Despite being promoted as a quicker and cheaper solution to the energy transition, floating liquefied natural gas (LNG) terminals pose higher costs and climate risks particularly to Asian markets, a recent think tank study shows.
“Stronger and more harmful weather events increasingly threaten the reliability of offshore LNG projects and the energy security of importing countries,” said Sam Reynolds, report co-author and LNG/gas research lead for Institute for Energy Economics and Financial Analysis (IEEFA) Asia.
“Recent cancellations of floating projects in Bangladesh and the Philippines, along with ongoing delays in Vietnam, show that bringing these projects to fruition may not be so simple, potentially curbing industry expectations for rapid, near-term LNG demand growth.”
The research noted that about 90 percent of the floating import projects in South and Southeast Asia are proposed in countries prone to oceanic disturbances caused by tropical storms and typhoons, including India, the Philippines, and Vietnam.
Floating LNG terminals have become attractive in emerging markets as building them could cost less than US$100 million (AU$156 million), significantly cheaper than permanent onshore terminals, which can cost more than US$1 billion.
However, charter rates for specialised vessels that can transfer, store, re-gasify LNG, called floating storage regasification unit (FSRU), typically cost US$80,000 to US$120,000 a day or roughly US$29 million to US$44 million a year. A recently terminated FSRU project in Bangladesh reportedly would have cost US$300,000 per day.
The price was further exacerbated by Russia’s invasion of Ukraine in 2022.
“FSRUs do not have universal application. FSRUs exposed to harsh metocean conditions may have unacceptably low availability, and extensive dredging or costly breakwaters can negate the cost and financing advantages of FSRUs,” said the World Bank earlier.
IEEFA emphasised that none of Asia’s largest LNG importers, including China, Japan, South Korea, India, Taiwan, and Thailand, have FSRUs. China used to operate FSRUs but halted them in 2016 due to higher costs.
“The implications of relying on fair-weather technology for energy security were clearly too risky for the LNG industry’s leading incumbents,” said Christopher Doleman, co-author and an LNG specialist for IEEFA.
Asia Needs More US LNG to Curb Coal Use
Meanwhile, a Wood Mackenzie study showed that Asia would need more supply of U.S. LNG to curb its use of coal.According to Wood Mackenzie’s forecast, Asia’s demand for LNG will grow from 270 million tons per annum in 2024 to 510 million tons per annum in 2050.
Commissioned by the Asia Natural Gas and Energy Association (ANGEA), the study modelled two scenarios: one is where the current suspension to U.S. LNG export approvals to non-free trade agreement countries is lifted early in 2025, and the other one is where the suspension remains in place in the longer-term.
If it is lifted, U.S. LNG is estimated to account for a third of global supply by 2035 but if it remains in place, other regions risk their LNG development falling behind forecasted demand growth.
“Nations like Bangladesh, Vietnam, the Philippines, Indonesia, and Malaysia will not be able to realize their plans to transition to gas-fired power if LNG prices are high and coal use, which hit record levels in both 2022 and 2023, will keep growing,” said ANGEA CEO Paul Everingham.
“Without certainty of an affordable supply, their fallback position, quite understandably, is to stick with a fuel they are familiar with and which they know is likely to be inexpensive and plentiful: coal.”
