NEW YORK—As global LNG markets move fitfully away from long-term, oil-indexed prices to a more liquid and diversified spot market, financial and midstream structural challenges loom large.
“Companies already in the sector are having to move further downstream to capture demand,” said Ira Joseph, head of gas and power at S&P Global Platts at an LNG Roundtable on Jan. 25.
He also noted that just as buyers and sellers of LNG are getting their heads around the dissociation of global oil and gas prices, the market fundamentals are already changing. “What the markets really want to see is LNG priced to coal plus carbon parity,” he said. “That is historically lower than has been viable, and would mean cuts in liquefaction costs and cuts in transportation costs.”
LNG pricing was long indexed to oil, but the reality of import markets is that the competition is now coal in some regions and renewable energy in others.
“Gas is now competing with battery storage,” said Joseph. “The questions are security of supply versus intermittency. This will be a major public policy issue in countries like
As evidence, he noted the top LNG news of the winter so far, which has been the spike in gas prices in Asia. The Japan Korea Marker, which hovered around $5.50 per million Btu (MMbtu) all spring and summer of 2017 has risen steadily to greater than $11 per MMbtu at the end of December. And that despite greater volumes moving out of Cheniere’s
The spike in demand from China highlight how important national policy has become in market movement, Joseph explained.
“The spike is not sustainable, but is tied to contract increases,” he said. China is one of the few countries that still rely upon coal as a residential and commercial fuel. Those are the least energy-efficient and most-polluting uses, and so the government is replacing that with gas as fast as it can.
Beyond China and India, Richard Langberg, director of energy infrastructure ratings at S&P, suggested that the leading demand markets for LNG were likely to be “emerging Asia, especially the smaller economies like Pakistan that are building floating regasification. Also
While that sounds great for LNG producers, the evolving demand market has complications.
“It is very difficult to get a bank to lend on a merchant LNG project,” said Langberg. His colleague, Michael Ferguson added, “ratings are getting sorted out, and lending is getting sorted out. The problem is that for rating or lending, there is supposed to be a base case and then a downside worst case, all based on historical data. But there is no historical data for merchant LNG.”
There is little doubt that the sorting will get done, but time is a major question. There is general agreement that new LNG supply will be needed worldwide by 2022. With a three- to four-year construction lead time, final investment decisions on any new liquefaction would have to be made this year or next.
Recommended Reading
President: Financial Debt for Mexico's Pemex Totaled $106.8B End of 2023
2024-02-21 - President Andres Manuel Lopez Obrador revealed the debt data in a chart from a presentation on Pemex at a government press conference.
Thanks to New Technologies Group, CNX Records 16th Consecutive Quarter of FCF
2024-01-26 - Despite exiting Adams Fork Project, CNX Resources expects 2024 to yield even greater cash flow.
Cheniere Energy Declares Quarterly Cash Dividend, Distribution
2024-01-26 - Cheniere’s quarterly cash dividend is payable on Feb. 23 to shareholders of record by Feb. 6.
Marathon Petroleum Sets 2024 Capex at $1.25 Billion
2024-01-30 - Marathon Petroleum Corp. eyes standalone capex at $1.25 billion in 2024, down 10% compared to $1.4 billion in 2023 as it focuses on cost reduction and margin enhancement projects.
Humble Midstream II, Quantum Capital Form Partnership for Infrastructure Projects
2024-01-30 - Humble Midstream II Partners and Quantum Capital Group’s partnership will promote a focus on energy transition infrastructure.