In March 2014, Grupo Sousa / Gáslink implemented a LNG Virtual Pipeline between Portugal mainland and Madeira Island. How has this innovative project impacted the country’s energy supply?
This innovative and pioneering project enabled the introduction of a new energy source in Madeira Island, presently accounting for over 12% of the total electricity produced since 2014. Depending on the availability of renewables and the annual energy mix, consumption indicators reveal that natural gas may reach 25% of the total supply, contributing decisively for clean fuels to take the lead for electricity production with a footprint over 50%.
Diversity and safety of supply, together with lower emissions, is of strategic value for this ultra-peripheral region, where tourism plays an important role in regional economy. Grupo Sousa’s LNG virtual pipeline also extends to Portugal mainland, where this operation accounts for nearly one third of the ISO containers currently being filled at Portugal Sines LNG Terminal per year.
This project demonstrates that innovative small-scale LNG logistics by means of “virtual pipelines” are viable and sustainable solutions for remote locations, where dedicated natural gas infrastructure does not exist, using existing capabilities (roads, sea transportation and marine terminals) in opposition to huge investments, not affordable in face of the low consumption profiles. The introduction of LNG is also a leverage for further applications, namely for industries, shipping and vehicles.
The participation of our partner GALP, and also REN (Sines LNG Terminal operator), along with their continuous technical support for this operation, has played a key role in achieving the results so far.
For the project, Gáslink operates its own fleet of cryogenic ISO containers. How is this method revolutionising LNG transportation in Portugal and is it a model that can be rolled out in other countries?
The really revolutionising characteristics of our project are the logistics optimisation provided by the integration of several Grupo Sousa companies involved in the operation, in particular: as ship owner, shipping agent, port operator, road transporter, maintenance and overall coordination under the umbrella of Gáslink.
Given the complexity of such operation, using a dedicated LNG satellite plant and a fleet of 55 LNG ISO containers, customisation has been implemented by specific standard operating procedures developed by Grupo Sousa/Gáslink, addressing all key areas of intervention: organisational, administrative, safety, security, maintenance and operations. Extensive on-the-job training, industry’s best standards and practices, and continuous improvement methodologies are in place with an impressive track record of over 4,300 operations without incidents or accidents.
Grupo Sousa is confident that this model can be successfully replicated in other remote regions both in island or distant locations inland.
What have been the biggest challenges that you’ve had to overcome for this pioneering project?
Leading the way to introduce LNG on an island with such level of consumption (over 1,200 operations per year) represents a major challenge as no other player worldwide was doing this in 2014 before we initiated it. Even today, over three years in, this operation represents a permanent challenge due to the intenivee use of our assets.
The continuous improvement of methodologies in place, the robust monitoring, immediate analysis and assessment of every single operational episode, and swift decisions, in parallel with Grupo Sousa’s in-house capabilities and expertise in all fields of this pioneering project, constitute a tremendous competitive advantage.
You are speaking at the upcoming 18th CWC World LNG Summit & Awards Evening, which is coming to Lisbon for the first time in November this year. What does the move to Lisbon signify for you, as a Portuguese company, and what will be your message to the audience?
The 18th CWC World LNG Summit & Awards Evening taking place in Lisbon shows the increasing importance of Portugal as a LNG key player in the Iberian Peninsula. Grupo Sousa intends to share with the audience our experience about this innovative and pioneering operation for the benefit of all participants.
Liquefied Natural Gas (“LNG”) is set to be the fastest growing fossil fuel source for power generation over the next two decades. Strong demand growth in the Asian region, coupled with new supplies from North America, Australia, Russia and East Africa, are set to drive trading and hedging activities in the spot LNG market.
The SGX LNG Index Group (“Sling”) is a series of indices created by Energy Market Company (“EMC”) and Singapore Exchange (“SGX”) to reflect the price of spot LNG cargoes at selected locations.
