A slew of fresh geopolitical challenges will force LNG players to become market-finders and market-makers, adapting innovative business models to compete, KPMG said in a new report.

“Cost-competitiveness is more crucial than ever as expiring Qatari contracts become available at cash-sustainment cost and [Qatar Petroleum] promises to bring new supply,” KPMG’s Mary Hemmingsen and Divya Reddy wrote in “Choppy waters for global LNG.” “Diverse portfolios—whether as seller, trader or buyer—are needed to manage the risks of price and geopolitics. Companies will want to staff up their political risk and economic forecasting departments as they venture beyond traditional LNG markets.”

Hemmingsen, KPMG’s global head of LNG, and Reddy, practice head for Global Energy & Natural Resources at Eurasia Group, see fundamental market changes taking place driven by a series of events:

  • Despite isolation by six Arab neighbors, Qatar has moved aggressively by doubling the size of its planned North Field project to 23 mtpa in the next five to seven years;
  • Iran announced plans to continue development of the South Pars field in its first deal with a multinational oil company (Total) since international sanctions were lifted;
  • New U.S. Energy Secretary Rick Perry declared LNG to be a major driver in the Trump administration’s new “energy dominance” initiative, including replacement of Russia-supplied natural gas to central and eastern Europe; and
  • The difficulties that Western Canadian greenfield projects have faced have convinced partners like Malaysia-based Petronas to pull out.

The U.S. shale-to-LNG ramp-up will bring 66 mtpa to the global market by 2019.

“Nations as diverse as Poland and the UAE have turned to flexible U.S. LNG as a solution for security-of-supply concerns,” KPMG said. “With the expanded Panama Canal, the U.S. Gulf plays both east and west.”

Russia is also seeking to expand its markets and is working with China, India and Japan to increase its opportunities to sell in East Asia and South Asia. However, continued sanctions from Europe and the U.S. will hinder those efforts.

KPMG forecasts a tightening of the market after 2020 as the number of new projects thins out. Qatar’s new project would likely become operational around 2023, in time to compete with U.S., Canadian, East African, Australian and other projects.

“LNG markets are also continuing their evolution: from resource-led to customer-led,” Hemmingsen and Reddy wrote. They cited efforts in India to renegotiate contracts with Qatari and U.S. sellers; Japanese desires to remove contract destination clauses; and developing markets in South America and Africa looking to incorporate floating storage regasification units in the next two years.

While hopes for what the International Energy Agency in 2011 predicted would be a “golden age of gas” have faded, KPMG said that the promise of growth still exists, though as a fuel for developing world megacities and for industry, as opposed to the expected use in power generation.

Joseph Markman can be reached at jmarkman@hartenergy.com and @JHMarkman.