Brunei : Brunei Darussalam looks to work around LNG challenges

An upgrade to its fleet of tankers could help Brunei Darussalam’s liquefied natural gas (LNG) sector weather external headwinds, which appear unlikely to relieve in the near to medium term.

While Brunei is taking steps to diversify its economy, the energy sector remains at its core, with hydrocarbons revenues accounting for around half of GDP.

The country’s LNG sector revolves around the half national-owned Brunei LNG (BLNG) plant in Lumut. Originally constructed in 1972, the plant’s capacity has been upgraded over the years, and it presently produces around 7.2m tonnes per annum.

BLNG continues to play a key role in both regional LNG supply and the domestic economy, shipping around 6.71m tonnes of gas to Japan and South Korea each year.

Capacity boost

The country’s capacity to ship hydrocarbons, which is the cornerstone of Brunei’s export-oriented energy sector, as well received a boost in July, at the same time as the majority national-owned Brunei Gas Carriers (BGC) took delivery of a new, 154,800-cu-metre LNG transport vessel.

The Amadi is the second tanker to join BGC since November of last year, at the same time as the firm took delivery of its sister ship, the Amani. Both vessels were constructed by Hyundai Heavy Industries in South Korea as part of a arrangement worth in excess of $350m, according to local media reports.

The sale marks part of the Sultanate’s push to modernise its LNG transport fleet in anticipation of increased request in the region.

Price pressure

In the near to medium term, however, international price pressures will likely continue to weigh on the LNG sector’s increase prospects, according to world energy consultancy Wood Mackenzie.

Spot prices have by presently fallen by around two-thirds since early last year, according to the company, and could remain low for years, increasing the risk of temporary plant closures.

LNG prices in Japan and Korea dropped to $6.70 per million British thermal units (Btu) for short-term deliveries in November, down from approximately $20 in early 2014, according to energy data service Platts.

Additionally, Brunei could experience further price squeezes, as emerging gas producers look to expand their world market share.

In 2013, at the same time as South Korea and Brunei were negotiating the renewal of a 10-year LNG supply arrangement, South Korea opted to renew for only a five-year term, citing a decision to import shale gas at lower prices from the US starting in 2017.

The announcement came next a Japanese consortium comprising Tokyo Electric Power, Tokyo Gas and Osaka Gas – some of BLNG’s major customers – chose to halve imports from 6.01m tonnes per year to 3.4m under the terms of a new 10-year arrangement, signed in 2013.

Regional links

Given current price dynamics, pursuing better involvement in energy trade in the region, which consumes nearly 70% of world supply, is seen as a key long-term strategy for the Sultanate.

According to the “BP Energy Outlook 2035”, world energy consumption is expected to rise by 37% through to 2035, with the vast majority (96%) of that request increase slated to take place in non-OECD nations. Request in the Asia-Pacific region in particular is expected to drive increase in LNG supply, which is estimate to expand by an average of 7.8% per annum from 2013 to 2020.

Japan, which has been the dominant recipient of natural gas in the region since the early 2000s, is projected to remain the world’s major importer in 2035, with around 13bn cu feet imported per day, according to BP. Bruneian LNG currently accounts for 15% of Japan’s gas imports.

According to consultancy KPMG, the current LNG facility construction boom is slated to double world output by 2030, up from around 250m tonnes per year in 2012.

With request on the rise, the Asia-Pacific region presents considerable opportunities, as its energy and natural resources supply chain is still viewed as both underdeveloped and costly, KPMG noted.

In light of dwindling domestic reserves, shipping is seen as a natural entry point for Brunei to expand its presence in the regional supply chain, as reflected by recent efforts to modernise the BGC LNG transport fleet.

“If Brunei is looking at expanding its [LNG] business opportunities beyond its shores, again there’s scope [for it],” Quah Chee Yong, Shell’s general manager of shipping and maritime for Asia-Pacific and Middle East, told local media in September.