Significant potential for growth in LNG-to-power sector in Southeast Asia: interview [Global Gas Perspectives]
There is a huge potential for growth in LNG-to-power sector in Southeast Asia driven by factors like rising energy demand, energy diversification, and energy transition goals, among others, said Maria Tan Pedersen, co-head of global law firm Dechert's emerging markets product line and leader of Dechert's EMEA energy initiative.
“Numerous factors collectively make the LNG-to-power sector an appealing investment opportunity in Southeast Asia, promising both economic returns investors and government alignment with broader environmental and energy security goals,” Pedersen said.
Rapid economic growth and urbanisation in Southeast Asia are driving a substantial increase in energy consumption, necessitating new and reliable sources of power. In the Philippines, market trends show that energy demand has been growing at an annual rate of approximately 4-5% over the past few years, she said. In 2023, the Philippines' electricity consumption was estimated to be around 110 terawatt-hours (TWh), up from about 100 TWh in 2020. The Department of Energy of the Philippines projects that electricity demand could reach 150 TWh by 2030, driven by continued economic and population growth.
Energy diversification is another factor driving the demand. Countries in the region are seeking to
diversify their energy mix to enhance energy security and reduce dependence on coal and oil. LNG offers a cleaner alternative to those fuels but at potentially lesser capital costs then development of wholly new renewable energy systems.
Energy transition is another factor. Many countries in the region have set ambitious targets for transitioning to cleaner energy sources as part of their climate change commitments under international agreements like the Paris Agreement. LNG is a cleaner-burning fuel compared to coal and oil, producing lower emissions of carbon dioxide, sulphur dioxide, and particulates.
Several Southeast Asian governments are implementing policies and incentives to attract investment in LNG infrastructure and power generation, including favourable regulatory frameworks and tax incentives. Vietnam's Power Development Plan VIII (PDP VIII), approved in 2021, emphasizes the role of LNG in the country's energy mix. The plan includes significant investments in LNG infrastructure, such as import terminals and LNG-to-power projects, to diversify energy sources and reduce reliance
on coal.
Advances in LNG technology, including more efficient and cost-effective liquefaction, transportation, and regasification processes, are making LNG projects more attractive and viable both globally and in the region, Pedersen said.
“The global LNG market has seen increased supply and competitive pricing, making LNG a more attractive option for power generation in Southeast Asia,” she added.
Infrastructure development and challenges
Southeast Asian nations are actively developing infrastructure to support the LNG-to-power sector; however, while the speed of development varies by country, the pace of development in the region overall needs to be accelerated to meet the burgeoning energy demand.
Vietnam has several LNG import terminals and power plants in various stages of planning and development, such as the Thi Vai LNG terminal and the Bac Lieu LNG-to-power project. However, regulatory hurdles and financing issues can slow progress, but the government is committed to expanding LNG infrastructure, Pedersen said. Based on industry assessments, the country's power consumption is forecast to rise by 11-14% next year. In the short-term, the government is therefore turning to coal power plants to operate at high levels, as current LNG infrastructure is not sufficient to meet the demand.
Thailand has established LNG import terminals, such as the Map Ta Phut terminal, and is reportedly expanding its capacity with new projects, Pedersen said. While development is relatively advanced, ensuring sufficient supply and integrating LNG into the power grid remain priorities.
Indonesia is developing LNG infrastructure to support domestic power generation, including floating storage regasification units (FSRUs) and onshore terminals. However, geographic dispersion across the Indonesian archipelago makes comprehensive energy provision complex, and regulatory
complexities can slow the speed of development.
Malaysia, already a major LNG exporter, is enhancing its domestic LNG infrastructure to support power generation, including expanding existing facilities. RGTSU, a Malaysian LNG regasification
terminal, has publicly stated in various media reports that it has the capability to meet future demand. “The country is relatively well-positioned, but ensuring adequate domestic supply amidst export commitments is crucial,” Pedersen said.
The Philippines is progressing with several LNG import terminal projects, such as the Batangas Bay LNG terminal which received its inaugural shipment in 2023, to support its power sector. As of 2024, market reports indicate that the Philippines has the lowest power generation per capita in ASEAN, and electricity demand is growing faster than generating capacity. Whether the speed of Philippine LNG developments can meet the country's energy needs is yet to be seen.
