LNG producers turn to trading, risk taking to maintain market share

Date:

Global producers of liquefied natural gas (LNG) have shot themselves in the foot with oversupply, and face calls for flexibility and greater competition from other fuels that may force them to take more risks and start trading just like other commodity dealers.

Thank you for reading this post, don't forget to subscribe!

That’s a big change for a market long dominated by large producers such as Royal Dutch Shell (RDSa.L) and BP (BP.L) who provide major importers with fixed volumes under multi-decade contracts linked to the price of oil LCOc1.

Under the protection of these lucrative locked-in deals, producers in Australia, Qatar, Russia and elsewhere went on an investment spree that left them with a huge supply overhang when demand in China and India developed more slowly than expected.

That, together with rising fuel competition from coal and renewables, contributed to a more than 70 percent crash in spot Asian LNG prices LNG-AS to under $6 per million British thermal units (mmBtu), increasing the pressure to grant more flexible contracts and better pricing options.

“The LNG market is changing rapidly, (and) the large volume long-term contracts that traditionally underpinned the development of the industry are today much more difficult to obtain,” said Steve Hill, executive vice president of Shell Eastern Trading, during a gas conference in Japan on Wednesday.

“LNG projects … need to take more market risks,” he said.

In a sign of what might be ahead, Japan’s JERA – the biggest single importer of LNG – and France’s Total SA (TOTF.PA) are set to strike its first deal soon with flexible volumes that are based on Asia LNG spot prices.

JERA’s chief fuel transactions officer, Hiroki Sato, confirmed the imminent deal to Reuters on Wednesday in an interview at the Gastech conference.

“There is no price war, but there is clearly competition under way to create a structure that answers the varying buyer needs,” he said.

Total did not respond to queries for comment on the deal.

Another thing about to change is that trading specialists – who buy commodities from producers to sell on to importers at a profit and who have so far played a smaller role in LNG than they do in oil or coal – are jumping into the game.

“People need to sit in the middle of the chain (to) provide the flexibility and meet the different customer needs,” said Mike Utsler, chief operations officers for Australia’s Woodside Petroleum (WPL.AX).

Preparing to do just that, commodity merchant Trafigura [TRAFG.UL] this week launched a standard master sales and purchase agreement (MSPA) for LNG trade, something already well established in other commodities.

“The industry is moving to a situation where you can’t just be a seller or a marketer or a trader,” said Kerry Anne Shanks, head of gas and LNG Research in Asia at energy consultancy Wood Mackenzie. “You need to have middlemen positions.”

Shanks also noted as an example of changes in the industry how buyers such as JERA are starting to trade gas.

UNLOCKING NEW MARKETS

Woodside, which operates several large LNG export facilities and is developing more, said producers also had to create new markets amid oversupply.

“There’s a big opportunity for much smaller scale demand … Big, long-term contracts are not necessary in order to supply (such projects),” Utsler said.

The thinking is similar at Shell. “We are trying to unlock new gas markets … by initiating new small-scale LNG import terminals,” Hill said.

Smaller scale demand could come from new importers like Pakistan, which only started using LNG in the last two years, or from new sectors like transportation.

Singapore’s Pavilion Energy this week signed a memorandum of understanding with Total to supply the French energy major with LNG used as a ship fuel.

But LNG producers need to keep a watch on competition. Oil still dominates transportation, and cheap coal – seen by many as outdated due to high pollution levels – is still the biggest fuel source for electricity, especially in fast-growing Asia.

Wind and solar energy are also becoming competitive.

“Coal won’t completely disappear. It will continue to be a competitor and a provider of energy solutions, as will renewables,” said David Knipe, head of international gas at BP’s integrated supply and trading unit.

Still, the market should not expect producers and suppliers to subject themselves to market whims, competition and geopolitics on large-scale projects, said Elizabeth Spomer, executive vice president at Toronto-listed Veresen Inc (VSN.TO) and head of its Jordan Cove LNG project in Oregon.

