[NGW Magazine] Editorial: Blurring the buy-sell divide

As the 400mn metric tons/year global LNG market approaches, a lot of new liquefaction projects are looking to take the final investment decision – but cannot quite make it. Based on presentations at the CWC conference in Lisbon, the rate of increase in new supply will almost certainly outpace the growth rate in firm LNG demand globally for another five years.  

Qatar and Nigeria LNG talked up their ability to produce and deliver LNG at low cost – with cheap wellhead gas and brownfield expansions. But both have multiple long-term contracts coming up for renewal in the next few years.

Nigeria LNG talked up its plan to develop a new 7mn mt/yr Train 7 and that will be on top of its need to sell another 9mn mt/yr as contracts come up for renewal or lapse between 2020-23. One of the larger of these is with Italian utility Enel that two decades tried unsuccessfully to cancel it. NLNG’s reliability, and role as a short haul supplier to southern Europe, will count in its favour among such utilities. But they may prefer to renew for five, rather than 20, years and will have an eye to the smorgasbord of alternative suppliers with a variety of pricing offers.

This changed reality is even more true for Qatar where - at the same time as outlining plans this April to expand LNG capacity by 30% to 100mn mt/yr within the next five to seven years -- the existing Qatargas and RasGas marketing ventures (being amalgamated by controlling parent Qatar Petroleum from 1.1.2018) must remarket millions of tons of LNG term contracts in the next few years, predominantly with east Asian buyers. Many are to Japanese offtakers who feel QP was less than flexible on pricing after the Fukushima disaster of 2011.

In Japan, the government will no longer tolerate new contracts that include restrictive clauses – such as bans on resales, or destination restrictions – and a similar outlook can be expected from authorities, and the companies themselves in Korea, Taiwan and China. Hiroki Sato, senior executive vice president at Jera – the world’s largest LNG buyer, which is a joint venture of Tokyo Electric and Chuku Electric – told a panel in Lisbon chaired by Tellurian vice-chair Martin Houston that he was wary of how, at a time when big producers like Shell and Total are taking over smaller competitors, and Qatar wants to increase its production, there seems to be increasing fragmentation among buyers. 

In Asia, where there are some 60 buyer companies, there could be 80 by 2020, said Sato, noting: “I hope Tokyo Gas has a similar consolidation [as Jera] – to become a ‘buyer tiger’ fighting for consolidation.”

In Lisbon, a variety of US LNG promoters, from existing and expanding exporter Cheniere, to would-be exporters Tellurian, Venture Global, Next Decade all pointed to how US shale gas is expected to grow, guaranteeing lower cost LNG than from rival brownfield ventures from west Africa to the Middle East, and greenfield ones that may advance in the 2020s in places like east Africa and western Canada. Technology and versatility are also stepping up to the mark as new, ingenious ways to deliver and regasify LNG are called into being out of necessity. Mega plants are over, but there is no shortage of new approaches to bring LNG to archipelagos or coastal communities far from a trunkline and otherwise condemned to dirtier hydrocarbons.

At the back of people’s minds though was that just one LNG export project took FID this year: the Coral floating LNG project offshore Mozambique – and that another due to have taken FID this year (Fortuna offshore Equatorial Guinea) has slipped to 1Q 2018. Those Chinese banks, whose ambition garnered praise from the project operator Ophir in May, have apparently made their excuses and left. Producers seeking market growth will be encouraged by two factors – strong growth in  emerging markets like Pakistan and future ones in Bangladesh, west Africa and the Caribbean – as well as new transport niches such as marine and automotive fuel.

The transport markets however are not expected to reach much beyond 30mn mt worldwide by 2025, and that will be made up of lots of incremental growth pegged to specific needs. 

Producers are therefore making heroic assumptions about new entrants. Pakistan LNG chairman Iqbal Z Ahmed told delegates that the government expects import capacity to reach 30mn mt/y by 2020-22, from just 10mn mt/yr from two terminals now operating – for power generation. That would make Pakistan as big an LNG market then as South Korea is today.

Pakistan symbolises the way that huge markets can develop almost overnight. Producers overlook, perhaps, that Pakistan’s intended third project collapsed in recent months, after first Exxon then other buyers pulled out.

Ahmed pointed out that trader Trafigura has been prepared to be an equity investor in Pakistan Gas Port, which he described as “the first purely merchant LNG import terminal to be under development anywhere in the world.”

Given though how promising LNG markets like Egypt can flip into self sufficiency thanks to one giant find, some of the IOCs and traders may need to take more equity in downstream projects to open up markets – something that shipowners like Golar and Hoegh have already learned. This looks like remaining a buyer’s market for the foreseeable future – in which case the producers need to have a foot on that side of the fence too. 

NGW