Cambodia’s Rising Expenditure on Oil Imports in 2024.

In the first 11 months of 2024, Cambodia’s oil imports surged, reflecting the country’s increasing demand for energy and its reliance on external sources to meet this need. According to a recent report by the Ministry of Commerce, the total value of diesel fuel and petroleum oil imports reached $2.18 billion, an 11.3% increase compared to the same period in 2023.

Breakdown of Cambodia’s Oil Imports

The imported oil products were divided into diesel fuel and petroleum oils, with the following statistics highlighting their respective shares:

• Diesel Fuel: Cambodia spent $1.3 billion, marking a 10% increase year-over-year.
• Petroleum Oils: Expenditure reached $876 million, representing a 13% rise compared to 2023.

These figures underscore the growing energy needs of a country that is heavily reliant on imports for its fuel supply.

Why Cambodia Relies Entirely on Oil Imports?

Cambodia’s reliance on imported fuel stems from its untapped domestic oil reserves. Despite the country’s promising seabed oil reserves, these resources remain unexploited due to technical, financial, and regulatory challenges. This leaves Cambodia dependent on international suppliers to fuel its transportation, industrial, and agricultural sectors.

Growing Demand for Oil Products

The demand for oil products in Cambodia has shown a steady upward trajectory. In 2020, the country consumed 2.8 million tons of oil products. The Ministry of Mines and Energy has projected this figure to grow to 4.8 million tons by 2030, driven by:

1. Rapid urbanization and industrial development.
2. Increasing ownership of vehicles, including cars and motorcycles.
3. Expanding agricultural mechanization and rural infrastructure projects.

Current Fuel Prices

Fuel prices in Cambodia remain relatively affordable compared to many other countries, contributing to the steady rise in consumption:

• Regular Gasoline: 3,900 riels (approximately $0.97) per litre.
• Diesel: 3,750 riels (approximately $0.93) per litre.

These prices make fuel accessible to the majority of Cambodians, further fueling demand.

Vehicle Imports Linked to Rising Oil Demand

Another factor contributing to the rising oil imports is the increasing import of vehicles. From January to November 2024, Cambodia imported vehicles worth $908 million, a 7.2% year-on-year increase. With more vehicles on the road, the demand for fuel naturally escalates, creating a ripple effect on the country’s oil import costs.

Long-Term Implications

Economic Impact

Cambodia’s dependence on imported oil poses economic challenges, particularly as global oil prices fluctuate. The country spends a significant portion of its budget on fuel imports, which can strain foreign exchange reserves and increase vulnerability to external market shocks.

Environmental Concerns

The growing consumption of fossil fuels also raises environmental concerns. Cambodia faces the dual challenge of meeting its energy demands while working toward sustainable development and reducing its carbon footprint.

Opportunities for Renewable Energy

The rising oil import bill highlights the need for Cambodia to explore alternative energy sources. Renewable energy solutions, such as solar and hydropower, could reduce the country’s dependence on imported fuels while fostering energy independence.

Future Outlook

While Cambodia’s reliance on oil imports is unlikely to change in the near term, steps can be taken to mitigate its impact. Developing local oil reserves, investing in renewable energy, and promoting energy efficiency are crucial measures to address this challenge.

The Ministry of Mines and Energy’s projection of a near doubling of oil demand by 2030 underscores the urgency for action. Policymakers, investors, and industry stakeholders must collaborate to ensure that Cambodia’s energy sector evolves sustainably to meet future demands.

Share Your Thoughts

How do you think Cambodia can reduce its reliance on imported oil? Should the country focus on exploiting its domestic reserves or invest more in renewable energy? Let us know your opinions in the comments below!

Source: Xinhua

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The country should approach gas-fired power development with caution, write the authors of a new report from the Institute for Energy Economics and Financial Analysis.

In October, the Cambodian conglomerate Royal Group broke ground on a 900-megawatt (MW) electricity generation project in the Botum Sakor district, on the country’s south-western coast. If it’s completed and running by 2027, the project would become the country’s largest operational power plant, and its first to run on gas.

Cambodia does not produce its own gas, so the project requires the infrastructure to import the fuel in its cold, liquid form, then reheat it for combustion in the plant. A 2023 report by the Economic Research Institute for ASEAN and East Asia (ERIA) advocates for liquefied natural gas (LNG) to play a major role in Cambodia’s energy future.

This is a risky proposition. In recent years, other countries in the region that rely on imported LNG have struggled to maintain energy security and affordability. This has been due to global market disruptions and skyrocketing costs. Cambodia’s foray into LNG markets will therefore require careful strategic foresight and planning to reduce energy costs, improve reliability and support economic growth.

Numerous questions remain, however, regarding costs and procurement, the role of LNG-fired electricity in the country’s power mix, and the use of potentially cheaper alternatives. Without clear answers, Cambodia’s economy could find itself exposed to the large costs and volatility of global LNG markets.

