The remarkable change in LNG: An interview with White & Case

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Paul Griffin, Special Advisor, Oil & Gas, White & Case LLP
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In recent years, the natural gas and LNG industry has grown from strength to strength and regularly welcomes positive developments and outlooks. Most recently in the EIA 2018 Annual Energy Outlook, it was reported that most new electricity generation capacity will be natural gas/renewables after 2022 thanks to the low natural gas prices.

With the 2018 Gastech Exhibition & Conference taking place 17-20 September, Gastech Insights spoke with Gastech Governing Body Member and Special Advisor, Oil & Gas for White & Case LLP, Paul Griffin. Read the full interview below to discover the more on the industry, including how projects can continue to instil confidence into stakeholders and investors.

Gastech Insights: In your book, ‘Liquefied Natural Gas: The Law and Business of LNG’, you provide insights into the legal, regulatory and political elements of today’s LNG business. How have these evolved over the last decade?

Paul Griffin: When we were planning the first edition of the book in 2005, we were mindful that nothing like this had been published before and we looked to address what were then the broad issues applicable to the international LNG business.   Having addressed the structuring and financing of LNG projects, LNG shipping, long-term sales arrangements and trading, LNG disputes and regulation, we considered that the book would remain relevant long after its publication in 2006.  It was remarkable how quickly things evolved and talk turned to the need to update those chapters, but more particularly to develop new chapters to cover the changes taking place.  By 2011, a new edition was underway with re-written versions of those first chapters and new ones to cover price reopeners and arbitrations, unconventional gas for LNG, floating LNG -  and US LNG import terminals! 

Thoughts of putting that second edition on the shelf were also dashed within a short time.  The rapid change of the technology, markets and practices of the LNG business resulted in the publication last year of a new, third edition.  Again, this included updates of the earlier chapters (but not the one concerning US LNG import terminals …) and new chapters to reflect the changes: challenges of upstream joint ventures, breach and termination of LNG SPAs, price reviews in practice, portfolio LNG, small LNG, and no fewer than three chapters to address the changes to LNG financing!

So yes, quite an evolution.

Gastech Insights: With the energy transition underway, what will the new low-carbon order mean for the natural gas and LNG industry?

Paul Griffin: The declaration of the United States to withdraw from the Paris Agreement may have created doubt in relation to the implementation of those arrangements, but the role of natural gas and LNG as a bridge fuel towards a lower-carbon future seems undoubted.  Natural gas and LNG are displacing coal and oil consumption in the large consumer markets of China and India, LNG has been introduced to the energy markets of new jurisdictions such as Pakistan and the Philippines, and the terms of new LNG supplies from the United States are undermining existing long-term arrangements. Whereas these developments may be positive for gas overall, they are nevertheless contributing to gas market uncertainty, and risk for those with existing contractual arrangements and market positions.

For an industry that was for so long comfortable, or cosy even, the pace and scale of change in the international LNG business over recent years has been remarkable.  An innate resistance to change has been tested by the development of aggregators, the influence of commodity traders and moves towards floating facilities and smaller-scale developments. What were once the predictable provisions of a long-term LNG sale and purchase agreement and the connected links in the LNG chain have been largely undone in many areas.

There are two main areas in which the traditional models are shifting. The first is the way in which LNG is bought and sold, and the second is the way in which developments are financed. And there is perhaps a third. At a time when there are growing difficulties in achieving binding yet flexible contractual provisions under long-term sales and financing arrangements, some have been turning to the traditional, if temporary, palliative of joint ventures. More interestingly, some have been pursuing a model of aligned participations as producers, lenders and off-takers. This integration reduces the dependency on contractual arrangements and the rule of law as the means of managing the risks along what used to be the LNG chain. And whereas this approach might once have been the exclusive province of state-affiliated entities, there are now emerging examples of these “structural” approaches being promoted for broader participation.

Gastech Insights: In your opinion, what can LNG projects do to instil confidence with key stakeholders and investors?

Paul Griffin: Whether looking at the well-being of existing projects or the entry into new ones, this confidence is both vital and elusive. LNG projects have traditionally been long-term and have enjoyed benign markets and circumstances.  This is no longer the case. The certainty of performance and returns sought by stakeholders and investors are increasingly at risk. The governing laws of these projects will rarely allow for contracts to change as circumstances do and the management of risk is moving increasingly towards flexibility of contracts and project structures. Arrangements are becoming shorter-term, commercial flexibilities are being enhanced and joint ventures or combinations are emerging as means of adapting inflexible structures to changing circumstances. And whereas material disputes were once seen as rare and unwelcome in these relational arrangements, they are now planned for and their effective management is as much a commercial matter as the quantities and the price are.

Gastech Insights: As a member of the Gastech Governing Body, what are you most looking forward to at Gastech 2018 in Barcelona?

Paul Griffin: This will be my first Gastech as a member of the Governing Body and I am looking forward very much to contributing to this excellent event.  I have spoken and participated at Gastech for some 20 years and it is a gathering I particularly look forward to. The conference is held in a significant centre for the gas and LNG business and I am sure that it will, as ever, attract a broad and diverse gathering of those from all parts of the global gas and LNG business. For my part, I am particularly relishing the keynote presentations and the commercial sessions, as well as the society of the exhibition area and the social events which decorate the formal proceedings.

If you would like to hear more on the latest natural gas and LNG industry developments register for Gastech 2018 today and hear market experts share their expert views. 

Image courtesy of Shutterstock / Oleksandr Kalinichenko