BAKU, Azerbaijan, July 7
By Leman Zeynalova – Trend:
In the short-term, the direct impact on liquefied natural gas (LNG) from ongoing renewables development should prove to be minimal, Trend reports with reference to Fitch Solutions.
The shift to renewables is so far mostly occurring in power generation, whereas the demand pull from LNG is not just in power generation but more widespread across industrial segments, the company explains in its report.
“Even in power generation, LNG and renewables should prove fairly complementary in the short-term, given that renewables sources such as solar and wind still suffer from intermittency issues. The deployment of renewables is expected to see a strong surge over the coming decades,” reads the report.
However, Fitch Solutions continues to stress that the need for affordable baseload resource remains crucial for grid stability and energy security. “In our view, natural gas will rise in prominence as the interim choice of fuel over the next three decades while governments continue to seek out alternative clean fuel sources and integrate them.”
Using natural gas as fuel to generate electricity produces lower carbon emissions than coal and oil, making it appealing to governments that are committed to decreasing the environmental footprint of their thermal power sector, such as China, according to the company.
“Indeed, an aggressive coal-to-gas switching policies are already in place and benefiting LNG inflows into major consumers such as China and India, while Pakistan has been imposing periodic bans on furnace oil (heavy fuel oil) imports to make space for LNG,” said the report.
Liquefaction development costs have fallen sharply. In part this reflected the shift away from projects in Australia – which battled with significant cost overruns – and towards the US, where developers were able to leverage existing infrastructure (including storage and jetty facilities) and to buy gas directly off the regional hubs, rather than investing to develop resources upstream, said Fitch Solutions.
“Developers also profited from depressed services costs. Substantial further cost reductions appear unlikely, although the terms on offer from contractors and suppliers should remain relatively favourable in light of the sluggish pace of FID we expect to see going forward. That said, we are seeing some changes to the way in which contracts are tendered and executed, as developers look to trim some additional fat. For example, integrating front-end engineering and design (FEED) and engineering, procurement and construction (EPC) works can lower project lead times and reduce the number of design changes.”
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