Navigating Cambodia’s Path Towards Gas-Fired Power Development

The landscape of energy production is undergoing a seismic shift in Cambodia as the Royal Group’s ambitious 900-megawatt electricity generation project takes shape in the Botum Sakor district. Scheduled to be operational by 2027, this initiative marks a milestone—it will be the largest operational power plant in Cambodia and the country’s first to utilize gas. However, experts suggest a cautious approach, as highlighted in a recent report by the Institute for Energy Economics and Financial Analysis.

The Complexities of Gas-Fired Power

Cambodia’s reliance on imported liquefied natural gas (LNG) introduces a myriad of complexities. Unlike many of its regional counterparts, Cambodia does not have indigenous gas production capabilities. This means the country must establish the necessary infrastructure to import LNG, which is stored in its cooled liquid state and re-gasified for combustion. A report by the Economic Research Institute for ASEAN and East Asia (ERIA) promotes the idea of LNG playing a pivotal role in Cambodia’s energy future. Yet, this approach is fraught with risks, particularly considering the volatile global LNG market.

Global fluctuations in LNG pricing could challenge the government’s goal of maintaining affordable energy. Recent trends indicate that countries depending on imported LNG have struggled to secure stable energy supplies at manageable prices. As Cambodian energy officials look to the future, strategic foresight is crucial to navigate these uncertainties.

Acquisition Strategies: Spot Markets vs. Contracts

Cambodia faces important decisions regarding how to procure LNG, either from spot markets or through long-term contracts. Spot market purchases allow for flexible imports when needed, but they come with the caveat of potentially paying the highest market prices. For example, since 2020, these prices have exhibited extreme volatility, ranging from just USD 1 per million British thermal units (MMBtu) to a staggering USD 100/MMBtu. Such fluctuations can significantly impact the cost of LNG shipments.

On the other hand, multi-year contracts can provide stability through fixed pricing formulas tied to global oil prices. Although this reduces price volatility, contracts often impose stringent “take-or-pay” clauses that could lead to penalties if LNG is not utilized. Given Cambodia’s uncertain energy demands, this rigidity could prove costly, potentially digging deep into the nation’s financial resources.

The Economic Impact of LNG on Electricity Prices

Integrating LNG into Cambodia’s energy mix is likely to elevate electricity prices, complicating the government’s plans for affordable power. Current estimates indicate that electricity generated from LNG could cost over five times more than recent solar projects and double the rates of existing coal and hydroelectric contracts. The Institute for Energy Economics and Financial Analysis highlights that LNG-powered electricity may run as high as USD 0.17 per kilowatt-hour, starkly contrasting with solar energy sourced at around USD 0.026 per kilowatt-hour.

This discrepancy raises a critical question: Can Cambodia realistically rely on LNG without driving electricity costs beyond the reach of its citizens? As the prices of LNG remain above competitive thresholds required for coal and renewables, the feasibility of integrating gas-fired power into the national grid comes into serious question.

Consumer Implications and Regional Trends

As consumers in Cambodia grapple with some of the highest electricity rates in Asia, the pending introduction of costly LNG could exacerbate existing issues. Countries like Vietnam and the Philippines are also facing hurdles with unsustainable LNG imports, leading to pressures on their electricity tariffs and stalling the development of LNG-to-power projects. Cambodia’s critical energy decisions will need to reflect regional trends while addressing local realities.

Alternative Energy Solutions

In contrast to the LNG route, Cambodia should assess whether a baseload LNG-to-power strategy aligns with its broader energy objectives, which aim for 70% renewable energy sources by 2030. While LNG is perceived as a necessary support mechanism for grid reliability as energy demands rise, the burgeoning solar and wind sectors could present more sustainable solutions without compromising energy accessibility.

As current electricity generation shows only 5% contribution from solar power, there’s ample room for renewable resources to develop. Industry practices suggest that countries can successfully integrate up to 15% of wind and solar into their grids with minor adjustments. This potential for growth indicates that renewable energy should take precedence in Cambodia’s strategic planning.

The Future of LNG in Cambodia’s Energy Mix

Achieving the ambitious goal of a 70% renewable energy target complicates the commitment to extensive LNG infrastructure. Balancing the use of LNG-fired power with a focused development of renewables will be essential for maintaining energy affordability. Pursuing carefully structured LNG contracts, catering to the unique demands of the Cambodian market, is critical for securing both energy stability and economic growth.

Through informed decision-making and strategic planning, Cambodia can effectively navigate the challenges posed by gas-fired power development while capitalizing on the untapped potential of renewable energy sources. Engaging stakeholders in comprehensive assessments will set a solid foundation for the country’s energy future, ensuring access to reliable and reasonably priced electricity for all Cambodians.