For the gas industry, I believe there are four notable trends which will take place and develop in 2018:
1 - Increasingly dynamic gas pricing
Throughout 2017 we have seen commodity prices rising and gas prices have followed this trend, being dragged up by rising oil and coal prices as well as various supply and demand issues more specific to gas.
In 2018, the role of oil, which is at recent highs, will continue to play an important and influential part in global LNG pricing. If oil comes off there will be more downside risk to the gas price, given the increase in expected supply of LNG this summer. Whereas, if we see oil prices rise above where they are now, there could be less pressure on gas prices in the summer across all regions, particularly in Europe given the market has a lot of available LNG import capacity.
2 - Consolidation and corporate change
In 2017, we have seen quite a few corporate take overs, mergers and acquisitions in the gas and energy industry, which will continue in 2018. This is because companies are looking to adjust their portfolios to be better placed for the impending energy transition. In the upcoming year, we will see companies become more gas and customer focused, invest more in technology, become more environmentally friendly and focus on new business models.
In terms of new business models, I think we will see gas companies who have traditionally been looking at long term contracts and sales become more flexible and look towards shorter term and more customer focused deals. The change in contracts will allow the companies to be better placed to sell volumes in a market which is long supplied. Ultimately, I believe there will be a lot of corporate change to come in 2018, especially in Europe, Asia and the US.
3 - Increasing globalisation of gas markets
In 2018 I can see gas pricing in all regions becoming increasingly driven and influenced by Henry Hub due to the increased volumes of uncommitted LNG being produced in the US. The Henry Hub influence is likely to increase the need for price risk management and currency risk management as players seek to manage the increasing impact the US$ has on their gas purchasing in Europe.
Some of the newer players of LNG trading who have emerged in recent years will continue to increase the amount of transactions they do and seek to offer new market opportunities for new buyers of LNG, which hasn’t necessarily happened in the past.
4 – The change of LNG usage
I think the most likely change to the usage of LNG will happen in the shipping industry, where the market could become a major buyer of LNG for large scale ships but also for ferries and smaller scale ships.
Although this will not transform the market in 2018, I believe it will continue to grow as more companies will look to have LNG kit on their ships rather than oil burning kit. However, to lead to significant change in the long-term we will need to see legislation and policy drivers on emissions from ships become a lot more sever before we see any transformative change.
Share your insights and join the conversation: Can you identify any other key industry trends to watch in 2018? Leave your comments below.
This piece was written in November 2017 at the European Autumn Gas Conference.
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