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We have seen demand for gas in Portugal increase steadily over the past 20 years, where do your imports come from and is further growth expected in the coming years?
On average, in the last decade, 50% of our imports come from Algeria by pipeline. The other 50% come in the form of LNG, from Nigeria, Qatar, Trinidad and Tobago, Norway, and more recently from USA. In fact, Portugal, through its main deep water port of Sines, was the first country in Europe to receive a US LNG cargo, in May 2016.
Portugal has a small internal market for consuming natural gas (we consume around 4-5 billions of cubic meters per year, roughly 1% of the European Union’s yearly consumption). However, our maritime geostrategic position and port infrastructure opens amazing possibilities for the country to become a vibrant trading LNG hub and a “service station” for future LNG vessels.
Portugal is located in the middle of the main core and non-core routes of trading in the world, making it a privileged player in the bunkering business, for both commercial trading, tourism (Cruise Ships), deep-sea and short-sea shipping, enjoying a geographical advantage to bunker the majority of the ships coming from the Suez and the Panama Canal.
Emission Control Areas (ECA) will indirectly affect the Portuguese ports. Most of the transatlantic traffic moves between ECAs, at least twice a year. These issues are important for short sea traffic partners and for the Portuguese ports.
Furthermore, the Directive of the European Parliament and of the Council on the deployment of alternative fuels infrastructure indicates that an appropriate number of refuelling points for LNG is provided at maritime ports to allow for the circulation of LNG throughout the TEN-T Core Network, according to common technical standards until 2025 for LNG.
Portugal has received gas supply via the Maghreb pipeline since 1997. How has the commissioning of the Sines regas terminal in 2003 facilitated growth and enabled Portugal to diversify its supply base?
LNG permits us more flexibility and less rigidity in our supply pool, therefore mitigating our energy security risk. Furthermore, it also provides a learning platform for understanding the dynamics of the spot market and how it can be combined with the take-or-pay contracts, thus creating the base of competencies for an integrated LNG hub activity.
Portugal receives LNG cargoes from diverse suppliers around the globe. What is your view on the current supply-demand outlook in the world and what opportunities do you see for LNG buyers at present?
All the forecasts from various organisations like the International Energy Agency, the Energy Information Administration and OPEC indicate that the oil price will remain around $40 to $50 a barrel, at least until the end of the present decade. Taking into account that the natural gas price is pegged to the crude price, we can conclude that abundant and cheap LNG will be available in the market for quite some time.
This trend is reinforced also by the fact that natural gas unconventional producers (like the shale gas industry in the US) not only are able to react immediately to price signals (increasing production when prices rise which results in a moderate increase of the commodity value, depressing the price), but also are very effective in deploying innovations that increase the efficiency of the production.
This factor, combined with the growing efficiency of the LNG industry technologies, low sea transport tariffs and the need for LNG companies to diversify their revenue streams for paying up their investments in the short run, makes LNG a buyer-driven market.
In that sense, for buyers, LNG is a great option for assuring a low-carbon energy security at the most efficient market cost.
LNG as a fuel is a growing sector. Does Portugal have any plans to develop bunkering activities out of your terminal?
Yes, we have that strategic intention. The Ministry of the Sea is starting to deploy a plan for increasing the Portuguese port’s competitiveness and LNG is considered a strategic vector. We are going to announce during 2017 the Strategic Plan for LNG Maritime Infrastructures.
A main focus is to develop our offshore bunkering capabilities, in small-scale, due to the higher flexibility of this system for vessel refuelling activities, in the ship-to-ship mode. This is a solution that can be deployed, perhaps combined with an onshore small-scale bunkering facility, for fuelling LNG cruise vessels in a port of mainland Portugal, in a port of Madeira archipelago and in a port of Azores.
Secondly, we want to use LNG to decarbonize the maritime connections between mainland Portugal and our archipelagos of Azores and Madeira. In principle, this will help to create a sustained internal market, with the additional economic rationale for creating a LNG Atlantic service station based in the Azores archipelago.
