China, India to take lead in LNG demand growth: Total
Long-term contracts with spot indexation can drive growth
Price competitiveness key to new market growth: Novatek
London — The development of new LNG import markets will be key to ensure future LNG demand growth, senior gas company officials said Oct. 12 at the virtual Flame conference.
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Register NowPrice competitiveness versus coal and contract flexibility would also be crucial if new buyers are to commit to the increased use of LNG in their energy mixes, the officials said.
"We have to make sure demand growth continues upwards and to find means to develop new markets," CEO of floating storage and regasification unit provider, Hoegh LNG, Sveinung Stohle, said.
"The supply side is not the one we should worry about -- there is ample capacity. In reality what the industry should be focusing on is to increase demand and open up new markets," Stohle said.
Head of LNG trading at Total, Patrick Dugas, said China and India would drive demand growth in the coming years.
"In China, displacement of coal with gas is a way to unlock demand," he said, while in India the country was building out significant new gas infrastructure which would boost gas consumption.
CFO of Russian LNG producer Novatek, Mark Gyetvay, said price would be crucial in opening up new LNG markets.
"Price is really critical for us to continue developing markets," he said, adding that some Asian markets for example were "extremely price sensitive."
"We have to be able to...guarantee a low landed cost of LNG," he said.
Gyetvay said that with recent cancellations of or delays to LNG project final investment decisions, a more "reasonable" cost structure was emerging.
"There are things we can do to lower the cost of projects to make it that much more competitive," he said.
Contract flexibility
Also key to developing new markets was flexibility in contracts, according to vice-president, LNG Marketing and Shipping, at Total, Andrew Seck.
Seck said there was already increased flexibility with buyers able to divert LNG from their base markets to other terminals depending on demand.
"That is beginning to filter through, pushing molecules into new markets as they develop," he said.
Seck said the industry was moving "well" to be able to support new market developments with more flexibility in long-term contracts.
He said the long-term contract model was not going away, but instead there was more spot LNG price indexation in those contracts.
That would help solve the disconnect between long-term LNG prices and spot LNG prices which has meant downstream buyers either struggling to commit to long-term volumes, or buyers being uncomfortable with the price they locked in.
Seck said there was "great space" for long-term contracts with elements of spot indexation. "And that will support demand growth," he said.
Southeast Asia, in particular, was an area of future LNG demand growth with consumption set to rise to 100 million mt/year by 2040, he said.
Seck said Total had a "relentless" focus on cost to be able to compete with alternative fuels.
Market volatility
Total's Dugas added that buyers were having to "navigate" through the volatility and uncertainties of the market.
He said there had been complaints about the price in oil-indexed long-term contracts versus spot LNG when the oil price was higher, but that with the drop in oil prices, long-term contracts were again competitive versus spot LNG.
Dugas said it was a question of risk management, pointing to buyers being well placed if they had a mixture of various types of LNG purchasing in their portfolios.
"As a portfolio manager, our mission is to manage the flows of the group, to aggregate them, and focus on demand and on customers themselves, to bring them the flexibility they need," he said.
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October 12, 2020 at 04:52PM
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