Coastal Group taps into fastest growing LNG supply chain

By Romel S. Gurky

Malaysian firm Coastal Contracts Bhd (Coastal Group) announced on Monday that it has entered into a Memorandum of Understanding (MOU) with PT. Jaya Samudra Karunia Internasional (JSK) for the acquisition of 49% equity interest in PT Jaya Samudra Karunia Gas (JSK Gas), a company incorporated in Jakarta, Indonesia.

JSK has a core business in coal transportation sector in Indonesia. Given the huge potential in Indonesia LNG market, JSK has ventured into the LNG supply chain. Recently, it was awarded the LNG Regasification and LNG Storage contracts to support a 200 MWh gas-fired power plant in Bali, Indonesia by Indonesian state-owned company.

LNG regasification facilities generally fall into two main categories, fixed or floating. Here, we will focus on the floating LNG regasification facilities, which is the Floating Storage Regasification Unit (FSRU) solution.

FSRU solution is intended to meet the energy demands of an ever-changing global market. It is an innovative and ideal solution for safe, efficient and lower cost LNG transmission and storage as compared to a land-based terminal. This is also the most economical way of adding storage and regasification capacity to the local gas supply, where there are land constraints. There has also been emergence of FSRU seasonal charter as flexibility becomes the fundamental theme. FSRU is also being used as a bridging solution for the development of land-based terminals or as a mid-term solution until offshore gas discoveries are commercialized.

The acquisition enables Coastal Group to establish its presence in the LNG supply chain and to develop expertise in the FSRU solution. It will be able to build a new portfolio of LNG related products and services which are core to the LNG downstream sector, especially for small-scale FSRU which is suitable for archipelagic region, less capital intensive and requires shorter construction period. The acquisition also enhances Coastal Group?s capabilities by venturing into the LNG supply chain and moving further up the value chain in terms of technology, technical knowledge and expertise in the downstream sector. Furthermore, it also allows Coastal Group to diversify its earnings stream while simultaneously, diverging

CCB?s risk profile from the Oil and Gas upstream sector. ?LNG market is deemed as the current fastest growing market given its excellence in terms of cost efficiency as the use of LNG is very much cheaper than the other fossil energy sources. While there has always been a significant cost differential between FSRU and onshore regasification terminals, the evolution of a preference towards FSRU is rooted in several other factors including the need to reutilize excess shipping capacity and the necessity to cater for seasonal gas demand. In certain jurisdictions such as China and Indonesia, the shift towards FSRU was largely driven by the need to diversify the energy mix and switch away from crude and coal to cleaner fuels such as natural gas. As such, we envisage an exponential growth of the FSRU market?, said Ng Chin Heng, the Executive Chairman of Coastal Group. Coastal Contracts Bhd ? Media Release Aug. 1, 2016

?In Indonesia, the population is scattered across thousands of islands with varying levels of gas demand and in certain parts of Indonesia where the water depth is too shallow for a conventional FSRU to operate, small scale FSRU is the most suitable and efficient way for gas distribution, this implies that small scale FSRU has very good prospect too, not only in Indonesia, but in other Southeast Asia countries, including Malaysia?, he said.

?This strategic acquisition marks the first step towards our long term and mutually beneficial business relationship with JSK. There will be more upcoming projects of similar kind following the successful delivery of the first small-scale FRU and FSU in the world. As Indonesia?s power-generation plans are positioning the country to become one of the fastest-growing markets for LNG and a regional first-mover in small-scale LNG receiving terminal in Asia, we foresee exciting opportunities for growth in this new sector?, he added.

Editing by Johannes Simbolon