LNG sector faces trading risks amid ‘tidal wave’ of supply

Liquefied natural gas producers need to develop a new range of trading and risk management skills to

navigate their way successfully through the next several years of market oversupply, according to

experts at professional services firms.

Deloitte says producers will need to become adept at selling and trading LNG as the market shifts

further towards spot and short-term trading and as a “tidal wave” of gas hits the global market,

encouraging new buyers into the sector.

Alex Georgievski, a specialist advisory partner in energy trading risk management, said that as the needs

and demands change of new and existing customers, “it is imperative that Australian producers adapt to

the new model of selling and trading on spot and short-term terms”.

In a report to be released on Monday at the Australian Petroleum Production & Exploration Association

conference in Brisbane, Deloitte is forecasting a major shift towards shorter-term trading in LNG, in a

market that has traditionally been anchored in long-term supply contracts, sometimes lasting 20 years

or more.

Consulting partner Jamie Hamilton said that spot and short-term LNG trading would increase during the

next six years as much as it had over the past 14 years.

Thanks to new projects starting up across Australia and the US, the sector will, on average, see a new 4

million tonne LNG train come online every month for the next two years, sending the market into a

prolonged period of oversupply and lower prices. The shift in the market has handed more power to

LNG importers, who are demanding more flexible terms and conditions for delivery and pricing.

Challenges ahead

Several Australian companies have acted to prepare themselves for the transformation, with Woodside

Petroleum developing an LNG trading operation, and Origin Energy moving to position itself as a trader

as well as producer.

Mr Hamilton said the challenges ahead for the LNG sector compared to those faced by iron ore

producers last decade. He also pointed to the experience of the Queensland LNG ventures in advance of

the start-up of their plants when they were trading gas into the power generation and other domestic

gas markets.

“There is experience there but it has not necessarily been in LNG,” he said.

Accenture is forecasting LNG will remain a “buyer’s market” globally for the next five to 10 years,

requiring producers to adapt now to increase their competitiveness, said the firm’s managing director

for energy in Australia, Bernadette Cullinane.

She said local LNG players needed to rethink operating models and invest in new technologies, including

digital, to help drive down costs and improve productivity.

Ms Cullinane said that as the recent $200 billion wave of construction in new projects neared

completion, Australian LNG companies should move from focusing on tackling costs in project execution

and start looking at changing the fundamentals of business to improve supply chain economics.

That would include co-operating on maintenance schedules and working more closely with services

companies to help achieve the sorts of cost reductions seen in the US onshore shale sector, as well as

finding more creative ways of cost effectively sourcing gas for LNG projects.

In the US, onshore gas producers have achieved cost reductions in well costs of more than 50 per cent in

the last couple of years, well above what has been achieved here.

“Australian companies have really not been able to move the needle so much, maybe improving well

costs by 20-25 per cent,” Ms Cullinane said.

Accenture last year estimated the potential boost to Australian GDP in 2020 from the LNG sector at

more than $55 billion. Ms Cullinane said that while the country is clearly rich in gas resources and had

the potential to be a world leader in the sector it was at a “critical point” in its development.

Source: Sydney Morning Herald

https://www.hellenicshippingnews.com/lng-sector- faces-trading- risks-amid- tidal-wave- of-supply/