Defending Golar LNG’s new strategy to spin off shipping operations, chairman Olav Troim said “significant progress” has been made on downstream LNG distribution for power generation and as a transportation fuel. In Brazil, Golar just won a 605 MW gas power project in Barcarena, while a similar project in Sergipe is about to come onstream.
Golar believes its latest Brazilian power project, together with progress on downstream distribution of LNG using spare FSRU capacity, will help transforms Golar Power from a single project company into a business with “significant and demonstrable growth.”
In Brazil, a 50:50 joint venture with Stonepeak Infrastructure Partners, has recently won a 25-year power purchase agreement (PPA) for the construction of a 605 MW combined-cycle power plant in Barcarena. Referring to Golar’s second Brazilian venture, Mr Troim said “gas has just been introduced to the Sergipe power station and hot commissioning is underway.”
In a strategic shift to downstream LNG and power markets, Golar wants to facilitate bespoke solutions for smaller customers allowing for demand aggregation, the chairman said, trying to shift analysts’ focus away from the company’s disappointing Q3-2019 results. Operating revenues in the third quarter plunged 20% to $98.67 million, while net losses for the first nine months of 2019 amounted to $236.7 million compared with a profit of $81.52 million in the pre-year period.
Putting a positive face on it, Mr. Troim said there was “increasing interest from international oil majors (IOCs) and national oil companies (NOCs) that are appreciative of our low cost and flexible FLNG solutions and impressed by our flawless operational track record.”
“Naïve to think” renewables can replace hydrocarbons
In an analysts’ call, the Golar chairman accepted that wind and solar power, together with greater energy efficiency, will have a role to play in the world’s future energy mix. “It will, however, be extremely naive and impossible to think that wind and solar over the next 20 to 30 years can replace the hydrocarbon industry,” he stressed.
Based on the fundamentals, LNG has grown in the last 10 years with available volumes doubling since 2007, he said, explaining “the major reason for this is that gas is a lot cheaper than oil to produce.”
“We know that gas prices in the US currently are $2.5 or equivalent to around $15 oil. I was in Russia together with Russian producers last week and they claim that the upstream gas which goes out into the Yamal project, cost less than $1 per MMBtu or in affect $6 for a barrel of oil,” he said.
Aspiring to run all Brazilian trucks on LNG
Looking ahead, Mr Troin said the Golar story was about lowering the cost of produced energy with material environmental benefits.
“The diesel price in Brazil which had a diesel crisis a year ago, have over the last three or four years been equivalent to $26 per MMBtu. Future LNG prices are today around $6 per MMBtu. This creates a spread between what the commodity trades at and their retail sales of around $18 per MMBtu,” said Troim.
“If you price delivered LNG at a discounted diesel, for example, $4 per MMBtu that gives every truck driver in Brazil a benefit of $10,000 a day in fuel cost. He will save 170 tons of CO2 emission, which has the effect of the equivalent of planting 27 hectares of trees, he added, concluding: “So if you add all this together, and think that Brazil have 2.7 million trucks, you have actually had $27 billion in savings to be done by converting the whole truck fleet to LNG.”