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    Optimism builds in Cambodia’s LNG-to-power sector


Amid concerns about coal and hydropower and rising power demand, there is clear potential for LNG-to-power solutions in Cambodia, a report concludes.

by: Shardul Sharma

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Optimism builds in Cambodia’s LNG-to-power sector

The Vietnamese LNG-to-power industry has been grabbing the headlines lately with a flurry of new projects being announced. However, according to a report published late May by global law firm White & Case titled Prospects for LNG-to-power in Cambodia, developments across the Mekong River delta in Cambodia may soon seize the spotlight.

The report argues that the surging demand for power and a relatively creditworthy national utility company justify cautious optimism for the future of the country's LNG-to-power sector.

Experiencing rapid economic growth and urbanisation, Cambodia's demand for electricity is surging. The country has the lowest electrification rates among the ASEAN countries after Myanmar, and the Cambodian government has recognised the importance of developing the domestic power sector to sustain the pace of the country's economic upswing, targeting grid-quality electricity access for at least 70% of households by 2030.

Fitch Solutions forecasts net power consumption increasing from about 10.4 TWh in 2019 to 13.2 TWh by 2024. Together with the Cambodian government's objective of achieving greater energy self-sufficiency following years of reliance on imports, this rising need for power is expected to fuel demand for domestic electricity generation, the report said.


Coal and hydropower dominate

Coal and hydropower are the primary sources of power in Cambodia, but concerns with these sources are mounting. Coal power's carbon footprint and its rapidly diminishing access to international bank and capital market financing have increased the developmental and political costs of such projects. According to the White & Case report, in 2020, several major global brands, including H&M, Adidas, Puma and Nike, lobbied the economy minister to curtail the country's coal expansion plans.

Issues with hydropower are widely known. Hydropower dams and reservoirs often have an adverse ecological and social impact, putting pressure on endemic fish species and other fauna, and forcing the resettlement of surrounding communities. Hydropower plants in the Mekong region are at the mercy of the rainy season – severe droughts in 2019 dried up the country's hydropower dams, resulting in nationwide power shortages. As a result, the Cambodian government announced in 2020 a moratorium on the development of hydropower projects on the mainstream Mekong for the next decade.

In light of these concerns with Cambodia's traditional sources of baseload power, there is likely space for LNG-to-power projects, the report added. At a recent inter-governmental energy forum, the ministry of mines and energy (MME) outlined its vision that LNG and natural gas will comprise important components of Cambodia's power mix in the near future and its plan for up to 3,600 MW of gas-fired power plants by 2030.


Interest from Chinese and Japanese entities

Cambodia's potential is starting to attract international attention, including from China, which has longstanding political ties with the country and had $9bn of trade with it in 2018. Trade is set to expand further with Cambodia signing its first bilateral trade agreement with China in October 2020. Chinese investment in the Cambodian power industry already includes a 700 MW coal-fired power project in Sihanoukville and a 150-MW hydropower plant in the Thma Bang district.

Japanese investors have also begun to scour Cambodia for investment opportunities. Two Japanese firms, Aura Green Energy Co. and WWB Corp, teamed up in 2020 to build a biomass plant, partly subsidised by the Japanese government. In a meeting with the MME in November 2020, the ambassador of Japan to Cambodia noted that Japanese firms were considering investing in a waste-to-energy plant and LNG storage stations in Cambodia.


Q&A with White & Case

NGW discussed the report's findings and developments in the Cambodian LNG-to-power sector with Tim Fourteau, the Singapore-based partner at White & Case.

Gas/LNG infrastructure is practically non-existent in Cambodia, as the report highlights. By when do you think some meaningful development can be achieved?

I am hopeful that there will be substantial development in Cambodia’s gas infrastructure within the next five years. Last year, it was reported that Cambodia (by way of the state-owned entity, the Cambodian Natural Gas Corporation (CNGC) planned to rent or purchase an floating storage and regasification unit (FSRU) by 2023. CNGC also has ambitious plans to develop permanent gas infrastructure throughout the country by 2034, as part of a 15-year plan initiated in 2020. This plan includes the construction of an LNG receiving terminal and almost 3,000 km of pipelines. Cambodia has subdivided this 15-year plan into three 5-year stages, and I would expect at least the first of these stages to be well progressed within the next five years (factoring in delays due to the pandemic).

CNGC has big plans to build infrastructure. How do you think it will finance these projects? Do you see foreign money funding these projects? Which countries are most likely to provide capital?

Given CNGC’s ambitious plan to develop gas infrastructure throughout the country, I expect that it will need foreign capital to fulfil this ambition.  There are speculations that China is likely financing, or intends to finance, part of the development of this infrastructure, which, if it is true, would be consistent with China’s deep investment in Cambodia and the fact that Cambodia’s first LNG imports were from CNOOC.

The report talks about unclear legislation relating to oil and gas. What can the government do to address this issue?

Clear, comprehensive and consistent rules governing the importation of LNG, the regasification of LNG and the transportation of gas would certainly be a positive development for Cambodia’s oil and gas sector.  This would include setting regulations relating to third-party access rights to regasification infrastructure and pipeline usage.  Potential sources of regulatory inspiration on these subjects could be the neighbouring markets of Thailand or Singapore, which are considered to have relatively comprehensive frameworks.

The report says that solar can compete with the LNG-to-power sector in Cambodia. To what extent do you think solar can impact the LNG-to-power sector? Do you think the two can carve out their own niche in the Cambodian market?

In light of the falling costs of PV technology, the ability to scale up in solar projects and the abundance of solar resource in Cambodia, solar power is likely to be LNG-to-power’s biggest rival.  That said, the limitations of solar power are well-known, especially when it comes to the power’s intermittency. Cambodia has been searching for a baseload power alternative which is both cleaner than coal and more reliable than hydropower, the latter of which became less popular when the severe droughts of 2019 dried up reservoirs and caused widespread power shortage. Gas-fired power would fit the baseload requirement better than solar, so I would expect gas-fired and solar power to also carve out their own respective niches within Cambodia’s power mix.

By when do you think Cambodia can begin importing LNG? How much share can LNG to power garner in the overall power mix and by when?

CNGC welcomed its first LNG imports from CNOOC in January 2020, though this was from small ISO tanks and for residential use. I would expect LNG imports for power to begin following the development of substantial gas infrastructure within the next five years. There is discussion of a planned 400 MW dual-fuel (HFO/LNG) power plant near Phnom Penh procuring gas from an FSRU that CNGC plans to rent or purchase by 2023.  If that materialises on schedule, we will likely see significant imports much earlier.

Based on the current assessment, there could be substantial progress on LNG-to-power projects in Cambodia within the next five years, which could provide up to 20% of the country’s power capacity.