Thirdly, we want to explore the opportunities of increasing the importance of Portugal and Sines as a LNG hub not only for global trade, but especially as an alternative for regional trade in Europe. Recent developments in offshore bunkering technology will potentially open in the future the possibility of creating “virtual maritime LNG pipelines” between Portugal and, for example, the North of Europe.
The Portuguese government and I, Minister of the Sea, are determined to position our country as a leader in this innovative market.
This year, the 18th CWC World LNG Summit is coming to Lisbon on 28 November to 1 December and the Ministry of Sea has endorsed the event. What are your expectations for this important meeting in its new location of Lisbon?
The Portuguese government and I, Minister of Sea, wilfully supports the 18th CWC World LNG Summit & Awards Evening taking place in Lisbon on 28th November to 1st December 2017. This initiative is an excellent opportunity to promote Portugal’s advantages for the development of the LNG market, as well as building, developing and continuing business partnerships with players from across the entire global value chain. Given the importance of LNG within the context of the global economy and world trade, we will be honoured to welcome to you Portugal to further discuss the growth opportunities that the LNG industry is creating.
You are speaking on the session on new LNG supply at the 17th World LNG Summit in December. What are your views on the global supply/demand outlook through 2020?
It is widely accepted that the world will be oversupplied with LNG for the rest of this decade. Overly-bullish expectations of Asian demand have not materialized and the approval of many new projects in the US and Australia have exacerbated this temporary glut. LNG from many of these new projects will struggle to find a home in the short-term and will be increasingly sent to the short-term markets. However, this anticipated oversupply will not last forever. Sustained low LNG prices over the near-term will bring new entrants into the LNG market seeking a more competitively priced, cleaner-burning fuel than conventional petroleum. As we enter the next decade, many other demand factors will narrow the supply/demand gap. Access to new technologies, namely Floating, Storage, and Regasification Units (FSRUs), offer many of these same smaller players the ability to import marginal volumes of LNG for minimal capital costs. Finally, LNG has many market applications, such as shipping, that have yet to be captured. The real question is, who will capture the “next wave of LNG demand”. You will likely see (and already are) many of the majors shy away from FIDs; however independent LNG developers like NextDecade, are poised to “buy the dip.” Factoring in the EPC cost environment and the lead time for a land-based export facility, we believe we are well positioned to be the leader of the next wave of US LNG.
Perhaps the better question is what happens if new projects don’t take FID and demand is allowed to outpace supply into the next decade? We could see a substantial demand shortage with significant price implications…
Where do you consider to be the best LNG demand growth prospects?
Marketers are focusing much effort on China and India given the sheer scale of growth potential in these countries for natural gas. However, I believe there are a few other specific markets that also deserve attention.
First, new and emerging markets – 25% of LNG demand growth through 2025 is expected to come from new LNG import markets. FSRUs can bring LNG to these new markets more quickly and efficiently and present a valuable opportunity for NextDecade to access underserved or new LNG markets. FSRUs are attractive as they offer lower capital requirements, shorter lead times and significantly less risk to developers than onshore re-gas facilities.
The second market that deserves to be more carefully examined is made up of nations that have historically exported LNG, such as Indonesia, Trinidad, Algeria and Yemen, but are now facing either progressively-declining or “at-risk” domestic reserves on top of export commitments. These players will increasingly be looking for ways to balance their existing commitments with domestic demand and diminishing reserves, creating an opportunity for new LNG suppliers to step in.
Finally, while not technically “new” demand, many long-term LNG contracts are set to expire over the next few years. Nearly 70 Mtpa of contracted volumes will have expired by the time our Rio Grande LNG project comes online in 2021 and another 70 Mtpa by just 2025. Buyers will be looking for lower-cost LNG with more flexible contract terms and NextDecade is poised to offer both. US LNG, including Rio Grande LNG, will become the most competitive new supply source for LNG in the world given its low feed gas and capital costs.