Although, the potential is immense, the region faces some common challenges. Insufficient existing infrastructure for LNG import terminals, regasification facilities, and pipelines can hinder the growth of the sector.
Another challenge is that of high capital costs, she said. High capital costs and the need for significant investment can be a barrier, especially in countries with less developed financial markets.
Inconsistent or unclear regulatory frameworks and policies can create uncertainty for investors
and developers. Changes in governing administrations, such as the incoming Subianto administration in Indonesia, can result in shifting regulatory landscapes.
Fluctuating demand for power and competition from other energy sources, such as coal and renewables, can impact the viability of LNG projects, Pedersen said.
Finally, addressing environmental impacts and meeting sustainability goals can be challenging, particularly with increasing pressure on governments to reduce carbon emissions in accordance with their international and domestic commitments.
A mix of public and private investors
Given the extensive financing needs in Southeast Asia and the narrow budgets of local governments, the investors in the region are comprised of a diverse mix of public and private entities both domestic and international. These stakeholders often work closely together - this is why PPP is a popular mechanism for infrastructure development in the region.
Private sector investors include (i) major international oil companies active in LNG supply and infrastructure development (such as Shell, ExxonMobil, TotalEnergies, and Chevron), (ii) regional energy companies pursuing LNG import and power generation projects (such as PetroVietnam, PTT (Thailand), Pertamina (Indonesia), and First Gen Corporation), and (iii) private equity and infrastructure funds looking to invest in such projects (such as Global Infrastructure Partners (GIP), Macquarie Infrastructure and Real Assets (MIRA), and Blackrock). Public sector investors include (i) government-owned enterprises investing in LNG to meet domestic energy demand (such as Electricity of Vietnam, PLN (Indonesia), and EGAT (Thailand), (ii) sovereign wealth funds, supporting infrastructure development (such as Temasek Holdings (Singapore) and Khanzanah Nasional (Malaysia)), and (iii) multilateral development banks, providing financing and technical assistance (such as the Asian Development Bank, World Bank, and International Finance
Corporation).
Chinese and Japanese companies are particularly active in Southeast Asia. The Batangas Bay LNG terminal in the Philippines, for example, has attracted foreign investments from Tokyo Gas and Mitsui, both of which are providing financial investment and technical collaboration to
ensure the project's success.
LNG imports
Talking about the extent of LNG import growth that the region will see, Pedersen said that industry analysts and reports from organisations such as the International Energy Agency (IEA) and the International Gas Union (IGU) suggest that LNG imports in Southeast Asia could grow by approximately 10-15% annually in the near term, driven by the expansion of the LNG-to-power sector.
In terms of volume, this could translate to an increase of several million tons per annum (MTPA) of LNG imports across the region. Globally, the largest change in imports in 2023 came from Asia with an increase of 10.50mn tonnes year/year, as lower prices by the end of the year incentivized spot imports by several markets in the region. Southeast Asia's LNG imports could rise from around 20-25mn tonnes/year to 30-35mn tonnes/yr over the next few years, she said.
“The extent of this growth depends, among other things, on the pace of local LNG terminal and power plant construction, supportive government policies and regulatory frameworks, and global LNG supply and pricing trends,” she added.
Role of renewables
Given the current position of Southeast Asia nations - with growing populations, rapidly increasing demand for energy, and limited energy infrastructure - LNG will serve an important role as a transition fuel as these nations develop their energy infrastructure for the future. In the short-term, LNG, which is generally less capital intensive at present, will help balance intermittent renewable energy.
A number of large-scale LNG infrastructure projects, including regasification facilities and import terminals, have recently been completed or will be completed soon across the region. The long-term prospects of the LNG to power sector in Southeast Asia, however, may ultimately be constrained
by the rapid advancement and adoption of renewable energy. Southeast Asian governments are already beginning to implement policies and incentives to promote renewable energy, shifting investment away from LNG. Large numbers of renewable projects, including solar, wind, geothermal, etc., are currently being constructed or are in the pipeline for development. The decreasing costs of renewable energy technologies deployed in the region will make them increasingly competitive with LNG, especially as improvements in energy storage and grid management technologies make it easier to integrate intermittent renewable energy sources into the power grid. Expanded reliance on renewables will also help jurisdictions with dwindling oil and gas assets, like the Philippines, enhance energy security by reducing dependence on imported fuels.