Caution in Cambodia’s Gas-Fired Power Development
Recent discussions surrounding Cambodia’s energy strategy emphasize the need for caution when it comes to gas-fired power development. A report from the Institute for Energy Economics and Financial Analysis highlights the complexities involved in Cambodia’s journey into liquefied natural gas (LNG) markets.
The Power Plant Landscape
In October 2023, the Royal Group broke ground on a significant electricity generation project in Botum Sakor district. This 900-megawatt (MW) plant promises to become the largest power plant in Cambodia, marking the nation’s first foray into gas-powered energy generation. However, given that Cambodia does not produce its own gas, the entire operation hinges upon robust infrastructure to import, liquefy, and then combust LNG.
A report by the Economic Research Institute for ASEAN and East Asia (ERIA) advocates for LNG’s major role in Cambodia’s energy future, but this path is laden with challenges. Recent years have shown countries relying heavily on imported LNG grappling with issues related to energy security and exorbitant costs—a warning sign that Cambodia must heed as it charts its energy future.
The Risks of Procuring LNG
For a new entrant like Cambodia, entering the LNG market traditionally involves acquiring gas through spot markets or long-term contracts. Spot market purchases allow the country to buy gas as needed but expose it to the whims of fluctuating global prices. Since 2020, these prices have swung dramatically, creating potential for enormous financial variability—between $1 and $100 per million British thermal units (MMBtu).
Long-term contracts offer more stability by defining pricing methodologies over time. However, they also impose rigid terms, including “take-or-pay” clauses, potentially burdening Cambodia with unwanted penalties if gas is unneeded. With many uncertainties still surrounding the nation’s energy requirements, these contracts could pose significant financial risk.
Economic Implications
The financial burden of imported LNG cannot be overstated. IEEFA estimates that the operational costs for one 900 MW LNG-fired power plant could reach KHR 2.95 trillion (around $730 million) solely for fuel. This figure exceeds Cambodia’s total coal import bill in 2022, revealing the economic pressures that come with this energy choice.
As a new player in the LNG arena, Cambodia may end up paying a premium for gas, particularly in the current global climate where wealthier nations often outbid emerging markets. Anecdotes from the energy sectors of Pakistan and Bangladesh—both of which faced dire energy shortages—underscore the precariousness associated with competing in the LNG market.
The Ripple Effect on Electricity Pricing
Integrating LNG into Cambodia’s energy mix will have notable impacts on electricity pricing. Current estimates indicate that LNG-fired electricity could cost more than five times that of recent solar projects. With such a price disparity, further complicating efforts to make power affordable for consumers, the viability of LNG as a long-term energy solution comes into question.
Additionally, the current market signals struggle to suggest that LNG could compete effectively with more established energy sources like coal and renewables. With electricity prices already among the highest in Asia, further reliance on LNG could exacerbate financial burdens on average citizens.
Exploring Alternative Energy Solutions
As Cambodia pushes towards ambitious renewable energy targets—aiming for 70% of power to come from renewables by 2030—the role of LNG must be carefully considered. The pursuit of LNG appears to stem from concerns about the reliability of wind and solar but does not necessarily align with the nation’s broader energy objectives.
Given that wind and solar resources have yet to reach their full potential in Cambodia, there remains ample opportunity to invest in these alternatives. Integrating renewable sources into the grid is proven feasible, with minor adjustments needed up to a certain threshold. Expanding these resources is critical, especially if Cambodia aims to meet its renewable energy goals without over-relying on LNG.
Balancing Energy Needs and Economic Viability
A judicious approach to LNG development will help Cambodia navigate its energy landscape without compromising economic growth or consumer affordability. The current push for LNG might sidetrack the country from pursuing a more balanced energy portfolio that includes diverse renewables.
Aligning LNG plans with long-term strategies for energy independence and cost-efficiency will enable Cambodia to construct a safer and more sustainable energy future. By seeking to create contracts and infrastructure that further support its renewable goals, the country can work to ensure energy security without the burdensome costs associated with gas-powered generation.
This article originally appeared on Dialogue Earth and is shared under the Creative Commons BY NC ND license.