The impact of lower oil prices on LNG players in Asia

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Henning Gloystein, Energy Editor, Reuters
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The following is a transcript of an interview between Gastech News and Henning Gloystein, Energy Editor at Reuters in Singapore. Henning talks about the impact of low oil prices on LNG buyers and sellers in Asia and how the industry can develop a stronger LNG market under current circumstances.

Gastech News: What is the impact of lower oil prices on LNG players in Asia?

Henning Gloystein: The first thing to mention is that most LNG long-term contracts are linked to the price of oil. Therefore, for the big sellers – such as Australia - who have just started production, it means low revenues. The problem is that you basically have upfront investments of several billion dollars, take the Gorgon energy project in Australia for instance, which cost probably around 50 billion US dollars. So, a 60 percent fall in oil and gas prices essentially means that their revenues get eroded. On the buy side of course, it means that you have many more options: there is a lot of supply coming in and it is a lot cheaper today than it was just a year ago, so it creates opportunities.

Gastech News: What are the challenges to overcome in order to develop a stronger LNG market in Asia?

Henning Gloystein: Probably the most important thing that you need to develop in any key market is a sufficient amount of energy players. Currently the LNG market, especially in Asia, is dominated by a very small number of large producers. These are the supermajors; TotalExxonMobilShellBG and a few others. As well on the buy-side, you have some major utilities, especially from Northern Asia, Japan and South Korea, but that’s not sufficient to create a liquid market.

In effect, what you need is a decent amount of small and mid-sized players. Without a decent amount of small players, you cannot create a liquid market. Finally, you need excess supplies. That has not happened in the last 5 years and that’s why there was no liquid market in LNG in Asia. This is beginning to change, and there is a lot of LNG coming to market in the next 2, 3 and 4 years which will enable liquid spot trading.

Gastech News: Do you think LNG will realistically replace coal?

Henning Gloystein: I don’t think it is a measure of replacing coal, but instead (probably) we are talking more about increasing competition with coal. It is often forgotten today that whilst most people in public say they don’t like coal, coal is by far the dominant fuel for power generation around the world, particularly in Asia.

There are some countries, China for instance, where almost two thirds of the entire energy demand is met by coal, so it is not just electricity. The same applies to India and quite a few other countries. So, the core issue is that LNG and natural gas as a whole is there to eat into the share of coal rather than replace it entirely. The main reason for this is that coal remains cheaper for electricity generation than natural gas, and if you are a poor nation where most people still require electricity, low price trumps clean fuel.

Thursday, 29th October - Henning Gloystein, Energy Editor Asia at Reuters will be presenting at Gastech Singapore. View the conference programme.

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Do you agree with Henning? What is the impact of lower oil prices on LNG players in Asia? Leave your comment below.