[Premium] Asia Holds Aces for LNG Oversupply, Singapore Conference is Told

Gas demand could grow rapidly in Asia as it becomes cheaper, with the generally-shared view that until 2024 there will be more sellers than buyers, delegates heard at the CWC LNG conference in Singapore September 20-21. Not only is more LNG coming to market from the US and Australia, but also there could be a total of 20mn mt/yr of LNG long-term contracts with Japanese buyers expiring in a few years' time.

But there are major unknowns, such as how much demand will grow in China, and how fast will renewable energy grow, among others. And low oil prices reduce the incentive to switch from the known to the unknown.

LNG buyers will have the chance to negotiate for a more flexible, trader-friendly future, while LNG upstream operators will have to co-operate more on shipping in order to cut their costs. They must also create downstream demand through bunkering and other initiatives. And if banks are to see this industry as a money-spinner in the future, new indexes or a less risk-averse position will be needed, as contracts will shorten and payback periods possibly lengthen as all the free lunches that the boutique industry used to supply come to an end.

Panel sessions heard of new indexes and trading instruments, including the joint launch this week by Tullett Prebon and the Singapore Exchange of a financial swap for Dubai, Kuwait and India LNG. The instrument's author, Tullett Prebon's global head of LNG Melissa Lindsay, said that LNG cargoes now trade daily compared with once or twice a week. A conference such as this would in the past have tied up traders so that nothing transacted, she said, but that was no longer the case with trades going on all week. Nevertheless there is some inertia and the lack of standardised term sheets for physical trading remains a hindrance to faster activity and churn.

The trading community itself has mushroomed, from a half dozen companies in Singapore a decade ago to over 40 today.  Vitol LNG trader Sid Bambawale, based in Singapore, told the conference that sharing information was essential, and was a big change in company behaviour. Another big change would be if Qatar were to auction off an LNG cargo each week. "They are going to be producing more and they could change their behaviour," he said.

Australian producer Origin Energy's LNG portfolio manager Samuele Ravelli said that there was no incentive for incumbents to share their information yet; however when prices really fall, that too could change. He said too that trading was moving more and more into the prompt, as traders wait until the last minute before committing. He also said that if a market with the geographical size of Europe had as many indices as it does, then Asia needed more than one. Origin Energy has a 37.5% interest in exporter Australia Pacific LNG (APLNG).

Concluding the trading panel session, LNG-Worldwide's Pat Roberts said that while "you may not get what you deserve in life, you do get what you negotiate," and told the LNG buyers in the room that they would find their sellers listening very closely to them. However she predicted a fairly messy few years ahead in the market.

William Powell