What changes are being made to keep new liquefaction projects competitive?
Perhaps one of the most significant changes is simply choice of project location. The U.S. has emerged as an attractive option for new liquefaction projects for several reasons, all contributing to more competitive projects. U.S. LNG represents a new source of low-cost supply due to new technologies brought to market and lowering capital requirements, breaking industry orthodoxy of oil-linked contracts, and utilizing its well-established regulatory process.
Items that are becoming increasingly important in the world to drive down costs include:
– Value Engineering
– Labor Costs: The US is the leader
– Proven Engineering and Technology: The “no novelty” approach
– Pressure to Lower EPC Margins: New project pipelines are “drying up”
– EPC Workforce vs EPCM: Reduced costs and better QAQC
An excellent example of this is our own Rio Grande LNG project. We, along with our EPC partner CB&I, have focused on selecting a proven technology and design which will materially de-risk our project, reduce timeline uncertainties, and most importantly reduce capital and operating expenditures.
Even so, many US projects have taken different approaches to cost reductions, particularly when it comes to scale and build, i.e. stick build vs. modular.
The cost of feed gas is another major driver. U.S. LNG will continue to benefit from cheap natural gas, able to compete favorably with any other natural gas supply source worldwide. Vast quantities of natural gas have been proven as reserves in the U.S. and access to the global LNG (gas) market will be crucial for US E&P companies. There will be increasing pressure domestically for U.S. E&P producers to access markets.
Will shorter term contracts become the norm?
Given the current buyers’ market, there is no doubt that buyers are attempting to negotiate more flexible terms. This includes both tenor and volume. However, from the perspective of new LNG project developers, contract terms will not change substantially over the near-term simply for financing reasons. That is not to say that (new) LNG buyers will not have access to the market; it is likely that large portfolio players and traders, will step in the middle to absorb the differences. You are already seeing this phenomenon today. This is also true for credit requirements. At NextDecade we are offering unique solutions for both upstream gas suppliers and LNG customers that satisfy each of their individual needs while also making our project fully financeable.
You are sponsoring the 17th CWC World LNG Summit in Barcelona this December – what are you most looking forward to at the Summit?
I certainly enjoy all the conference events and presentations, but perhaps my favorite portions of these CWC events are the one-on-one discussions I get to have with the participants between sessions and after-hours. Leaders in our field from around the world attend this event and it is a great opportunity to share ideas, learn from one another and perhaps even begin (or renew old) business relationships!
Kathleen Eisbreener will be speaking at the CWC World LNG Summit in Barcelona on Wednesday 14 December 2016, discussing ‘Regaining the Balance: When Will We Need New LNG Supply to Come Online?’
You’re chairing the session on LNG demand at the 17th World LNG Summit in December, where do you consider to be the best LNG demand growth prospects?
From an Asia Pacific perspective (as I am based in Singapore) we are seeing the emergence of ‘new’ LNG markets across South and South East Asia: Pakistan, Bangladesh, Sri Lanka, Myanmar, Philippines to name just a few. Other countries such as Singapore, Malaysia, Thailand, Indonesia have recently begun importing LNG through existing regasification terminal facilities, but are now looking to expand or develop new terminals. We are seeing a number of new buyers coming to the LNG market: some are major utilities who are looking to diversify their fuel supply sources (mostly away from coal or domestic gas), others are smaller, privately owned entities who are taking advantage of market reform and the introduction of third party access requirements across the region. Further afield, there are significant new market opportunities in Africa, Middle East and Central and South America: we are involved in a number of LNG import (FSRU) projects globally at the moment which, for the most part, are part of integrated LNG to power project developments.
How can the creditworthiness of smaller buyers be managed/improved?
