Energy Transition Handbook - Flipbook - Page 38
Hogan Lovells
38
LNG to power
Liquefied Natural Gas (LNG) is expected to continue to play a key role in the energy
transition journey by unlocking access to natural gas where pipeline infrastructure is
either not available or not feasible to develop.
The acceleration in technical innovation across
the LNG value chain has increased the transition
towards gas usage globally. Such access to
natural gas as LNG can also help many countries
manage short-term energy supply disruptions.
In recent years, a growth of destination-flexible
LNG exports from the United States (largely
driven by a demand in Asia) is acting as a catalyst
for a more liquid global gas market. Qatar, the
world’s largest LNG producer, is also preparing to
expand its facilities by about a third by the mid2020s. Moreover, it is predicted that the global
demand for LNG will double by 2040, and with
over 80% of the growth in global gas trade to
2040 coming in the form of LNG (majority being
exported to Asia).
Local small-scale LNG facilities combined with
smart meters and smart grids are anticipated to
compensate for the intermittency issues that solar
and wind projects can sometimes grapple with.
Key risks in full chain LNG to
Power projects:
•
currency risk in relation to PPA revenues/
LNG supply costs
•
wholesale electricity price volatility
to the extent not mitigated by a fixed
capacity payment;
•
fuel supply risk: cost pass-through of merchant
LNG and any indigenous/regional imported
gas risk and fuel price volatility
•
counterparty covenant/credit risk – PPA,
port and transmission
•
oversizing, third party access/use and
future- proofing to allow for domestic gas
and third party gas off-take
•
matching IPP flexible dispatch to LNG
purchase/supply and related storage
requirements;
•
bankability of a multi-contract construction
solution – availability of liquidated damages
and compensation on termination covering
entire debt service obligations during the
development phase
•
cost-overruns and retained/contingent
equity risk
•
conditions for achieving COD and
triggering PPA revenue; impact of delay
and any liquidated damages payable to host
government/utility
•
adequacy of existing transmission
infrastructure and any required transmission
upgrades or dedicated transmission assets
•
achievement of Project socio-economic
objectives in relation to empowerment, job
creation and localisation
•
any requirements for host state investment/
ownership of the project
•
merchant operation/residual value risk post
expiry of the PPA and decommissioning risk
•
back-up fuel storage and supply arrangements
and impact on PPA fixed capacity payment