or fuel oil.

As part of the Philippines Gas Master Plan we

assessed the level of demand and the delivery
system that might make it economic to displace
those other fossil fuels with regasified LNG in
Visayas and Mindanao.

But fuel cost pass through arrangements do not

incentivize incumbents to save on fuel costs by
changing technology.

20 The Lantau Group

Agenda / Content

Key points

The effect of falling oil prices on SMLNG economics

CNG and LNG in industry, transport and power

Wrap up

21 The Lantau Group

Wrap up

Incentive to change to CNG/LNG has narrowed following the fall in oil

Gas pricing and international LNG prices.

Clear that SMLNG could serve remote loads that do not have a gas
Industry pipeline.

To reach critical mass we need an agency or regulations to push the

Transport infrastructure build out a build it and they will come approach.

Opportunities with challenges in archipelagoes of Indonesia and

Power Philippines.

22 The Lantau Group

 Thank you!

For more information please contact us:

Power Utilities Energy By email

Neil Semple
nsemple@lantaugroup.com
Insight
By phone
+852 2521 5501 (office)
Rigour +66 81 821 9801 (mobile)

By mail
Value 4602-4606 Tower 1, Metroplaza
223 Hing Fong Road,
Kwai Fong, Hong Kong

Online
www.lantaugroup.com

23 The Lantau
The Group
Lantau Group