This remains a challenge. The issue is not confined solely to the credit of smaller buyers, but of new buyers in emerging markets more generally. The credit issues are often perceived as being linked to, or part of, a wider country risk analysis. Credit enhancement may be achieved by way of sovereign or government-level support, which is less prevalent now (and in some cases, the relevant government may no longer be investment grade), or by bringing in more creditworthy, heavily capitalised equity partners. For shorter term or spot type deals, standard credit instruments such as SBLC or Parent Company Guarantee may be sufficient to alleviate buyer credit concerns. Also, certain sellers are purchasing credit default swaps and similar products from the finance market to improve longer term credit related issues.
We are seeing more and more the blurring of lines between buyers and sellers – how can partnerships be forged?
Agreed: it is becoming a more crowded market. There is a convergence of ‘traditional’ and new sellers looking to tie up mid to long term volumes, plus ‘new’ sellers who are trying to find a market for excess or overcommitted volumes. I think there are definitely more opportunities for sellers and buyers to collaborate and look at what each side can bring to the other in terms of a longer term relationship. That may mean, for example, partnering in the midstream, gas infrastructure component of the project: providing or co-investing in regas or gas transportation facilities. Certain utility sellers have many years of operational experience in that part of the gas chain, particularly onshore LNG RGT facilities, which is highly sought after by some of the newer LNG buyers. Also, many of the ‘new’ buyers in the market are procuring LNG in order to meet specific downstream requirements such as power generation, for example, in which case they will be looking for a more bespoke LNG supply arrangement which meet the needs of their own (downstream) facilities or customers: that entails a longer term approach.
LNG to power: what are the main challenges and opportunities?
There are many challenges, not least aligning all parts of the gas value chain: LNG liquefaction, LNG shipping and supply, LNG regasification, and the downstream power generation. That alignment has to work operationally in terms of scheduling and nominations, for example, and contractually in terms of the LNG SPA(s), LNG regas facility TUA or TCP and the PPA. Key areas will be risk and liability allocation, force majeure and co-ordination of maintenance and outages. If I had to highlight two key challenges, I would say the deployment of the regas facility, which in most cases would be offshore (FSRU) and financeability. The FSRU vessel will need to be designed around the specific requirement of the power project, which in turn may be dispatched on a baseload or peaking basis, so the operational requirements may fluctuate significantly. Inventory management on the FSRU will be critical. There are likely to be local legal and regulatory requirements which will govern the ownership of the FSRU vessel. Many LNG to power projects will ultimately hinge on whether or not they can be debt financed on a long term, limited recourse basis. That will mean achieving a bankable structure which addresses ‘project-on-project’ risks in the context of the LNG supply, FSRU and power plant components. Will all fuel related costs be passed through to the electricity offtaker? Will all project debt be repaid in a termination scenario? To date, very few of these fully integrated LNG to Power projects have achieved financial close.
We are seeing a rise in price review cases at present. How can the process be made more efficient?
We are seeing a rise in the number of potential price review cases, if not necessarily in the number of formal price review disputes. K&S (Philip Weems) authored an article on this trend which is currently on CWC’s LNG Hub. Many industry participants are actively reviewing their pricing strategy with a view to avoiding dispute proceedings. There is a still a huge divergence across the industry in terms of contractual price review mechanisms: some long-term contracts have no price review provision, others contain very general ‘meet and discuss’ type provisions whilst others contain a very specific, detailed price review mechanism. Some degree of standardisation, or more industry standard approach, may streamline the process.
What are the main reasons for King & Spalding’s support of CWC’s World LNG Summit this year?
We have been supporting CWC’s LNG conference series for a number of years now. Put simply, we believe that it provides us with the leading industry platform to display our brand and our expertise. We also see significant value in attending and sponsoring these events in terms of interacting with the senior level of attendees and delegates, plus follow-up business across our global network.
Richard Nelson will be moderating the session ‘It’s All About LNG Demand!‘ at the upcoming CWC World LNG Summit in Barcelona on Tuesday 13 December 2016.
What changes are being made to keep new liquefaction projects competitive?
