Remodelling the LNG markets

Survey results conducted by Deloitte across 20 LNG market participants from Australia, China, India, Japan, Malaysia, Singapore, the UK, and the US.

Over the last decade, the global natural gas supply industry has begun to move away from its traditional integrated model where major producers developed large, often stranded gas fields, built large liquefied natural gas (LNG) facilities and sold the cargoes to mainly large utilities.

Remodel, reinvent: What’s next for LNG?

Population growth, increasing economic prosperity in developing nations, government regulation and actions focused on improving air quality will drive demand for lower-carbon energy globally. As a result, LNG will command an increasing share of the global fuel mix given its lower-carbon footprint and its ability to flexibly supply increasingly diverse markets, customers and applications - ranging from power generation to marine and land transportation. Based on our survey, respondents expect consumption to increase in the Asia Pacific region over the next five years, most notably in China and India, with the bulk of new supply coming from the US among others. However, with respondents expecting spot and short-term contracts to grow (along with small-scale and floating LNG), the market could become increasingly fragmented and difficult to finance.

Why is that? Many recent projects have been financed by project-level debt that required long-term sales and purchase agreements. We have seen some equityfinanced projects announced (e.g., LNG Canada), but it remains to be seen if that will be replicated elsewhere. Additionally, US export growth has been driven by tollingstyle agreements that may not be readily adaptable to other countries.

Now is the time for companies to evolve and adapt to keep pace with market changes. Moreover, new technologies ranging from big data to blockchain could be used to reduce costs, improve logistics and simplify transactions. The next five years will be a challenging and dynamic period for LNG producers, traders and buyers as they navigate a rapidly evolving market and adapt new technologies and business models.

One thing is certain, the global LNG industry will continuously remodel and reinvent itself in order to deliver energy to a rapidly growing and changing world.

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