Nitrogen+Syngas 365 May-Jun 2020
31 May 2020
Syngas expansions in Southeast Asia
SOUTHEAST ASIA
Syngas expansions in Southeast Asia
Southeast Asia has been a major site for new syngas projects in recent years as countries such as Indonesia, Malaysia and Brunei continue to monetise their natural gas resources.
From January 1st 2016 the 10 nations of the Association of South-East Asian Nations (ASEAN) formed the ASEAN Econ omic Community (AEC). Modelling itself on the European Economic Community (now the EU), the AEC aims to create a single market and production base for the free flow of goods, services, investment, capital, and labour within the ASEAN nations. The commitment marks another milestone on the road of the continuing economic development of this dynamic part of the global economy; the AEC countries between them now represent a $3 trillion economy, making it equivalent to the fifth largest economy in the world, and the third largest in Asia after China and Japan. However, of these, the five largest economies – the so-called ASEAN-5 – dominate the bloc’s economic life; Indonesia, Thailand, Singapore, Philippines and Malaysia between them account for 85% of the AEC’s economy. If Vietnam is added that figure rises to 94%; the relative contribution from Brunei, Cambodia, Laos and Myanmar is at present small one.
The AEC’s GDP has continued to grow at a brisk pace, though slower than the 6.3% average it managed for the first half of the 2010s. Various factors such as the slowdown in the Chinese economy, US-Chinese trade tensions have slowed growth even as domestic demand continued to increase rapidly. In 2019 the Asian Development Bank calculates that the AEC economy grew by 4.8%, with Cambodia the fastest growing member at 7% and Brunei at just 1% on the back of falling oil prices. Projections for 2020 had been for 4.9% growth overall in the AEC, but the impact of the Covid-19 pandemic is likely to be a hard one, and the IMF now puts the prospects for the ASEAN-5 at a contraction of 0.6% for the year, albeit rebounding to a figure of 7.8% for 2021. The region’s countries are highly open to trade and investment as well as tourism, all of which have been severely disrupted by the pandemic. Demand for exports such as palm oil and metals from Indonesia have fallen sharply, while the suspension of tourism has hit the Thai economy especially hard (tourism accounts for 20% of Thailand’s GDP). Likewise the collapse in oil, gas and coal prices will have a major effect on Indonesia, Malaysia and Brunei. Indonesia and Malaysia’s fossil fuel exports represent 25% and 16% of GDP respectively, but for Brunei the figure is 90%.
Feedstock resources
Southeast Asia remains relatively resource rich in terms of gas and coal reserves, the former as shown in Table 1. Indonesia and Malaysia are the regional giants in terms of natural gas production, but there are also significant reserves in Myanmar, and while Brunei and Papua New Guinea (the latter not part of ASEAN) have more modest reserves, their relatively small populations mean that they are still major producers and exporters of gas due to a lack of domestic demand. Vietnam’s gas reserves have climbed rapidly in the past few years due to a string of new gas discoveries.
The scattered island nature of the east of the region, across Malaysia and Indonesia to New Guinea, and the mountain chains of the west of the region, have discouraged pipeline building, and prompted a focus on LNG development; Indonesia and Malaysia were among the pioneers of the LNG industry, dating back to the gas boom of the 1980s. As a consequence, most gas exports from Southeast Asia are as LNG, predominantly to Japan, but also to China and South Korea, although Myanmar exports gas by pipeline, mainly to neighbouring Thailand, but also some to China. Indonesia also exports gas by pipeline to Singapore.
There are also major coal reserves in the region. Indonesia has by far the largest reserves, and produced 323 million tonnes of oil equivalent (mtoe) in 2018, of which it exported two thirds, mainly to China. Indonesia is actually the world’s second largest coal exporter, not far behind Australia. Vietnam is also a significant coal producer, at 23 mtoe in 2018, but it consumes more coal than it produces and imports coal from Indonesia to make up the difference.
The ASEAN nations have set an aspirational target to incorporate 23% of renewables into their energy mix by 2025. However, while Singapore is heavily focused on new solar generation, elsewhere progress is likely to be more incremental. Even so, there is a push to replace coal-fired power generation with gas and renewable electricity, and this is likely to be a factor in the energy mix of countries such as Indonesia and Vietnam going forward.
New gas development
Continuing development of gas projects in the region is driven by rapidly rising energy demand; twice as fast as overall global energy demand growth. Energy demand in the AEC grew by 80% from 2000-2020, and is forecast by the International Energy Agency (IEA) to grow another 60% from 2020 to 2040. This is leading to a major focus on gas exploration and development, such as the recent discovery at the Song Hong Basin offshore of Vietnam. A total of 54 oil and natural gas projects are expected to begin operation in Southeast Asia between 2019 and 2025, with particular focus on Indonesia, Malaysia, Vietnam, Cambodia, Thailand and Myanmar. Together these projects are projected to represent 8.1 billion scf/d of global gas production in 2025 (80 bcm/year). While Indonesia and Malaysia continue to represent the most developed regional gas players, countries such as Cambodia, Thailand and Vietnam have considerable potential for growth.
