*This article was contributed by Mary Hemmingsen when she worked at KPMG as Partner, National Sector Leader, LNG, Power and Utilities.
LNG markets are rapidly evolving, accelerated by a sustained period of oversupply. A wave of new supply and supply options are combining with uncontracted volumes to drive prices down and in a price-driven market, cost competitiveness is key. Asset operators and investors need to take steps across their portfolio to ensure full cost competitiveness.
The key trends are impressing the need to focus on cost competitiveness given increasing buyer price sensitivity and pressure on seller margins:
A relentless focus on asset performance is increasingly needed. This means going beyond continuous improvement programs to achieve step change improvements in lower capex and opex as well as maximum possible throughput.
A starting point to understand exposures and opportunities for required cost and competitiveness improvements is to benchmark performance. Looking at simple quartile performance levels relative to benchmarks on a landed cost basis and a variable operating cost basis can create a compelling call to action.
On the asset front, significant opportunities to improve asset performance are in opex savings, margin improvements and incremental utilization opportunities that have been proven in downstream businesses. The performance improvement prize is large. Based on KPMG work in the sector, suppliers have the opportunity to achieve 20–35% unit operating cost improvement in LNG assets.
Across LNG asset portfolios, further cost improvement opportunities exist in the following areas to add further cost efficiencies of at least 5% of the total procurement spend and/or support function spend:
And beyond improving cost competitiveness in rationalizing and reducing operating costs, there are also a number of steps across an LNG asset portfolio to ensure fuller cost competitiveness. These include:
The current supply glut and ongoing supply competition puts a priority on maintaining, creating and accessing markets. To survive and thrive, suppliers need to improve margins and/or utilization and increasingly, to focus on broader competitiveness and within the value chain. The imperative is not only for asset operations and project developments to improve cost competitiveness, but also in extending positions to include downstream customer value. This requires reorienting and reskilling to focus on customer- centric competitiveness backed by world-class operational efficiency.
Share your insights and join the conversation: How will ensuring cost competitiveness on projects improve the industry as we know it? Leave your comment below.
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