THE KEY TAKEAWAYS FROM THE SUMMIT

Transcription

1 THE KEY TAKEAWAYS FROM THE SUMMIT THE 9TH CWC WORLD LNG & GAS: ASIA PACIFIC SUMMIT BROUGHT TOGETHER OVER 350 PEOPLE FROM ASIA AND GLOBALLY. THE GLOBAL LNG BUSINESS IS IN A MAJOR TRANSITION AND THERE ARE VARIOUS VIEWS AS TO HOW THE INDUSTRY MAY DEVELOP IN THE LONGER TERM. THIS REPORT REFLECTS SOME OF THE KEY INSIGHTS I DREW OUT OF THE MASTER CLASSES AND THE TWO- DAY SUMMIT. YOUR MOVE ASIA!

2 : NEW LNG DEMAND IS A SPECTRUM FROM BIG COUNTRY GROWTH TO FRAGMENTED, DISPERSED, SMALL NEW MARKETS Presented/discussed at the Summit China expected to have biggest single country growth (26Mt imported in 2016 rising to ~ 75Mtpa by 2025) Pakistan (PLC) projected 15Mtpa (power gen constrained) and 30Mtpa (unconstrained) and build of 4-5 regas terminals India demand ~ 30-40Mtpa by 2020, but very price sensitive Indonesia - driven by distributed gas to power in central and Eastern Indonesia, but also includes industrial and transport sectors New Asia - fastest growing energy sector. Several demand centres are small. Buyers not used to buying LNG and its commercial terms Presented by Stephen Thompson, Manager LNG & Gas - Asia Pacific, Poten & Partners Presented by Kerry Anne Shanks, Head of APAC Gas and LNG Research, Wood Mackenzie Presented by Adnan Gilani, COO, Pakistan LNG Limited KEY INSIGHTS 1. The global LNG industry is highly dependent on Chinese LNG growth for scale and speed of growth. Need to recognise that China does have alternatives to LNG, so price and commercial terms have to be attractive to maintain sustained demand growth. 2. Pakistan LNG demand growth is a consequence of domestic gas depletion and reactivating stranded gas fired power generation assets. Demand range shown by PLC is based on extent to which gas fired assets are brought back on line and international investment in new regas. Clearly one to watch! 3. India has consistently posted high demand potential subject to price- but it will remain a price sensitive market. H-Energy proposed a short-term oriented business model with gradual expansion. Swan Energy proposed a pure tolling model. 4. Indonesia remains tantalising! Market development has been slower than expected, partly due to trying to reduce unit costs of gas imports/distribution. Fragmented demand needs some aggregation/ clustering of demand to reduce costs. 5. For most small-scale demand ( <1Mtpa), oil at <$60/bbl results in gas substitution for power gen, industrial uses and transportation being less compelling - this is slowing down development in the region. 6. Don t get complacent that this level of growth is inevitable. It will be hard work to open up some of the markets and a new attitude from sellers regarding redistribution of risk. In some cases, it is taking years to resolve.

3 2 FSRUS AND FSUS ARE PROVING TO BE THE PREFERRED NEW IMPORT INFRASTRUCTURE Presented/discussed at the Summit New FSRUs: getting bigger to accommodate larger ( ,000m3) ships Speculative FSRUs: 3-4 are available from owners which can speed up project development to ~ 1 year Asian FSRUs: fewer number on stream than in Middle East/Americas. Opportunity for catch up - particularly India sub continent and S.E Asia Innovation: GTT showed new FSRU + Power barge. Integrated units range from MW and can provide localised solutions Financing FSRUs: challenging to finance, but successful examples in Pakistan, Bangladesh and Indonesia (Gas to Power) FSRU LNG ProjectOpportunities From c. 50 planned FSRU projects, nearly 50% are in Asia Source: Gaslog Ltd, Presented by King & Spalding at the Pre-Summit Training Seminar KEY INSIGHTS Presented by Stephane Maillard General Manager - South East Asia, GTT Presented by Michael Lin Sheng Principal Investment Officer - Global Infrastructure & Natural Resource Group, International Finance Corporation 1. Up to 50 FSRU possible projects in Asia currently ( recognise that some are competing directly with each other for market). 2. Although new FSRUs getting bigger in response to world tanker fleet: 50% of the fleet is > 150,000m3, several start ups of FSRUs do not throughput at FSRU design capacity so demand creation initially is less. 3. There are less vessel conversion projects compared to new builds and owners are prepared to carry a speculative build to fast track near term demand for Gas to Power projects 4. Tolling models popular for new FSRUs. LNG to power projects are not necessarily best matched to the current criteria for for project finance but it is encouraging that various new projects are being successful. Finance panel did not rule out a merchant regas terminal could be financed, but stressed it will depend on where it is located (close to a large demand centre better), loan period (shorter the better) and the % equity put in by sponsors (higher the better) 5. FSRUs and FSUs are expected to continue to be the most attractive regas solutions for new projects throughout the Indian sub continent and S.E Asia 6. Larger sellers are responding to new market dynamics and are moving further downstream to invest in regas in order to secure long term demand ( eg Shell, Total, Engie, Qatar)

