Singapore — Japan's oil and gas exploration company, INPEX, is looking at opportunities for LNG-to-power projects in the Bay of Bengal region, with small-scale distribution capabilities, together with other Japanese private companies, based on the results of a study conducted by researchers at JOGMEC, or Japan Oil, Gas and Metals National Corp.
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INPEX's interest in the region comes after JOGMEC, the state-run organization that provides Japanese oil companies with financial and technical assistance to secure energy supply, recently amended its rules to allow the financing of LNG reloading and import terminals outside Japan, by Japanese firms.
It also comes in the midst of several small-scale LNG developments that have spanned waters from the Bay of Bengal, covering mainly Myanmar and Bangladesh, all the way to the Philippines in Southeast Asia, in what is becoming a competitive market.
"JOGMEC firmly recognizes the importance of LNG demand creation in Asia and JOGMEC is ready to support Japanese companies for the construction of LNG receiving terminals financially, based on the recent amendment of JOGMEC law," Tetsuya Furuhata, director general of JOGMEC's research and analysis department, told S&P Global Platts.
Furuhata said key findings of the JOGMEC study were that the location of the hub terminal was important, a pioneer player can be a market leader and the availability of ships and the gas hub was one of the most important factors driving project economics. A new onshore terminal that can keep costs low can be very competitive, he said.
Currently, LNG breaking bulk capabilities have been developed at hubs in Southeast Asia such as Indonesia's Arun LNG terminal, Singapore LNG terminal, Johor and Melaka in peninsular Malaysia and Bintulu in eastern Malaysia. Ship-to-ship LNG transfers have been conducted in Sabah in Malaysia or Subic Bay in the Philippines for China's Jovo, and in Myanmar for their new gas-fired power plants.
The break bulk LNG market is, in general, small and scattered, and therefore the competitive advantage lies with an existing or large newly built terminal, which has solid domestic demand, and for whom the break bulk market will create supplemental demand, allowing for competitive prices, Furuhata said.
He said countries in the Bay of Bengal face shallow draft restrictions that drives up project costs, as the availability for small LNG carriers is insufficient, making them expensive even when compared with a standard LNG carrier.
"In those countries around the Bay of Bengal, the draft limitation is a well-known reality, therefore the only solution is to introduce LNG supply with small LNG carriers. Hence, there needs to be land for the hub terminal to break bulk," Furuhata said, adding that countries in the region are keen to import LNG and spot LNG is quite competitive against domestic gas, with bright prospects for the market in years to come.
Inpex is a state-backed oil company, in which Japan's Ministry of Economy, Trade and Industry, or METI, has an 18.96% stake as the largest shareholder. It has a significant presence in LNG export terminals in Australia and E&P projects in Indonesia, but limited presence in the rest of Southeast Asia. However, other Japanese companies do.
In late July, Japan's Sumitomo Corp, Marubeni Corp, Mitsui & Co and Eden Group won a notice to proceed, or NTP, for the Thilawa LNG-to-power project in Yangon, Myanmar, for a 1,250 MW gas-fired thermal power plant, one of the largest in Myanmar, along with onshore LNG storage and regasification facilities.
The project has a 25-year long term power purchase agreement with state power company, Electric Power Generation Enterprise, and includes the procurement of LNG. The consortium says it will now conduct a feasibility study for the project.
Japanese energy firms and financial institutions also have interests in LNG projects in Bangladesh, where an onshore terminal could become a future possibility.