Last December, SPEC LNG started its operations and became the very first LNG regasification terminal in Colombia.
SPEC LNG talks about the project and discusses the main challenges that the company faced during its development.
After carefully exploring several different options to secure supply in a country where gas demand is notably bigger than its production capacity, we decided that this floating regasification terminal was the most efficient solution to satisfy the needs of the national market.
We then faced the first big challenge: we had to prove the necessity of this alternative to a government and a market that didn’t believe in LNG as a back-up solution for thermoelectric generation. After a complex negotiation process, SPEC was chosen and the government compelled us to deposit US$40 million to guarantee the terminal execution. Nobody had developed an initiative like this before and the country wasn’t familiarized with LNG, its benefits or the required technologies. Therefore, we didn’t just have to learn but we also had to share all the project updates and processes with the government and partners. Obtaining the environmental license and port concessions was tricky as well, we had to work closely with the six communities in the area to get their support, without which the success of the project would not have been possible.
On the other side, we faced several economic challenges. Initially the project was going to be financed with a mixed structure where the shareholder partners would finance 30% and the banks would pay 70% as debt. However, in December 2015 while the project was already under construction, a drought jeopardized its execution. “El Niño”, a common drought phenomenon in Colombia, generated a crisis among the thermal generators, our final clients. The banks hesitated about the projects profitability and the shareholders had to increase their initial investment to avoid any delay, which would have meant the loss of the 40 million deposit that SPEC paid to the government. Although the banks stepped back, the shareholders firmly believed in the project and decided to completely finance it in a critical moment, which allowed its success.
The terminal has successfully met all the deadlines and last December, SPEC started importing LNG to supply the main thermoelectric companies in the country. What are the main benefits of this project for Colombia?
First, LNG secures energy supply for a country that, as I stated before, requires more natural gas than it is able to produce. During dry season, the country has previously experienced serious energy crisis and blackouts and this terminal is going to guarantee that it doesn’t happen again.
The project doesn’t just guarantee reliable supply, but also reduces energy cost for the country since natural gas is cheaper than other fuels used before. On top of that, LNG represents a cleaner alternative. Additionally, the main thermal companies used to monopolize natural gas use in Colombia, increasing LNG price as demand went up due to the lack of internal resources. Now, national gas production will be only destined to satisfy local clients’ needs, ensuring they are going to get more competitive prices.
FSRU’s seem to be one of the most convenient and reliable solutions to import gas in the region. Do you think this is an isolated initiative or do you believe that Colombia has more potential to develop these kind of projects?
It’s obvious that SPEC has settled an important precedent and government is evaluating now the possibility of developing another LNG terminal in the Pacific Coast to cover the countries energy demand with gas. Colombia is experiencing a notable expansion so we are expecting an exponential increase in the country’s energy demand. The government is also exploring and looking for gas fields and deposits, but developing another terminal is an interesting, realistic option.
In addition, we also contemplate an expansion in our terminal, but now it’s too early to come to conclusions.
Latin America represents a very attractive market for LNG exports. How can international developers succeed in the region and how can they contribute to the development of the Latin America LNG industry?
During the plant development, SPEC talked with all the big international LNG providers. Most of them came to Colombia and visited our installations. Every country and each industry has its particularities and I think that is necessary to know and understand them in order to adapt your offer and succeed.
Most providers think that success depends just on pricing, but there are several critical elements. The business models and contracts that we are seeing in the region are changing now. For instance, in Colombia, the main buyers are electric generation companies that have unpredictable and changing demand curves. For that reason, Colombia and other countries in the area require flexible providers that adapt their offer to the market by understanding the specific needs and regulations of each different market.
After the enormous success of this plant, what’s next for SPEC?
Our main goals are to promote and maximize LNG use in Colombia. We are developing the necessary logistics and infrastructure for that and currently looking for a developer partner that can closely collaborate with us for that purpose.
Moreover, we are evaluating and exploring the international LNG market. This FSRU opens new possibilities and SPEC could become the new strategic hub for small-scale commercialization in other Latin-America areas and even in the Caribbean.
Latin-America has experienced a renewable energy boom in the last few years. Do you think LNG will keep being a competitive alternative against renewables and other fuels in the region?
I am sure that LNG will be a competitive and necessary source over the next few years. Renewables are the goal for most of the countries, but in Latin-America, just a few are prepared for its immediate development. A process is required and LNG will play a key role during this transition as a reliable, economic and cleaner alternative versus other alternatives.
In June you are going to present SPEC’s project at the 15th CWC World LNG & Gas Series: Americas Summit. What are you looking forward to at the conference?
We are going to Houston to present our experience, discuss our business model and share the challenges and solutions that we faced. We also want to get the updates on new projects and technologies for LNG. We look for synergies to keep developing new markets. For us, this Summit means a great networking opportunity and a change to learn from others.