4 3 ASIAN BUYERS COMMERCIAL BEHAVIOURS ARE CHANGING: HOW TO PRICE LNG IN THE FUTURE IS A KEY ISSUE Presented/discussed at the Summit New attitude pushing for more flexibility; no automatic rollover of existing long term contracts Willingness to buy more short term/spot LNG for supply portfolio balancing, facilitating business development and 3rd party access New buyers switching to LNG have definite requirements for more operational flexibility (as evident with oil and coal contracts) Pricing LNG more complicated based on JCC, HH, NBP, JKM; established markers and new indices emerging: DKI, SLng, USGC FOB Presented by Naoko Kato Deputy Director, Oil & Gas Division, Ministry of Economy Trade & Industry, Japan Presented by Christopher Goncalves Chair & Managing Director, Berkley Research Group (BRG) KEY INSIGHTS 1. Flexibility is a key commercial bargaining point buyers are exerting pressure on sellers to concede more operational flexibility. The relative oversupply compared to firm demand (estimated at 50Mtpa by 2020) means more seller on seller competition and so expectation that buyer will be able to leverage more flexibility from sellers. 2. Estimated 60Mtpa of expiring term contracts before end 2020 globally- expecting some contracts to be rolled over, but generally shorter duration and lower volumes are being agreed. 3. Need for transparent price discovery is well recognised. Early efforts from Platts, JOE, SLX and GLX all contribute to this important requirement 4. Real time data/price information have increased. Yet several buyers struggling to compare various oil/ trading hubs /new pricing bases when they have to decide how to price new LNG contracts 5. Extremely important for buyers to remain relatively competitive in their end user markets, so it is possible that new DES pricing indexes will develop. Note CNOOC s interest in a Shanghai pricing hub

5 4 THE GROWTH AND THE EXPECTED CONTINUED GROWTH OF SPOT AND SHORT-TERM TRADING AND LNG TRADERS Presented/discussed at the Summit Spot and short-term trading could be Mtpa by This is between 40-50% of global LNG sales 24 Liquefaction trains (115Mtpa) starting up by end % of this is US production and expected to be traded spot and short term Market liquidity will soar & with it, will come more confidence for market participants to trade LNG. Will lead to growth in number of traders & the volumes they trade New level of activity will challenge the industry s ability to trade effectively - trading activity has to become more simple & effective Presented by Stephen Thompson Manager LNG & Gas - Asia Pacific, Poten & Partners KEY INSIGHTS 1. By end of 2020, an extra 200 cargoes per quarter will probably be traded spot or short term (2-3 cargoes per day) compared to today 2. Churn (re-trading of the same cargo) could reach a factor of 6-8, creating much more liquidity - perhaps extra cargoes per day versus today 3. Industry will need standardisation in trading contracts (and shipping charters) in order to cope with the level of activity foreseen 4. New pricing indices will be adopted provided they offer liquidity and transparency

6 5 PRE FID PROJECTS WILL NEED CONSIDERABLE INNOVATION TO MANAGE THE COMMERCIAL CHANGES COMING TO THE MARKET Presented/discussed at the Summit Medium term oversupply makes it more difficult for pre FID projects to secure 20 year off-take contracts or tolling agreements New initiatives for cost reduction - projects targeting liquefaction costs of $ /Mt, simpler designs Brownfield expansions will compete, notably Qatar can add 15-20Mtpa relatively quickly and cost effectively Financing for new trains needs innovation - shorter tenure of off-take agreements, redistribution of risk to make new projects more attractive to buyers. Presented by Nigel Kuzemko CEO, Steelhead LNG Presented by Jesse Lee General Manager - LNG Marketing, Mozambique LNG KEY INSIGHTS 1. Very tough environment currently - oversupply and growing spot market liquidity means several new projects deferred to a FID 2. Some portfolio players that supported first wave of USLNG are currently long USHH priced LNG and unlikely to commit to more in the short term. Asian market holds ~ 80% of expected global LNG demand growth to 2025, so new sellers have to find a way to transact with buyers for China, India, New Asia 3. If liquefaction costs can be structurally reduced, then prospect of 115% HH + 4$/MMBtu DES Asia could set the ceiling price for new LNG into Asia, since there is an abundance of NALNG projects which could be viable at these price levels. If this happens, the second wave of USLNG would be more cost competitive than the first 4. Positively, Coral (Mozambique) has taken FID in 2017 and the Ophir/ Golar project looks likely in Q showing it is possible to FID new liquefaction projects

