Strategic advice for LNG producers, buyers, traders and governments

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Mary Hemmingsen, Partner, National Sector Leader, LNG, Power and Utilities, KPMG
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The transformation of the global LNG market combines three key trends:

  • The LNG market is globalising as the numbers and types of buyers and sellers expand
  • Pricing models are changing under the stress of increased supply and lower energy prices. Low prices destroy supply, but price has to be competitive to create demand. Prices are set to converge between the major markets, while new pricing nodes may emerge.
  • There are major uncertainties over supply. There are many possible new projects, but their progress depends on anticipated demand and price levels, and on the capability of sponsors to see them through to completion.

These trends lead to key strategic considerations for each part of the market as follows:

  • LNG producers: Project developers need to decide when the window for new investment decisions will open. Meanwhile, they need to focus on reducing capital costs, sharpening project delivery capability and seeking out synergies, to give their LNG plans the best chance of success. They may trim their portfolio of undeveloped resources, but need to hold on to their best growth prospects.
  • LNG traders: New supply offers new trade routes, as well as different pricing bases. If they decide to own a stake in physical assets, they need to ensure it adds real value, including information, and does not result in over-exposure to commodity price risk.
  • Governments: Lower prices and intensifying competition between jurisdictions put more stress on resource holding governments to facilitate LNG projects’ progress, while still achieving community, fiscal and environmental benefits. Regulatory and taxation frameworks designed for a high price environment may need to be rethought.
  • LNG buyers: The lower price gives LNG buyers the chance to rebuild their end-user markets. They need to be competitive against coal, in both Europe and Asia, as well as competing pipeline gas. Asian and some African countries have the opportunity to complete the displacement of oil in industry and power generation, build out gas-using infrastructure, and create new demand. They also have the chance, at reasonable prices, to take minority stakes in existing and future projects, building vertical integration and a portfolio hedge. But LNG buyers need to choose carefully for future supply, from robust projects with the best chance to reach FID and be delivered on time.

Join the Conversation: Do you agree with Mary? Let us know your considerations for LNG sellers, buyers, governments and traders below.

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