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LNG viable option for Lebanese energy sector - report

19 April 2010

BEIRUT: A study commissioned by the World Bank from consultants Poten & Partners indicated that liquefied natural (LNG) can offer important support to Lebanon’s energy sector over the medium-to-long term by significantly reducing power generation costs, as reported by Lebanon This Week, the economic publication of the Byblos Bank Group.

It said Lebanon’s electricity sector has reached a state of crisis due to inadequate generation capacity and high costs, and recommended the development of LNG supply as an alternative, as Lebanon faces favorable LNG market conditions in the next few years.

It said that LNG could offer important relief by significantly reducing generation cost at the Zahrani combined cycle gas turbine (CCGT) power station by displacing distillate oil, and by creating the option to fuel CCGT generation capacity expansion in the south of the country.

It noted that the Beddawi CCGT in northern Lebanon was being supplied with natural gas from Egypt via the Arab gas and Gasyle 1 pipelines.

But it considered that it would be expensive to transport gas from Beddawi to the south, and that gas volumes from the Arab gas pipeline were expected to be limited.

Poten & Partners stated that current LNG market conditions provide an opportunity for Lebanon to secure LNG supply, as more than 80 million tons per year of new supply are projected to reach the global market between 2009 and 2013.

It noted that the Middle East and North Africa region was the best supply source for Lebanon as it is adding around 55 million tons per year of LNG and will have a production facility of about 140 million tons per year by 2015 with substantial uncommitted and flexible LNG availability.

It identified Qatar, Algeria, Yemen and Egypt as the key potential LNG sources given their supply availability and geographic proximity to Lebanon. It noted that LNG supplies in these countries are mostly controlled by Sonatrach , Qatar Petroleum , GDF-Suez , BG and Total , which are all very good potential partners for Lebanon and are very experienced in the LNG trade both from a technical and commercial perspective.

It estimated Lebanon’s needs at 1.5 million to 2 million tons per year by 2020, and encouraged authorities to move quickly to secure LNG supply, as it projected a return to a more balanced LNG market by 2014. It said Lebanon could secure long-term prices of around $7 per million British Thermal unit in the current surplus market conditions, and that Lebanon would not have to pay an additional country-specific risk premium.

But it warned that suppliers would not accept Electricité du Liban as a creditworthy LNG buyer and that they would require additional government guarantees and perhaps a World Bank partial-risk guarantee for a long-term LNG supply deal.

Poten & Partners said the economics of LNG imports are feasible for the Zahrani site and are justified based on the displacement of distillate oil as its primary fuel supply. It noted that implementing the LNG solution at Zahrani could result in savings of between $75 million and $80 million per year, internal rate of return of more than 90 percent, and investment payback in one to two years.

It indicated that the main constraints at the Zahrani site are the lack of port infrastructure and the shallow water depth, and identified offshore re-gas technology as best for the site.

It estimated that the upfront capital cost to be highest for the onshore conventional terminal, at around $550 million, and the floating storage and re-gasification unit (FSRU) adjacent to berth at around $200 million. It said that the lowest cost, of about $70 million, would be for the permanently moored offshore FSRU with ship-to-ship LNG transfer.

It added that the FSRU would moor offshore and be linked to the coast by a sub-sea gas pipeline, avoiding the costly port and jetty construction required for the other competing technologies. – The Daily Star

© Copyright The Daily Star 2010.