In the short term, competition among contractors is one of the biggest factors in reducing costs but we know that won’t last forever. Long term, Modularization is lowering construction costs and that could lead to a real shift in the cost curve. If you look at the most cost competitive of the next wave of LNG, most of them are in the US and they are using modularized construction and smaller liquefaction trains. Also, we are starting to see more competition amongst liquefaction technologies which could keep downward pressure on costs for some time. When prices were high, buyers and sellers preferred to stick to what they know, but low prices lead to innovation and that’s why less-prevalent technologies are starting to gain market share.
Will shorter term contracts become the norm?
Yes and no. I believe that long-term contracts that expire over the next 10 years will probably be replaced with spot or mid-term contracts. Experienced LNG buyers know that new supply projects don’t get built without long-term contracts to support them. I think that savvy LNG buyers are going to ration the long-term portion of their portfolio for greenfield supply contracts, while they sign shorter term contracts with portfolio players and legacy supply projects under renewal. At the same time, the global LNG market is growing, which means there are a lot of new market participants and many of these new LNG buyers are in very price sensitive markets. They may be lured by shorter-term contracts at lower prices (and we have seen that trend in recent deals), but you have to think this is a bit of a trick by the big LNG suppliers out there. I don’t think you see such low-prices offered on long-term supply contracts today and when those low-priced short-term contracts roll-off, we may be in a very different market where buyers no longer have leverage. So it’s a risky game that should be managed with a portfolio of supply contracts: spot, short-term and long-term.
Ryan Schleicher will be speaking at the CWC World LNG Summit in Barcelona on ‘Regaining the Balance: When Will We Need New LNG Supply to Come Online?’
Bargain Basement LNG Drive Import Boom.
Low LNG prices have derailed plans for new liquefaction plants, but have triggered a boom in import plans.
As global LNG industry leaders prepare to meet at the CWC World LNG Summit in Barcelona on December 12-15, Newbase takes a look at the key issues facing the sector. This report will analyse the current state of the import/export market, new plants, contracting terms and what the future hols for the industry.
Download the full report.
1. What will be the impact of deregulations on LNG demand in Japan, Korea etc.?
Deregulation is likely to have limited impact on long-term LNG demand. However, deregulation is creating uncertainty for the gas aggregators in the short-to-medium term, in relation to the market share they can secure. This will negatively impact investment decisions, which will have a knock-on effect of dampening demand growth.
2. Aside from the more mature markets, where will the potential future LNG demand growth come from and why?
Besides China and India, the key contributors to Asian LNG demand growth by 2025 will be Thailand (led by declining
Gulf of Thailand production), Singapore (driven by expiry of piped gas contracts), Pakistan (driven by economic
growth and fuel replacement), Bangladesh (driven by declining domestic production) and Philippines (driven by
declining domestic production). Whilst Indonesia will consume incremental LNG volumes in the gas deficit regions,
new contracts for LNG supply are more likely to come from domestic projects as opposed to global liquefaction
3. Which trends and innovations are you seeing on the supplier side, to help develop demand?
Suppliers and traders are showing increasing interest to invest in the downstream value chain, to stimulate demand.
Additionally, they are relaxing their requirements relating to the credit-worthiness and financial standing of the
buyers, in order to ensure that the deals move forward and demand grows.
4. What is the future of small-scale development in Asia Pacific and what is the approximate timeline for growth?
The small-scale LNG regas industry (< 2 MTPA) is poised for a bright future and several projects are making progress
in the right direction. The industry received a further boost this year, when the small-scale floating regas project in Bali was commissioned. The industry stakeholders are clearly demonstrating the required behaviours to promote
small-scale developments e.g. LNG suppliers & traders are willing to sell volumes to small buyers, shipowners are
willing to invest in floating regas solutions, lenders are considering innovative structures to arrange finance etc.
However, it needs to be noted that small—scale LNG involves development of significant infrastructure across the
region and will take time to make its impact being felt. We believe that several such projects will get commissioned
over the coming years and the aggregate demand has potential to reach 10-15 MTPA by 2025.
