Growing volumes of US LNG exports over the coming years will see an increasingly flexible and liquid market with greater optionality for the buyer and more sophisticated ways to hedge risk.
Ahead of the upcoming EAGC & CEE taking place 7-9 November in Berlin, Gastech Insights spoke with confirmed speaker and Vice President Strategy at Cheniere, Andrew Walker, to discover more about LNG imports into Europe and how the market is evolving.
Gastech Insights: What are the challenges facing the US LNG industry and how has Cheniere overcome those to be the first and largest exporter?
Andrew Walker: The key initial challenge for US LNG exports was creating the business model; having the vision to see that the developments in unconventional gas production occurring in the US at the time could be on a scale and at a cost that could make LNG exports viable. Once that vision had been created it was about selling the vision and then delivering on the projects. At the time the vision was being sold I was with BG Group, who ended up being the first long-term buyer from Cheniere. So all I can say is that Cheniere were clearly successful in selling the vision to us at the time!
Gastech Insights: Can you give us a brief update on the progress of the new projects at Sabine Pass in Louisiana and Corpus Christi in Texas?
Andrew Walker: We currently have four trains in operation at our Sabine Pass liquefaction project in Louisiana, with a total production capacity of 18 mtpa. We have a further four trains under construction, one at Sabine Pass, and three at Corpus Christi Liquefaction in Texas. When all eight trains are operating we will have a total production capacity of 36 mtpa, putting us in the top five in the LNG industry in terms of volume of LNG sales. But we are not stopping there. We have a sixth train at Sabine Pass which is fully permitted and being commercialized, and we are currently permitting the next expansion phase at Corpus Christi.
Gastech Insights: You announced a long-term deal with Vitol at Gastech. What has attracted traders to the LNG market?
Andrew Walker: Traders are attracted to commodity markets where they can profitably intermediate supply and demand. The banks and trading houses have in the past tried a number of times to build LNG trading businesses, but were unsuccessful, largely because the LNG market wasn’t liquid enough to accommodate their business model. The fact that the combined activity of the four main trading houses active in LNG grew from almost nothing in 2014, to 28 mtpa last year, shows that the market has in recent years finally become flexible and liquid enough for them to successfully trade in it. We were very pleased to announce our recent long-term deals with two of the four: Vitol and Trafigura. It seems even traders need some structured, long-term deals in their portfolios.
Gastech Insights: Why are contracts now being done on an FOB basis?
Andrew Walker: Our initial sales were made on an FOB basis. But we are happy to sell on an FOB or DES basis. It is down to the preference of the buyer and whether they want to undertake the shipping component of the chain – or want to leave that to us. Some of our recent long-term sales have been on a DES basis. We have also managed the delivery of the commissioning and pre-commercial volumes from the plant, as well as our own volumes, which has meant that at times we have had as many as approximately 25 ships on charter at a single time.
Gastech Insights: Is there any reason to use a Gulf Coast price specifically based on LNG deals rather than Henry Hub, which is based on pipeline gas?
Andrew Walker: Henry Hub represents the value of gas in the US market place – which is relevant if you are buying the gas as a feedstock for LNG. A Gulf Coast LNG price will represent the value of a cargo in the global market place, which is relevant if you are buying or selling LNG cargos. These two prices can obviously diverge. My guess is that different players will have different appetites to take the risk, and reward, associated with taking a position across those two prices. Some would like to manage that position and see an opportunity – others may not.
Gastech Insights: How do you see spot market liquidity developing, and what hedging tools will be available?
Andrew Walker: The growing volume of flexible Gulf Coast US LNG that is coming online over the next two to three years will undoubtedly result in growing flexibility and liquidity. As liquidity grows we will see an increasing number of risk management and hedging tools develop. This is natural. The Platts JKM swap is a ‘case in point’. This has grown from almost nothing in 2016, to a volume of over 20 mtpa year-to-date in 2018.
Gastech Insights: You are speaking at the EAGC conference in Berlin next month. Why should market participants attend?
Andrew Walker: The EAGC always has a diverse and interesting programme - with a particular European focus. And this year, as you might expect with its German location, it has included more on the role of gas in the global energy transition. It is also a good conference at which to network with the ‘movers and shakers’ of the European Gas and LNG markets. So why should market participants attend? To broaden their knowledge, make new industry contacts and catch up with old friends. See you there!
If you would like to hear more from Mr Walker, register to attend EAGC | CEE, 7-9 November in Berlin to hear the panel discussion on ‘LNG imports into Europe? How will Asian marker development impact pricing and availability?' Do not miss out and book your place today.
Image courtesy of Cheniere
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