Major gas projects include the $6.8 billion Vietnam Gas Project, which is looking to exploit Vietnam’s significant offshore gas reserves. PetroVietnam is working with Mitsui and PTT in developing the Kim Long, Ac Quy, and Ca Voi fields as the Vietnam Gas Project. Production at capacity will be 640 million scf/d of gas and 21,000 bbl/d of liquids, with operations due to begin in 2021.
In Indonesia, declining output from mature gas fields is leading to a search for more gas to maintain the country’s LNG exports. Indonesia’s LNG exports have fallen from 24 million t/a in 2010 to 13.5 million t/a in 2018 due to increasing domestic gas demand. Indonesia now plans to double LNG production by 2030 with a string of new gas developments. Largest among these is the $6 billion Chevron-operated Indonesia Deepwater Development (IDD). First gas is scheduled for 2024, from the Gendalo, Gehem, Bangka and Gandang fields in the Kutal Basin, but arguments over economics and production sharing may push this out to 2025-26. Peak production at IDD is forecast to be 1.1 billion scf/d of natural gas and 31,000 bbl/d of condensate, with the gas going to feed the Bontang LNG complex. Elsewhere, construction is progressing on the BP-operated Tangguh expansion, which will add a new 3.8 million t/a LNG train to the existing Tangguh LNG plant, taking capacity up to 11.4 million t/a. Gas feed to the plant is scheduled to begin next year and reach capacity in 2022. The Badak LNG plant is due to see a new gas tie-in from the Merakes field in 2021. Finally, INPEX and Shell are developing the huge Abadi field, with an associated LNG project, although the remoteness of the site is posing problems for the development and production may not begin until 2028.
In Malaysia, Petronas is deploying a second floating LNG (FLNG) plant in the Rotan field in the South China Sea off the coast of Sabah this year, at a cost of $2.5 billion, although plans to export LNG to Thailand were called off last year by the Thai authorities. Finally, Myanmar is building the Mee Laung Gyaing LNG import terminal and an associated 1.3 GW power station to generate power from gas supplied by floating storage regasification units (FSRU).
Fertilizer production
Regional ammonia and methanol production has developed, as in so many areas of the world, on the back of natural gas discoveries and exploitation. In the 1970s and 80s the fragmented nature of the region with its myriad islands meant that outlets for many gas finds were limited due to lack of pipeline capacity, and a number of ammonia-urea projects were built, particularly in Indonesia, based on what was then ‘stranded’ natural gas. A plant backed by ASEAN was also built at Bintulu in Malaysia in the 1980s. By 1989 Indonesia had 5.3 million t/a of urea capacity and was the largest exporter in the region.
Six more urea plants followed in Indonesia in the 1990s and 2000s; two at Bontang, one at Lhokseumawe, one at Cikampek, one at Gresik, and a replacement plant for Pusri at Palembang, which added in total another 2.7 million t/a of urea capacity. Malaysia also built two new plants, at Kerteh and Kedah, and also became a significant exporter. However, by now rapid industrialisation in the two countries was leading to greater demands for gas for power production, especially in Indonesia, while maturing gas fields began to reduce feedstock availability to some locations, leading to the closure of the ASEAN Aceh urea plant in 2004. Urea consumption also rose within Indonesia, and the government began to restrict exports at certain times of year. Urea exports peaked in 1997 at 2.4 million t/a, and by 2004 fell to below 500,000 t/a. Rising gas prices meanwhile were impacting upon company margins.
In spite of this, Indonesia has continued to build newer more modern facilities to replace older plants that are being taken out of service. In 2015, Kaltim started up its Kaltim-V urea plant, with a capacity of 1.1 million t/a of urea, to replace the ageing Kaltim-I plant, and in 2017 Pusri likewise replaced the Pusri II plant with the 900,000 t/a Pusri IIB. By 2018, Indonesian urea production had risen to 7.4 million t/a, and exports were back up to 1.1 million t/a. In December 2018, a new 700,000 t/a standalone ammonia plant was commissioned by PT Panca Amara Utama (PAU) in Sulawesi, Indonesia.
In Malaysia, Petronas has developed its Sabah Ammonia Urea (SAmUr) plant to monetise offshore gas from Sabah and strengthen Malaysia’s position as a regional urea exporter. This plant started up at the end of 2019 with a capacity of 700,000 t/a of ammonia and 1.2 million t/a of urea, taking Malaysia’s urea capacity to 2.6 million t/a.
Vietnam, meanwhile, had built two plants with assistance from the USSR based on coal gasification, but major offshore gas discoveries in the south of the country in the 1990s led to two large urea plants being built there, the second completed in 2012 to take capacity to 2.6 million t/a.
Myanmar built five small urea plants but ongoing sanctions relating to the military dictatorship meant that only three (currently just one or two) were able to operate, and those at reduced capacity (150-200,000 t/a) due to shortages of equipment and intermittent gas supplies. Plans from the 1990s to build a urea plant based on the Yadana gas project were stymied by sanctions and financing difficulties.