How will Cambodia buy LNG and what will it cost?

New buyers such as Cambodia typically acquire LNG from spot markets or through multi-year contracts. The latter establishes volumes and pricing methods across the contract’s term. Both of these acquisition options entail risks for energy security and cost.

Buying from the spot market means Cambodia could import shipments whenever needed rather than committing to set contracts. The country would pay the prevalent global market price at the time of the purchase.

This can be risky during periods of volatile prices. Since 2020, spot prices have fluctuated between US$1 per million British thermal units (MMBtu) and US$100/MMBtu – that translates to a swing of between roughly US$4 million and 375 million for a typical, 72,000-tonne LNG shipment.

Contracts alleviate these concerns by setting a pricing formula, typically tied to a percentage of the global oil price. This reduces price volatility, narrowing the cost range of LNG cargo deliveries. However, contracts also stipulate rigid “take-or-pay” terms, meaning Cambodia must either “take” the LNG or “pay” a penalty if the LNG is unneeded. Since LNG’s role in the Cambodian energy system is still uncertain, the country could find itself paying significant penalties.

Importantly, LNG is likely to be expensive under both approaches. Prices under both spot and contract arrangements are currently two to three times as high as coal. Our recent Institute for Energy Economics and Financial Analysis (IEEFA) study estimates that, at current prices, operating one 900MW, LNG-fired power plant at baseload levels could cost as much as KHR 2.95 trillion (US$730 million) for the fuel alone. This exceeds Cambodia’s entire 2022 coal import bill.

Cambodia could pay a premium on current prices and struggle to access affordable LNG supplies because it’s a new market entrant with limited bargaining power, uncertain gas requirements and a lower demand profile. In 2022, the Russian invasion of Ukraine caused global LNG prices to skyrocket, as wealthy European and Northeast Asian buyers outbid emerging markets for limited supplies.

Pakistan and Bangladesh, for example, were often unable to afford LNG shipments, resulting in fuel shortages and power outages that devastated key economic sectors. In 2024, prices remain well above historical levels, and both countries are still struggling to finance their ballooning LNG import bills. Consequently, in early 2023 Pakistan announced it would stop building LNG-fired power plants.

What impact will LNG have on electricity prices?

Integrating expensive LNG into the Cambodian power mix will have knock-on effects on electricity prices, hindering the government’s efforts to reduce these rates.

At current spot market prices, LNG-fired electricity could cost more than five times that of recent solar projects in the country, or about double the rate of current coal and hydro contracts. For example, IEEFA estimates that LNG-fired electricity could cost US$0.17 per kilowatt-hour at current LNG prices. Meanwhile, Cambodia has attracted solar projects that produce electricity priced at US$0.026 per kilowatt-hour.

LNG fuel prices would likely have to fall below US$4.8/MMBtu to compete with coal and renewables. However, global prices have rarely fallen this low. Most producers require a selling price of US$8/MMBtu or more to service debt and earn a return – and LNG prices are unlikely to fall to competitive levels for the Cambodian power sector.

Other Asian countries, such as Vietnam and the Philippines, are grappling with the impact of uncompetitive LNG imports upon their electricity rates. It is slowing down LNG-to-power development and putting higher pressure on end-user tariffs.

Cambodian consumers already pay among the highest rates for power in Asia. With LNG prices unlikely to compete with renewables or baseload coal plants and the government prioritising electricity affordability, the role of LNG plants in the power mix remains uncertain.

What is the alternative?

Cambodia needs to properly assess whether a baseload LNG-to-power project is necessary to achieve its energy objectives. Those objectives include maintaining an affordable power supply and generating 70 per cent of the country’s power from renewable sources by 2030, up from 50 per cent in 2023.

The current impetus for LNG development appears to be driven by concerns that wind and solar resources do not provide uninterrupted, dispatchable power. LNG is seen as an integral ingredient to support the grid reliability as electricity demand rises and the power system becomes increasingly reliant on renewables enroute to decarbonisation.

However, with wind projects only starting to materialise and solar making up a mere 5 per cent of Cambodia’s power mix, there is ample opportunity for both wind and solar to expand without jeopardising grid operations. Countries can typically integrate up to 15 per cent of the electricity mix with wind and solar generation with only minor changes to the grid.

Moreover, achieving its 70 per cent renewables target will require Cambodia to limit its utilisation of baseload LNG-fired power plants. This will make it difficult for the country to commit to long-term LNG contracts. This uncertainty will challenge Cambodia’s ability to configure LNG infrastructure and the necessary contracts in a way that ensures both energy security and affordability.

Cambodia must scale its LNG project aspirations so that LNG-fired power does not put the government’s energy goals out of reach. Doing so would allow stakeholders to pursue LNG contracts and infrastructure plans that are best-suited to deliver Cambodia’s energy objectives.

This article was originally published on Dialogue Earth under a Creative Commons licence.

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