LNG was on the minds of the industry representatives attending the European Gas Conference this week in Vienna. According to a report by Reuters, industry players cited the need for buyers and sellers to embrace flexible trading practices, including cargo swaps, to cut costs and avert a boom-and-bust scenario.

LNG is a hot topic in the beginning of 2016 as both U.S. and Australian supplies begin to ship, adding more LNG to the market in the face of weak demand and high production costs.

Cheniere Energy is expected to ship the first U.S. cargo from Sabine Pass in March or April. Meanwhile, Australia’s three coal seam gas-to-LNG plants in Queensland have begun to ship cargoes to Asian markets, which are already experiencing a 2% decline in year-over-year demand, according to a recent report by Wood Mackenzie.

Industry players at the conference said the combination of supply and weak demand leads to an uncertain future, Reuters reported.

David Ledesma, an independent gas consultant and senior research fellow at the Oxford Institute for Energy Studies, told the conference, "everybody has to change their game. If they don't they are going to get left behind. Buyers and sellers must work together or we will have boom-and-bust."

Importers are already seizing the chance to wring concessions from existing producers wary of losing market share, according to the Reuters report. Global LNG buyers will seek to change the way long-term contracts are structured in the US$120 billion annual trade, such as by loosening restrictions on cargo diversions and reducing imports below agreed floors. Pricing disputes could take a backseat.

Meanwhile, sellers will need to be more flexible about where they send their cargoes due to low margins and prices. According to Chong Zhi Xin, principal analyst for Southeastern Asia and Australasia gas and power research at Wood Mackenzie, that’s already happening.

“Sellers started to look further afield to emerging markets in the Middle East and Africa and new opportunities in Asia, while buyers exercised more caution in contracting. Jordan, Egypt and Pakistan all issued new tenders, which were met with intense interest,” he said in a previously released Wood Mackenzie report. “The emergence of these three new market entrants alone resulted in 5.8 million tons of LNG imports last year, via fast-tracked floating storage and regasification unit (FSRU) developments—a trend we expect to continue in 2016 as access to new customers and regasification capacity remain key.”

Buyers must also meet sellers half way when striking deals in an environment where future market uncertainty could make new projects too costly and risky, according to Reuters’ report.

Andrew Walker, vice president of strategy at Cheniere, told the conference he expected to see more swaps and other strategies between buyers and sellers to reduce costs and improve LNG trade, according to Reuters.

"We are a 50-year-old industry that has had relatively few cycles and experiences of cycles," he told the audience. "As we try and draw that line forward it is difficult because we don't have a history of cost reduction. But if we don't we are going to have a less bright future than we ought to."

Meanwhile, Andy Williamson, head of LNG supply at EconGas, said flexibility over pricing will be key for market players looking to displace pipeline gas with LNG, according to Reuters.

"We are about to enter into a great game of limbo dancing," he said. "The global LNG market is going to set a bar and everyone is going to have to dance under it."

(Reporting by Michael Kahn, Reuters)

Len Vermillion can be reached at lvermillion@hartenergy.com.