South Asia is an emerging hotspot for LNG, with countries such as Pakistan and Bangladesh set to become major consumers alongside India. Accounting for only 8% of the global LNG import demand last year, South Asia is growing fast with a climbing population, strong economic growth and soaring energy demands.
Speaking at the upcoming Gas Asia Summit in October, Mangesh Patankar at Galway Group shared his views on investment in regas and the obstacles that need to be considered with Gastech Insights.
Gastech Insights: Focusing on emerging South Asian LNG markets, such as Pakistan and Bangladesh, in your opinion, where is the funding coming from to finance the new regas infrastructure?
Mangesh Patankar: In the case of Pakistan, private sector is leading the creation of regas infrastructure and arranging funds, but the Government underpinned the financing for the first two regas terminals, through a guarantee in the form of a Terminal Usage Agreement (TUA). The projects beyond the first two regas facilities will also be private-led but the Government will not provide any guarantee and is likely to limit its role.
In the case of Bangladesh, the Government provided guarantee through a TUA and the private sector is leading the project construction, but the multi-lateral institution IFC played a key role in structuring and arranging financing for the first regas project, including participation in both equity and debt elements. Additionally, the FSRU provider Excelerate has also infused equity in the project.
Gastech Insights: When it comes to investment in regas, what are the top 3 obstacles preventing banks and investment firms from lending?
Mangesh Patankar: In the current scenario, LNG procurement discussions are mainly centred around the emerging LNG importers. The challenges for financing vary from case-to-case, but at a high-level, we see the following on majority of the projects:
Buyer Credit Profile – The credit profile of the emerging importers is different from that of the traditional North-Asian LNG buyers and acts as a deterrent in structuring regas projects. It’s not in all the cases that the Government is ready to underpin the financing by signing TUA’s (as was done in Pakistan and Bangladesh)
LNG Demand Uncertainty – LNG demand stability/growth is uncertain for many of the emerging buyers, given the limited clarity over LNG market fundamentals & pricing post 2022-23 (the period when the ensuing supply glut is expected to disappear), competition from renewables etc. In such a scenario, it is difficult to sign long-term contracts, which in turn acts as a challenge for financing
Delays in Decision-making – Even if the above two challenges are absent in a project, buyers are hesitant to sign LNG SPA’s and invest in new import projects because they do not want to enter contracts in the current uncertain environment. There is a feeling that prices may fall further over the coming years and hence the buyers are preferring to not take a decision at this stage rather than making one and going out-of-the money
Gastech Insights: In a post COP 21 world, how can Governments in Asia further promote the utilisation of natural gas?
Mangesh Patankar: Regulatory intervention can help promote the utilisation of gas, especially in the power sector. China is a clear evidence for the same, where the Government is closing coal-plants, to favour gas-based generation.
Additionally, the Governments need to build or provide the right incentives for private participation in building infrastructure (pipelines, LNG fuelling stations, bunkering facilities) for supplying LNG into the transport sector. Singapore is a good evidence for the same, where SLNG has already invested in truck-loading and bunkering facilities, and is promoting small-scale LNG development in the region.
Gastech Insights: As LNG is being used increasingly more as marine fuel, in your opinion, when do you see LNG being used in all vessels in some capacity across the marine industry in the future?
Mangesh Patankar: In the case of LNG as marine fuel, we see a lot of activity in EU countries and the North American region. However, Asia still lacks concrete efforts and hence it is our opinion that the next 3-4 years will probably see the development of infrastructure for acceptance of LNG into transportation (as a marine fuel and into heavy vehicles such as trucks, buses) and the jump in LNG’s demand as a transport fuel in Asia will kick-off at a faster pace beyond that period.
Gastech Insights: What aspect are you most looking forward to at this year’s Gas Asia Summit?
Mangesh Patankar: We are looking forward to meeting the industry stakeholders, including emerging players in the sector, and having a good discussion over recent market developments.
Share your insights and join the conversation: Where do you see the South Asian LNG market growing in the next 5 years? Leave your comment below.
Speaking on day 2 at the Gas Asia Summit (25th – 27th October), Mangesh Patankar will take place in a discussion looking at ‘Gas and LNG Infrastructure Financing and Investment’. To see Mr Patankar's discussion and the complete conference programme, book your place today.
Image courtesy of Galway Group
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