HOUSTON ─ In the past 50 years the LNG industry has grown more flexible, but it isn’t quite liquid yet. Speaking at last week’s Benposium 2015, orchestrated by Platts, BG Group Vice President of Global LNG Andrew Walker described the way he saw the LNG industry changing, especially with the influx of U.S. supply over the next couple of years. He expects to see continued growth from the globalization of the natural gas trade, what LNG represents.

The LNG trade has grown at about 8% per year since its inception. According to the International Group of LNG Importers (GIIGNL), about 240 million tonnes of LNG was traded last year from 19 exporting countries to 30 importing countries, representing about 10% of all gas consumed worldwide and about 30% of all internationally traded gas. In terms of worldwide liquefaction capacity, 135 million tonnes per annum (mtpa) is under construction at the moment, and Walker things that will move us beyond our current “supply hiatus.” Asia, the predominant consumer of natural gas, will continue to “be a big deal.” India has potential for growth and awaits interior infrastructure buildup. China will emerge as the second biggest market after Japan. According to seven consultancies BG has worked with, as much as another 100 mtpa may be needed by 2025.

Moreover, the market is metamorphosing from a series of regional markets to a truly international trade. Walker chuckled as he remembered when he first got into the industry in the early 1990s, when he was excited to see a cargo make its way from Australia to Spain. That cargo overcame what they then called the “tyranny of distance.” It seems as if that phrase is almost gone from the industry’s vocabulary now.

A Different Model

The U.S. tolling model, Walker thinks, is both complementing and accentuating an industry in flux. Offtakers are looking for a more responsive supply because they have an uncertain demand. Japan faces mystification as to how fast its 48 remaining nuclear facilities will switch back on. Across Asia more generally, there’s hesitation over fuel policies, carbon pricing schemes and potential substitutes such as coal, nuclear or renewables.

“The buyers are saying, look, the days of those bilateral agreements, those inflexible agreements, they’re gone,” Walker said. “We need more responsiveness in terms of LNG as a supply. There’s an increasing cost focus for countries like Japan.”

Still, according to Walker, about 72% of the 50 mtpa from U.S. liquefaction projects has been sold to end users in Asia. The remaining 28% is held by buyers in Europe or Latin America.

Walker emphasized two key aspects of the U.S. LNG industry that are driving change. The first is the latent, available supply with a clear cost marker: Henry Hub plus a toll and shipping.

“And so the U.S., even before it’s exported its first cargo from the lower ’48, which should be toward the end of this year, has already changed the industry. It’s changing the industry in one sense: it has offered a different product into the industry; it’s going to continue driving change in this industry as we move forward.”

That clear price marker means a lot for the LNG world.

“That’s kind of a different thing for this industry, in terms of how the industry develops its projects. You can’t really escape that. And in terms of other projects, that kind of sets the cost benchmark for you.”

Flexible But Not Liquid—Yet

The second key point Walker emphasized was the growing liquidity in the market that will accompany U.S. supply.

“There’s also going to be growing liquidity. Recall that I said this is a flexible industry; it’s actually not a very liquid industry.”

He referred to GIIGNL’s annual report that showed about 30% of global trade last year was spot or short-term trade.

“On a ‘short-term’ basis, they mean, ‘four years or less.’ That’s hardly a kind of liquidity.”

He also alluded to recent absence of statistics from the Ministry of Economy, Trade and Industry (METI) of Japan about May’s imported LNG spot price. According to a statement, METI will not publish spot prices if there are fewer than two reporters.

“So actually we’re still not very liquid, but the U.S. is going to change that. The amount of product that is announced in the Gulf [of Mexico], the number of cargos—there’s going to be some creation of liquidity there. I’m not saying we’re going to evolve overnight and become the oil industry, where there’s a single global price, and commoditize, but we are certainly moving in that direction.”

This growing liquidity will force the market and its actors to evolve.

“And that evolution as we move toward that more flexible, more liquid future is going to create a wider menu or array of options for strategies and business models.”

He think we’ll see more company integration, both vertical and horizontal; alliances; economies of scale; mergers and acquisitions; and companies carving out their niches, whether they be geographical, technological or commercial.

“Really, I think the key is that U.S. is going to create more liquidity in this industry; that’s going to give you a wider playbook in how you may want to play in this industry.”

Also, not only will the players change; the projects themselves might look different.

“You no longer have to deal with 15 million tonne projects. You’ll actually see that you can build a 1 million tonne project in this marketplace. The U.S., when it has an idea, tends to innovate around that idea, and already there are some mid-scale projects proposed. You’ll start to see LNG as a transport fuel, shipping, and roads start to emerge. It’s slightly harder with oil prices coming down; it was slightly easier when oil prices were at $110 and gas was heavily discounted. But you’ll still see this sector move forward; you’ll start to see shipping in particular, for reasons of emissions, start to look at LNG as a fuel.”

Walker admitted, though, that even as U.S. LNG exports grow, not all projects that are currently proposed will make it to production. Still, what does get built will have a lasting effect.

“In a decade’s time, this is an industry that is going to look much different than what we have today; it’s going to look more commoditized. I don’t think it will be fully commoditized, but I think it’s going to look much more commoditized and be a more globally efficient industry at that point.”

Give it a few more years to stretch and bend, and that industry might fold itself into a single, liquid global acrobat.