Page 5 - GLNG Week 41

GLNG COMMENTARY GLNG
Japan. And some of them, like India for instance, will surpass both Korea and Japan sometime in the next, I’d say, 15-20 years.”
Uniper’s chief commercial officer for LNG and global origination, Peter Abdo, noted that a lot of the new LNG demand was industrial, which was a different sector and business model from what the LNG market was traditionally used to.
This is backed up by the International Energy Agency (IEA). Speaking at the LNG Produc- er-Consumer conference in Tokyo in late Sep- tember, the IEA’s executive director, Fatih Birol, said the industrial sector was Asia’s biggest driver of LNG growth.
“The biggest growth is coming from China,” Birol said. “In the next five years, about one-third of global LNG demand will come from China alone.”
And concerns over a recession and other headwinds are not stopping LNG suppliers from betting on this demand growth.
The IEA estimates that over 170bn cubic metres of natural gas liquefaction capacity is due to take a final investment decision (FID) this year, far surpassing the previous record of 70 bcm in 2005.
Obstacles
There are certain obstacles to overcome, how- ever, including the fact that LNG spot prices have more than halved since last year. This is causing some buyers to turn to the spot market
ahead of signing new long-term contracts. Most recently, on October 16, Reuters reported, cit- ing sources familiar with the matter, Pakistan cancelled a tender to buy LNG over a 10-year period. Instead, the country may turn to the spot market, according to the sources, who said there had been inadequate demand during the tender process. This is despite the fact that Italy’s Eni, China’s PetroChina, Azeri state oil company SOCAR and commodities trader Trafigura had reportedly placed offers into the tender, accord- ing to other sources cited by Reuters.
This shift away from long-term contracts is causing liquefaction capacity developers to reconsider their business models as well – those speakers at the Oil & Money conference noted that long-term contracts continued to make up a larger proportion of sales.
And as the global economy slows, it will become all the more important for LNG suppli- ers to offer the fuel at the lowest possible cost in order to remain competitive.
Santos’ Gallagher said that in response to these trends, he expected Australia’s LNG future to lie in smaller brownfield projects, with few – if any – new greenfield projects being built after the first wave. These projects can be equity-financed rather than relying on long-term contracts, which he said would allow his company far more flexibility in how it can market its gas across the Asian region. He said he remained confident of Australia as a supplier in this changing market, especially to Asia.™
This shift away from long- term contracts is causing liquefaction capacity developers to reconsider their business models.
Pakistan has reportedly cancelled a tender to buy LNG over a 10-year period.
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