7 PUTTING IT ALL TOGETHER: YOUR MOVE ASIA! IT S TIME FOR ASIAN BUYERS TO DECIDE HOW THEY WANT TO TRANSACT LNG FOR THE FUTURE. ALL THE OPTIONS ARE THERE AND SELLERS ARE WILLING TO LISTEN AND ADAPT. THERE IS A GREAT OPPORTUNITY TO SHAPE COMMERCIAL BUSINESSES TO SUPPORT THE LONGER TERM SUSTAINABLE DEVELOPMENT OF THE ASIAN LNG BUSINESS. From , it is likely to be a messy and bumpy ride for a variety of industry participants. Some buyers are over-contracted, some have term contracts expiring and need to decide how to reconfigure their portfolios. Some are seeing deregulation of their downstream businesses bringing new uncertainties. NEW LNG DEMAND PROSPECTS STRONG The next big wave of supply capacity should start by Q and by the end of 2020, we will have an additional 24 new trains - of which 12 will be from the US alone. USLNG is quite different to other projects with much more buyer flexibility and trading potential. How much will physically move to Asia is unclear but it will be a major disruptive force to the business and create trading and market liquidity never seen before. Coming with that is a lot of new opportunities for buyers and sellers provided they are willing to adapt. Market power isn t something that is given - it is taken and it is time for the Asian LNG buying community to grasp the opportunities to negotiate the type of commercial contracts they want for their business. This may range from a single contract to a complex portfolio of supply options long medium and short term. It s time for Asian buyers to decide how they want to transact LNG for the future. GROWTH IN SPOT AND SHORT TERM TRADING ASIAN BUYERS BEHAVIOURS ARE CHANGING PRE FID PROJECTS NEED INNOVATION The CWC World LNG Series; Asia Pacific Summit left me with the feeling buyers want to take these opportunities and sellers are pragmatic and are prepared to consider new ways of developing the LNG sales contract to redistribute risk and reward. A lot of the region s future relies on new infrastructure investment and so innovation in financing is important too. The quote of the Summit for me came from JERA Good origination is essential for good optimisation FSRUS WILL BE KEY TO INFRASTRUCTURE GROWTH About the Writer: Patricia Roberts (BSc PhD) Managing Director LNG-Worldwide Ltd has 12 years of experience as an independent consultant as Director of LNG Worldwide Ltd. She works with several industry players as well as new entrants in the global gas and LNG markets. This covers the full commercial gas supply chain from strategy and market fundamental analysis to assisting with negotiating commercial agreements. Prior to independent consulting, Pat worked for the Shell group of companies for 24 years in their global oil and gas commercial divisions, culminating with a role as General Manager of Shell s international LNG business in the Atlantic Basin. All of the above are the writer s personal comments and understandings of the speakers presentations and panel discussions at the 9th CWC World LNG Series: Asia Pacific Summit, Singapore, 19-22nd September The writer accepts no liability for any reliance placed upon the above by any person whatsoever; neither does it constitute any recommendation relating to any investment.

8 THE INDUSTRY ACCLAIMED 2018 CWC WORLD LNG & GAS SERIES 6-7 FEBRUARY 2018 TOKYO JAPAN CWC Japan LNG & Gas Summit The inaugural CWC Japan LNG & Gas Summit is the meeting place where international suppliers will network and hear from the Japanese senior-level buyers and government representatives. cwcjapanlng.com MARCH 2018 PORT MORESBY PAPUA NEW GUINEA 2nd Papua New Guinea Petroleum & Energy Summit The Papua New Guinea Petroleum & Energy Summit is the only strategic event endorsed by the Ministry of Petroleum & Energy and fully backed by the Government of Papua New Guinea. pngsummit.com APRIL 2018 BEIJING CHINA 4th CWC China LNG & Gas International Summit & Exhibition Hear directly from Chinese Government and NOCs, network with the key players in the industry and take part in discussions on the key issues impacting the development of the Chinese LNG & Gas industry. chinalngsummit.com MAY 2018 AMSTERDAM NETHERLANDS 4th CWC LNG Fuels Summit The CWC LNG Fuels Summit has now firmly established itself as the number one event on LNG fuels, providing a unique platform to meet with the industry's entire value chain - Marine, Road Transportation & Industrial. lngfuelssummit.com OCTOBER 2018 SINGAPORE 10th World LNG & Gas Series: Asia Pacific Summit Now in its 10th year, the World LNG & Gas Series: Asia Pacific Summit is the largest international strategic LNG Summit in the Asia Pacific region. cwclng.com/asiapacific MARCH 2018 HOUSTON, TX USA 16th World LNG & Gas Series: Americas Summit Bringing together the key players in the LNG & gas value chain in both the Americas region and globally, this is the perfect place to make new contacts, do deals and get essential updates on the market. cwclng.com/americas CWC NINETEENTH ANNUAL NOVEMBER 2018 LISBON PORTUGAL 19th World LNG Summit & Awards Evening The CWC World LNG Summit and Awards Evening is fully recognised as the premier gathering of senior, commercially-minded LNG executives in the world. cwclng.com/worldlng

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