Full steam ahead for SOCAR Trading's LNG-to-power strategy

The startup in January of LNG supplies to the small Mediterranean island state of Malta could be considered a mere drop in the ocean for the global LNG market.

But for Azerbaijan's SOCAR Trading, it represented the beginning of a strategy that could see it partner with more energy-poor countries to help them generate power from LNG.

In an exclusive interview last week, SOCAR Trading's CEO Arzu Azimov told S&P Global Platts that his company was increasingly focused on working with new partners -- mostly in developing countries -- to help satisfy their power generation needs through LNG and linked power stations.

The Geneva-based trading house, 100% owned by the Azeri government, is best known as a major oil trader, but it spotted an opportunity to make the most of the expected global LNG glut, namely being the driving force behind integrated LNG-to-power projects.

"Our strategy was based on the idea that the market was getting long on LNG sooner than expected," Azimov said. "So one opportunity was to create a consuming project for LNG."

LNG markets worldwide are expected to be oversupplied in the coming five years or so given the startup of a raft of LNG export facilities in Australia and the United States.

The big question in the industry has been how to stimulate demand so that the upcoming supply growth can be absorbed -- many have called on gas producers to move downstream to make their own demand, and players are beginning to take note.

SOCAR Trading is not the only player to recognize the opportunity -- US LNG pioneer Cheniere Energy has a 50% stake in a Chile gas-fired power development, while France's Total has also shifted to a new gear that focuses on demand creation for its own LNG through gas-fired power generation.

Another trader, Switzerland-based Trafigura, is also looking at restarting LNG imports into the UK Teesside terminal.

One big advantage now being exploited is the much shorter time it takes to get LNG import facilities up and running thanks to floating technologies, and more small economies are seeing LNG-to-power as an attractive option.

The LNG-to-power project in Malta -- a small country of just 420,000 people -- is SOCAR Trading's first and comprises a floating LNG storage facility, onshore regasification plant and a new CCGT power station.

It holds a 33% stake in the consortium developing the project, with the other one-third shares held by Germany's Siemens Project Ventures and Malta's GEM Holdings.

SOCAR Trading is the supplier of LNG to Malta -- a country whose priority is move away from oil-fired power generation -- and the Azeri firm is expected to deliver 8-10 cargoes of LNG each year. The first was delivered in January this year.

"We are competitive and we are flexible," Azimov said. "We are not hostage to our own production -- we can always take the cheapest LNG available on the market at any given time."

The Malta project could be a model for the future, especially in growing economies in Africa and Asia, Azimov said.

"We are prepared to look at any location -- we do all the necessary due diligence and look for partners looking to build or modernize power plant. The Malta project was very complex with a lot of technological innovation and we learned a lot in that process."

In November last year, SOCAR Trading also signed up to be part of a consortium to supply LNG to Cote d'Ivoire for power generation.

An FSRU with a capacity of up to 3 million mt/year will connect via pipeline to existing and planned power plants in Abidjan, as well as to regional markets connected to the network. It is due to start up in late 2018.

"SOCAR Trading will be responsible for its share of LNG supply to the terminal relative to our stake," Azimov said, adding that the more projects the company becomes involved in, the bigger its LNG portfolio becomes.

Other projects are currently at different stages of development -- either with an MOU being prepared, due diligence being carried out or bilateral talks ongoing.

So with LNG supplies on the up and up, clearly the key is to find homes for the gas -- and being a trader brings with it certain competitive advantages that the likes of SOCAR Trading are looking to make the most of.