HOUSTON—Midway through CERAWeek, four diverse panelists convened to discuss LNG in the context of the lower oil price environment, and their perspectives provide an interesting perspective of where the industry is heading.

Rich Coleman

Rich Coleman, the deputy premier and minister of natural gas development in British Columbia, maintained the long view of oil prices and focused on the structural role he thought governments should provide for a stable and attractive investing environment.

“We recognize that lower oil prices can be a constraint, but we’re of the view that in the long term, it is not going to affect our ability to go ahead.”

He feels “optimistic” about LNG development after several recent meetings with prospective proponents.

“What we’ve spent the last three to four years doing is building every piece of the puzzle, whether that be the LNG tax, the royalty regime or long-term royalty curves.” He also confirmed that Canada increased its capital cost allowance, which would give greater tax benefits, and that Canada has extended natural gas export permits from the traditional 25 years to 40, hoping to provide a more attractive environment.

“We see our job as certainty, clear rules, being globally competitive and being a jurisdiction where people want to invest.”

He said during the question and answer session that he expects one of the projects to take FID this summer.

“The reality is, they think long term, and that’s why they’re successful. So we’re thinking long term, and that’s how we’ll be successful.”

Rokas Masiulis

Rokas Masiulis, the minister of energy of the Republic of Lithuania, was coming fresh off the initiation of his country’s first LNG import terminal, and he devoted much of his time to expounding the benefits of multiple sources of gas. The most important effect, he argued, was the dissolution of a tainting connection between economics and politics.

“So politics really work in energy in our part of the world, with Russia clearly using energy as a political tool. So, in our mind, when we talk about energy, we talk about politics at the same time because it comes together. It is clearly inseparable in our part of the world.”

Commissioning the floating storage and regasification unit Independence at the close of last year symbolized an economic and political independence, in addition to simply securing gas supplies that couldn’t be used as a political weapon.

“From now one, we can be sure that we will receive gas when it is needed.” He said that his ministry’s mindset is energy security first, and price is a secondary priority.

With more sources of LNG, including from the U.S. and Canada, and more interconnections between once isolated and dependent gas markets, especially in Eastern Europe, Lithuania hopes to cut down on its natural gas costs, which were once higher than Japan’s. Since building its LNG terminal, Masiulis said his country has already received a discount of 23% from Gazprom. Additionally, the minister believes the country can finally de-couple politics and economics.

“This is where the U.S. can play a role. You all are businessmen. You just send gas, you receive money, and everybody’s happy. You’re not thinking of how you can”—and here he rotated his hand, as if twisting a dial—“influence gas supplies. You don’t have a political agenda.”

All of those years of influence from Gazprom gave gas a bad name in Eastern Europe, he said.

“Please, Americans, send gas, and give gas a better name.”

Martin Houston

Long-time advocate, commentator and innovator in the LNG industry Martin Houston, CEO of Parallax Energy, said that lower oil prices are both a challenge and an opportunity.

“It’s an opportunity for us to rebase ourselves from a long period where we have been, quite frankly, fat and happy.”

He championed midscale development of LNG, by which he meant a starting proposal of about 2.5 million tonnes per annum, as a way to offer buyer choice and reform costs. He said they have a simple goal at his company, Parallax Energy: “to resolve for only one variable, and that variable is cost. And the cost needs to be at or below $500 per installed tonne.”

LNG may be cheap for the moment, but once the excess is soaked up with the new markets that are opening over the next couple of years, supply will tighten and volatility will rise.

“So in this low price environment,” he said, “the fundamentals are increasingly going to decide the outcomes. It isn’t going to be a matter of force-fitting projects into politically charged relationships. This is about lower cost products going into markets that want competitively priced energy. The weaker projects may well lose their nerve in this.”

In addition to cost, Houston proclaimed that the new delivered ex-ship ceiling cost for LNG to Tokyo would be about $11 per million Btu. Proponents have to consider cost above all else and, once they do, then perhaps they could even take on coal.

Also, proponents will want to keep projects simple, in line with this idea of tackling costs. Megaprojects will be displeasing to buyers and cause “indigestion” in the market.

“It’s morsels,” he said. “The industry’s growing by morsels.” Offer smaller morsels with shorter contracts, he said.

On the whole, though, Houston is excited.

“Well, look, I don’t think there’s ever been a better time to be in this business. It’s fragmenting; it’s no longer homogeneous. Anyone can play, and there’s great opportunity.”

Gordon Shearer

Gordon Shearer, CEO of Shearer LNG, bemoaned the lack of translation between lower prices and higher demand in LNG end-user markets. Especially in Asian markets, “there’s no way to stimulate a demand for that incremental cargo in the end-user market. Utilities don’t use natural gas; they sell natural gas to customers who use gas. And in a market where basically the interface is between the end customer who is going to be really stimulated into burning or buying more energy product as a result of lower prices, that interface essentially obscures the price signal that low prices could send to the marketplace.”

Few markets could react as quickly to a change in supply and demand as the U.S. market did in the shale boom, and that market rigidity may prove a problem in a low-price environment.

“You know, I often say, we sitting here in North America often look at these things with a North American lens on, but as Dorothy said to Toto at the beginning of ‘The Wizard of Oz,’ ‘We’re not in Kansas anymore.’”

“When you leave and get on a plane and fly across the Pacific or Atlantic, you’re entering into a totally different frame of reference, and I think one of the challenges of the industry is, how do we get through that maze that’s distorting those price signals to the market?”

Shearer, on the whole, left the crowd feeling rather optimistic in his concluding remarks.

“It [the industry] is going to get a good sweating; that’s what OPEC used to do to the oil market, and it’s what low prices are going to do to the LNG industry. And it’s good; it’s going to force a lot of the crazy ideas out; those are the ones that really don’t make any commercial or economic sense. It’s going to create opportunities for people to innovate. It’s going to reward experience and fast thinking and light-footedness. And interest rates are low; it’s a heck of a time to be out there financing things, and people are looking for places to invest capital. This industry has a tremendous future in front of it; I look at it as an ideal opportunity.”

Contact the author, Brian Mothersole, at bmothersole@hartenergy.com.