“Even the international oil companies that have the big balance sheets are not going to make final investment decisions without long-term take or pay contracts,” she said, noting that such projects represent billions of dollars of “price risk”.

(Reporting by Osamu Tsukimori and Aaron Sheldrick; Writing by Henning Gloystein; Editing by Tom Hogue)

 

Bisi Adele
Bisi Adelehttps://naija247news.com/
Bisi Adele: Illuminating Stories with Insight and Precision Senior Correspondent | Naija247news.com Overview: Bisi Adele is a seasoned Senior Correspondent at Naija247news.com, renowned for her skillful storytelling and comprehensive coverage of diverse news topics. With a passion for investigative journalism, Bisi navigates the intricate landscapes of current affairs with a commitment to delivering accurate, thought-provoking, and engaging news pieces. Professional Journey: Bisi's journalistic journey is marked by a dedication to uncovering untold stories and providing in-depth analyses. Joining Naija247news.com, she has consistently demonstrated a keen awareness of the pulse of current events, ensuring that her reporting reflects a deep understanding of the socio-political landscape. Areas of Expertise: Specializing in investigative reporting, Bisi Adele is adept at unraveling complex narratives. Her expertise spans a wide range of topics, including politics, social issues, and human-interest stories, making her a versatile and valued Senior Correspondent. Contributions: Bisi's contributions to Naija247news.com go beyond the surface, offering readers nuanced perspectives and insights. Her thought-provoking articles and in-depth analyses contribute significantly to the platform's reputation for reliable and informative news coverage. Educational Background: Bisi holds a degree in Journalism, complemented by continuous learning in investigative reporting techniques. Her educational foundation equips her with the skills needed to delve deep into stories and present them in a compelling manner. Health and Meds Journalism: Adding a unique dimension to her expertise, Bisi collaborates with Akinlabi Bisola, a distinguished health and meds journalist with a deep background in Public Health Education. Akinlabi holds a B.Sc in Health Education and a Masters in Public Health Education. Readers can explore their health-related articles on Akinlabi's website [thelbybisola.com](#). Innovation and Engagement: In an era of evolving media dynamics, Bisi Adele embraces innovation and audience engagement. Leveraging digital platforms and emerging storytelling techniques, she ensures that her stories resonate with a diverse audience, fostering meaningful conversations. Awards and Recognition: Bisi's dedication to journalistic excellence has earned her recognition in the form of awards. Her notable contributions to reporting have not only enriched Naija247news.com but have also left a lasting impact on the journalism landscape. Vision for the Future: Looking ahead, Bisi Adele envisions a future where journalism continues to be a catalyst for positive change. Her commitment to uncovering truth, amplifying unheard voices, and contributing to a more informed society underscores her vision for the evolving landscape of news reporting. Connect with Bisi Adele: - LinkedIn: [Bisi Adele](#) - Twitter: [@BisiAdele_N247](#) In the vibrant world of journalism, Bisi Adele stands as a beacon of journalistic integrity, combining experience, expertise, and a forward-looking vision to illuminate the path of understanding for a global audience.

Share post:

Subscribe

Popular

More like this
Related

Access Holdings to pay N1.80 as final dividend to shareholder

March 28, 2024. Azonuchechi Chukwu. Access Holdings has revealed plans to...

Police gun down two notorious bandits in Benue

March 28, 2024. Azonuchechi Chukwu. Men of Operation Zenda, a Joint...

Army declares eight wanted in connection with the k!lling of its officers in Okuama

March 28, 2024. Azonuchechi Chukwu. The Nigerian Army has declared eight...

Naira Appreciates Against Dollar at the NAFEM Window

March 28, 2024. Azonuchechi Chukwu. The Naira’s euphoric appreciation against the...
Social Media Auto Publish Powered By : XYZScripts.com

Discover more from Naija247news

Subscribe now to keep reading and get access to the full archive.

Continue reading