The CWC Group held the 4th World LNG Series: Asia Pacific Summit in Singapore on 10 - 13 September 2012. LNG market fundamentals are evolving and changing the ways companies will extract value from the business over the next ten years. The expected growth of LNG demand in Asia is being revised upwards each year and with expected strong regional pricing, the Asian market remains the premium market for suppliers. These trends have triggered a very positive response from suppliers and there are some 44 new LNG projects under development (unrisked this amounts to 271 million tpa of potential new supply). Most projects are targeting Asian markets and will have to compete with existing projects that can divert their LNG supplies to Asia. Given that the current estimate of the Asian demand gap in 2025 is of the order of 155 million tpa, it is clear that not all of the new projects will succeed and it will become the survival of the fittest.
On a risked basis, an average new supply growth rate of 5% pa was generally assumed in 2015 - 2025, making LNG a faster growing industry than other gas. It is quite likely the growth rate will not be linear. New supply projects are more complex, more costly and taking longer to develop than in the past. Also, with robust gas demand growth and high prices, pipeline projects developers will look to find new ways to compete with LNG wherever possible.
In the short term, there is little new capacity coming on stream in 2012 - 2014. Further out, several new projects in Australia appear to be suffering delays and there is firm medium-term demand assumed out to at least 2016. The Asian market is expected to balance with LNG diverted from the Atlantic Basin (approximately 18 million t moved in 2011 and 12 million t has moved in the first half of 2012).
As the business grows, it is expected there will be some reshaping of the region’s commercial business models and LNG pricing trends, as the growing community of buyers and sellers adapt to compete and strive to succeed.
Geopolitics will be pivotal to the region’s development. This will include key decisions taken at the highest levels of governments that will direct the outcome and the impact on the Asia Pacific LNG business. These include: Japanese nuclear policy, US gas export policy, China’s development of unconventional gas and India’s gas market reforms.
New buying and selling characteristics (particularly from the US) will bring a new suite of risks that need to be managed. Although several delegates saw the traditional models enduring for some projects, others expect that new US liquefaction tolling models, new trade flows, and more short-term sales and more liberal commercial terms will inevitably start to emerge.
In summary, the region is still the bright star of the industry. Tomorrow’s world looks likely to offer more potential supply options and more competition between sellers. Whereas this looks good for buyers, these choices are quite different in their contractual and operational risk profile and need to be thought about in the context of buyers’ demand and flexibility requirements.
A proliferation of new supply projects with different business models will bring new choices, but buyers are going to have to build and manage a diversified portfolio of supply in order to achieve an acceptable level of risk and reward in their LNG supplies.
Written by Pat Roberts, Associate Director – Gas, CWC Group Ltd