5. Europe is leading in bunkering; do you think there are any lessons learned to help fast track the LNG bunker
business in Singapore?
LNG bunker business (i.e. use of LNG to fuel ships) will need the necessary regulatory support (e.g. development of
ECA’s) and regional co-operation (e.g. EU is supporting the funding of several studies and project development for
promoting LNG bunkering) to flourish in Asia. Whilst Singapore is taking the necessary steps to become the LNG
bunkering hub in Asia, it may be useful to increase regional engagement and ensure that majority of the countries are
onboard & are taking the necessary eorts to transition from liquid fuels to gas.
6. What is Galway hoping to get out of sponsoring the CWC’s World LNG Summit this year?
LNG is moving from an “oligopoly” to “competitive market”, given new players are entering the industry (new
suppliers and buyers, new set of financiers). CWC’s World LNG Summit is one of the leading events for our industry and we are hoping to meet & discuss developments with not only the established players but also the new corporates
entering the game.
1. Regarding FSRUs, how much potential is out there in terms of unlocking new demand and where will this demand come from?
The LNG supply is growing fast. Australian projects are coming onstream, and the US Gulf of Mexico – which has the
ambition of becoming one of the main LNG exporters worldwide – exported its first LNG earlier in 2016. Many of the
traditional LNG otake markets (such as Japan, Korea, Europe) show little growth potential in the immediate term,
but other growing economies, which by virtue of their growth see a quick rise in energy needs, could employ FSRUs,
a solution that is demonstrating it can provide a fast and cost-eective solution to serve these markets. Hardly a week
goes by without a new FSRU opportunity being announced.
2. Will FSRUs continue to be cost-effective enablers to open new markets?
FSRUs offer multiple advantages. The units can be fairly standardized and built in specialized shipyards, which offers
clear cost benefits. FSRUs generally are oered to the market on leasing terms, allowing projects to be developed
with very limited cash up front for LNG importers. Several FSRU projects have demonstrated they can offer access to
new market very quickly; in many cases, new LNG import facilities have become operational in less than 12 months,
and some have reached that point in even less than six months. FSRUs can provide significant flexibility, serving
growing markets and seasonal markets and can even be deployed as a temporary solution while permanent
land-based facilities are being constructed.
Major oil companies now also see FSRUs as market openers for LNG. When large LNG exporters fully support this
business line along with the shipping and FSRU community, the sector will be strengthened significantly.
3. How do you see the shipping industry evolving and innovating in this new era of oversupply?
Currently, there is an oversupply of LNG ships, but there also is huge potential for new LNG coming onto the market
in the medium term. At present ship owners are looking at alternative markets for both unfixed old and new tonnage.
Recently, one of the most modern LNG carriers with the newest slow speed dual fuel engines was fixed for a long-term contract as an FSU. Many owners are looking at opportunities for converting vessels to FSUs or FSRUs. In the longer run, this also helps unlocking the new LNG markets.
4.What are you most looking forward to at the CWC World LNG Summit?
The CWC World LNG Summit attracts decision makers and policy makers and all the main stakeholders in the LNG
supply chain. It is a prime event for getting a feel of where the markets are heading and provides valuable
opportunities for networking.
1. How is the requirement of buyers to seek out shorter term contracts affecting project financing?
Given the size of the capital requirements to launch a liquefaction project, short-term contracts do not support the
development of new supply. The size of the commitment can be mitigated by establishing contracts for the
infrastructure only, such as in the US projects, but not the commodity, what we typically designate as the cost-plus
model. This allows new supply to be developed on a timely basis and avoid the “Buyer’s market – Seller’s market”
2. How eectively are gas and LNG competing for their rightful place alongside coal and renewables?
The simple answer is that in my opinion gas is not competing eectively. The flexibility of gas generation to support
the renewables development and the environmental advantages of gas versus coal and oil are not being deployed
successfully. Part of the problem has to do with the recent high prices of LNG as the linkage to oil caused the cost to
skyrocket when went up in price. Another element of the failure has to do with a lack of industry advocacy and
coordination to assign real carbon costs to the fossil fuels being considered.
