[NGW Magazine] Colombia's LNG extravagances

With the first LNG terminal not justified in terms of its throughput, plans for a second seem extravagant, even if the plans for gasifying transport do mature.

The Colombian authorities are expected to launch a tender for the country's second LNG terminal soon but cargoes have been few and far between at Colombia's first plant, leading some to question the wisdom of building another one. The second plant would be near the Pacific Coast in the vicinity of the port city of Buenaventura and is expected to start up before 2022. It will be able to process 400mn ft³/day, according to the energy ministry.

Mining and energy minister German Arce has indicated that the plant is needed to improve energy security in the west of the country, especially given the declining reserves that the nation faces. The Latin American nation now uses around 1bn ft³/day of gas, but most of that comes from fields that are declining at a fast pace. 

However analysts have warned that the terminal may face economic challenges and that it could be a while before it starts seeing results. “It might take some time to see any impact from this terminal,” a senior Latin American energy researcher at Wood Mackenzie, Mauro Chavez, told NGW.

“The economics are more challenging than with the first terminal…. It hasn’t been decided yet who will pay,” he noted. In addition, the government has still not decided whether the new terminal will be onshore or if it will be a floating storage and regasification unit (FSRU), he added.

The country’s first LNG terminal, in Cartagena on the Atlantic coast, started operating in November 2016. It is owned by the Sociedad Portuaria El Cayao (Spec), a joint venture belonging to Colombian energy company Promigas (51%) and private equity firm Baru LNG (49%). 

The first phase of the project was offshore and centred upon the construction of an FSRU with a capacity of 170,000 m³, and a regasification capacity of 400mn ft³/day. The second phase was an onshore project, which consisted of regasification, storage, and liquefaction facilities.

It was built with specific aims – namely, to counter declining domestic production and to assuage concerns over power supply volatility, particularly in the aftermath of the El Nino hurricane. Its supply was aimed at three major power plants in Northern Colombia. By contrast, supply from the second terminal will not have a specific destination and will be able to be distributed anywhere, Chavez said. Industry players will probably be pleased that it will shake up the market because state-run Ecopetrol now controls between 60% and 70% of Colombian gas production, he added. 

On the other hand, it will be more challenging, owing to the lack of long-term capacity – meaning that every year all the capacity will need to be contracted again – he said. “But this is in line with the government’s goal to have more competitiveness in the LNG market,” he noted. 

But the need for another terminal is anyway unproven: “If no one is contracting for capacity then why would anyone invest” in a second Colombian LNG plant, Andy Flower, an independent consultant and former senior advisor of global LNG at BP, told NGW. 

If the plant turns out to be an FSRU then the project would be a “bit less risky” for companies because they can sell the LNG away, he said. However if that is the case, some companies would want a guarantee on charter payments, for instance a Colombian company with a good balance sheet or the government, he said. 

The experience of Colombia’s first LNG plant “can’t give anyone great confidence that this one would give a good return on investment,” he added, noting that the Cartagena LNG terminal has only received one cargo so far this year and one last year.

The reason that only one part cargo was imported through the terminal in 2017 is said to be because of high output from hydropower during the year, said Flower. Calamari LNG, which is the company that imports LNG through the existing FSRU at Cartagena, is expected to issue a tender for a cargo to be delivered in the summer, he added.

However given its record so far, some might even question if the first terminal – which wasn’t cheap to develop – was even necessary in the first place, he said. If a company is going to have to invest in infrastructure offshore Colombia for a second terminal then it is hard to see why they would be interested, he added.

Colombia’s demand for imported LNG is strongly tied to its climate and rainfall levels as well as other factors. If the country experiences droughts – like those caused by El Nino in recent years – then its hydropower generation drops and demand for thermal power generation increases to fill the supply gap. Normally, Colombia generates around 70% of its electricity from hydropower.

Vehicles add to demand 

However demand for gas in future may also be boosted by the growth of hybrid vehicles – fuelled by a mixture of gas and gasoline – which the government is promoting as environmentally friendly alternatives to traditional vehicles.  In the short-term nonetheless, the second LNG terminal may also come up against environmental obstacles, which could slow construction, said Chavez. It will mean building a gas pipeline that will cross the jungle, and there could be delays in getting the requisite environmental permits, he added. Overall, mixed messages appear to be emanating from Colombia’s energy industry, an Americas LNG researcher at WoodMac, Alex Munton, told NGW. “Colombia is one of these countries that seems on the surface to be something of a contradiction, with announcements of recent big offshore gas discoveries while at the same time tendering for LNG import infrastructure,” he said. 

All the while, the country’s first LNG terminal has hardly been used, he noted, though adding that a lot of it is down to geography of local demand, timing and economics. As the country gears up to develop a second terminal, pressure is mounting on Colombia to prove the first facility was worth building, let alone justify a second.

Sophie Davies

Interview with the CEO of Colombia's SPEC

Jose Maria Castro is CEO of Colombia's only LNG terminal owner-operator Spec. He spoke to NGW in Lisbon last November about the project.

You have said that Spec may have other uses such as bunkering, but is it transshipping cargoes?

Not today but the FSRU has the capacity to load/unload LNG from any size of vessel, which would contribute to the development of the LNG in Central America and Caribbean. The terminal itself originated to satisfy the natural gas requirements for three power generators, the main ones in the country, with up to 2 GW installed. That’s our main function – to provide access to natural gas to them. The capacity is contracted by these three clients: Termobarranquilla, Celsia and Termocandelaria. The extent to which that consumption is viable will depend on weather and water levels, because most electricity in Colombia is hydro-generated, with thermal plants as a back-up. We’ve been operating for one year. We have received two cargoes in the past year since November 2016, bought by our clients through their procurement agency Calamari. There is an array of different services that could be served by the terminal. To date, we haven’t done any of that. But we are now ready to start marketing efforts.

Are you surprised it's only been two cargoes?

We’re not surprised because we understand our clients’ requirements when hydro-generation is sufficient, and because these clients still have some local gas supplies contracted before the terminal was in place. These will begin to expire in the next few years.

Can you project future use of the terminal?

It’s very difficult. But 2018 should be a more dynamic year than 2017, and in 2019 there should be more activity still. By 2020 there should be constant activity: I’d say there could be six to ten cargoes. But it will depend on the weather. For example, in 2015 Colombia experienced an extremely dry season, brought on by El Nino. When this happens, our clients collectively may need to import a cargo every seven-eight days to satisfy their generation demands – in an extreme El Nino, and temporarily for the weeks affected – so we would be on full regas capacity of 400mn ft³/d to cover such demand. 

How much did Spec pay for the terminal?

We invested $150mn in the onshore facilities, through project finance. And we chartered the FSRU Hoegh Grace from Hoegh LNG for ten years, for which we pay a confidential normal monthly fee.  

Mark Smedley