Methanol
On the methanol side, development has been more limited. Indonesia has two plants with a combined capacity of 1.0 million t/a. Malaysia’s Petronas has built two plants at Labuan with a combined capacity of 2.4 million t/a, making it the fourth largest methanol producer in the world and the largest single company in Asia, but the two plants have been plagued by operating issues in the past few years. Brunei joined the region’s methanol producers in 2010 with the 850,000 t/a Brunei Methanol Company plant at Sungai Liang Industrial Park. Domestic demand is limited in most countries, and most of the methanol is exported, with China the major customer.
New projects
At the moment new capacity is being developed in countries with significant gas reserves and surpluses which are seeking to monetise them, which essentially means Brunei, Malaysia and Papua New Guinea. In Brunei, a $1.8 billion ammonia-urea plant is under construction at Sungai Liang by Brunei Fertilizer Industries. The new greenfield fertilizer complex will have a production capacity of 2,200 tons of ammonia and 3,900 tons of urea per day. The EPC contract was won by thyssenkrupp Industrial Solutions, who also are providing their proprietary ammonia technology. Stamicarbon are licensing the urea plant, and TKIS their urea granulation technology.
In Malaysia, the state of Sarawak has the largest share of the country’s gas reserves, around 54%. The state government is keen to develop this resource as a feedstock for chemical and petrochemical production, and so has sponsored state-owned Sarawak Petchem Sdn Bhd to build a new 1.7 million t/a mega methanol plant in the region. Petronas will market the plant’s output via its marketing arm Petronas Chemicals Marketing (Labuan) Ltd (PCML). The project is expected to come on stream in 2023.
Papua New Guinea signed off last year on a new $13 billion LNG project at Port Moresby with 5.4 million t/a of capacity. A share of this capacity will be allocated to domestic supply, with the aim of helping PNG achieve its goal of expanding electricity coverage to 70% of the country by 2030. Also part of the project is a new $800 million methanol plant, being developed by Sojitz and Kumul Petroleum. Japan-based Sojitz already owns 85% of Kaltim Methanol Industri in Indonesia and sells its offtake regionally. The timeline for the LNG plant envisages a start-up as soon as 2024, though this looks ambitious in the current environment. There is as yet no firm timeline or capacity for the methanol plant.
Indonesia, meanwhile, has for some years been considering a coal gasification based plant. In 2019, a heads of agreement was signed between coal miner PT Tam-bang Batubara Bukit Asam (PTBA), fertilizer manufacturer PT Pupuk Indonesia and state-owned oil and gas holding company Pertamina – as well as chemical manufacturer PT Chandra Asri Petrochemical. The plant, to be built in the Bukit Asam Coal Based Special Economic Zone (BACBSEZ) on South Sumatra, is currently slated to produce 500,000 t/a of urea, as well as methanol with downstream 400,000 t/a of dimethyl ether (DME) capacity and 450,000 t/a of polypropylene via methanol to olefins production. After languishing for some years, the project seems to be moving forward again, with the government indicating that it would like to tender soon for completion in 2025. There is also a coal gasification project under discussion for Riau province, again with DME as the downstream product.
Regional supply/demand balance
Almost all of the nitrogen production in the region is based on urea, apart from some ammonium sulphate and nitrate production in Indonesia. Table 2 gives a breakdown of urea production and consumption across Southeast Asia, listing the major producers and consumers.
Indonesia, and to a lesser extent Malaysia and Vietnam are the major producers, and of those, only Indonesia and Malaysia are major exporters. Vietnam, although it technically has a surplus of urea production, has remained a slight net importer in recent years because of domestic costs of production and production and financial issues with its coal-based plants. Indonesia is also far and away the largest consumer, consuming almost half of regional urea demand, with Thailand and Vietnam the other most significant users of urea, and Malaysia and Philippines more moderate consumers. Looking forward, nitrogen consumption in the region is relatively mature and unlikely to increase dramatically, although there is scope for future growth in Myanmar, Laos and Cambodia.
On the supply side, Malaysia, Brunei and Papua New Guinea are currently the main nations looking to monetise their natural gas surplus. However, there is certainly room for more gas development in Indonesia, depending upon government will. The current programme to double LNG production by 2030 may open up the possibility of more gas-based fertilizer or methanol export, but much depends on pricing. Indonesia’s coal gasification plans, meanwhile, may find themselves constrained by the indebtedness of PT Bumi Resources, the main coal supplier. Bumi is aiming to settle a $1.7 billion debt in 2022 and conclude a mandatory bonds-to-equity conversion by 2024 following its debt restructuring process in 2017.
Myanmar, now that international sanctions have eased with the accession of president Win Myint, protégé of Aung San Suu Kyi, also has plenty of natural gas, as well as a ready made domestic market for fertilizer. At the moment the government is looking to modernise No. 3 Chemical Fertiliser Plant (Kyaw Swa), owned by Myanmar Petrochemical Enterprise, and re-start production there, but there is room for more capacity in the country beyond the 600 t/d this would add. However, ongoing criticism of the country’s treatment of Rohingya Muslims has helped deter international investors.