3. What are Sempra’s main reasons for sponsoring the World LNG Summit this year?
We regard the World LNG Summit as the premier annual gathering of the industry participants. It provides us with an opportunity to get together with everyone at the end of each year and make an assessment of where we are and the
challenges ahead. And we have been supporting the event in dierent ways for more than a decade. As Sempra
continues to expand its footprint in the LNG industry, we remain committed to advance the industry and contribute
to maintain the high levels of performance, safety and reliability that this industry has demonstrated in the past.
1. How do you see small-scale developing as a means to unlock new demand in emerging markets?
Small scale has the potential to be a significant source of new demand in coming years. Applications such as
bunkering, motor fuels and small scale generation all have the potential to increase demand for LNG. That said, it will
take some time before these new applications combine to boost overall demand substantially.
2. How competitive is LNG in the fuel mix and will we see an increase in the use of LNG to Power in the coming years?
At current prices, LNG is highly competitive. Not only does it displace coal fired capacity in some markets, such as
Europe, but it also is attractive to markets considering small-scale projects and FSRUs. However, in the longer run,
LNG prices are likely to rise as the current surplus is absorbed so there is a risk that LNG will become less competitive
3. What role do you see gas having in the next 5-10 years and what will be the relationship between gas and renewables?
Gas should have significant role in the global energy mix in coming years. As both liquefaction capacity and regas
capacity grow, LNG will find new markets. LNG and natural gas also have a role to play in reducing carbon emissions,
particularly in markets where gas can displace coal in generation.
With regard to renewables, gas both complements and competes with renewables. Once renewable capacity is built,
it tends to run whenever the conditions are right, and that can displace natural gas generation.
4. What are you most looking forward to at the CWC World LNG Summit this year?
Networking and meeting industry contacts. Exchanging views on the LNG market and industry.
1. How are Seller’s business strategies evolving in the current period of oversupply?
Undoubtedly, the traditional model is being disrupted. Sellers are being challenged to differentiate themselves in terms of offering flexibility, credit and pricing options for new projects and emerging buyers. There are multiple ways of doing this and it just requires a new approach. In a well-supplied market, there is a tendency for sellers to compete aggressively on price even at the cost of a risk-adjusted negative return. This is not sustainable because ultimately market, operational and credit risk factors need to be accounted for. It is for this reason that sellers in this environment need to figure out ways to compete more than on just price.
2. What do you foresee to be main challenges in LNG project financing between now and 2020?
Changing buying patterns from both traditional as well as emerging buyers are proving to be a challenge to underpin projects these days. Projects historically achieved financing due to reliable 20-year contracts backed by buyers with sound financials and strong positions in their local downstream markets. This has changed as buyers are looking for shorter term, more flexibility (volume and destination), and reduced volumes.
3. How do you see the trading market developing over the next five years?
At Bank of America Merrill Lynch we see a trading market developing over the next five years, not unlike what we’ve seen in coal and oil. But the market will need further standardisation and greater market participation. Given the near-term outlook on flexible supply, trading should definitely increase.
4. What do you think will be the most effective enabler(s) to support the growth of the gas and LNG industry?
Technology is definitely playing its part. Witness the new buyers who have come to the market in the past 24 months as a result of FSRU’s. The next step is now for the industry to figure a way to unlock the potential demand from the transport and power conversion sectors.
5. What are you most looking forward to at the CWC World LNG Summit?
Events like the World LNG Summit are a fantastic way to bring together all of our LNG colleagues into one venue so that we can have an open exchange of ideas. There has been a culmination of events over the last year which has reshaped the LNG landscape, and I look forward to some really interesting discussions at the conference in December.