Signposts to a robust liquid LNG market
Bernadette Cullinane A D , Susan Sakmar B and Nye Hill CA Deloitte Consulting Pty Ltd, Brookfield Place, Tower 2, 123 St Georges Terrace, Perth, WA 6000, Australia.
B University of Houston Law Center, 77204-6060, 4604 Calhoun Road, Houston, TX 77004, USA.
C Deloitte Touche Tohmatsu, 550 Bourke Street, Melbourne, Vic. 3000, Australia.
D Corresponding author. Email: bernadettecullinane@deloitte.com.au
The APPEA Journal 59(2) 554-559 https://doi.org/10.1071/AJ18237
Accepted: 14 March 2019 Published: 17 June 2019
Abstract
The world is experiencing a rapidly evolving energy transition and nowhere is this more evident than the liquefied natural gas (LNG) sector. LNG is delinking from its crude oil heritage and displaying the hallmarks of becoming a global commodity. Europe has largely abandoned the use of oil-linked contracts and the Asia–Pacific region is moving similarly, linking with indices like Henry Hub or the Japan/Korea Marker (JKM) index. New digital trading platforms are emerging that support increased price transparency and lower the barriers to trading. The close-knit LNG ‘club’ is breaking up, and the increased number of market players has amplified the complexity of LNG trade. Other predictable patterns of a maturing market include:
• increased spot and short-term contracts;
• removal of destination clauses, leading to greater flexibility;
• deployment of floating storage regasification units, enabling new delivery options;
• greater diversity of market participants;
• emerging trading platforms; and
• the development of a futures market underpinned by physical trades.
Although there seems to be consensus the growing global LNG market needs a better pricing mechanism, it is unclear how this transition will unfold. The oil market experienced a similar evolution in the 1970s and 1980s and is an interesting proxy for LNG. However, LNG may be different; the large capital investment and long payback periods are in direct conflict with buyers’ demands for shorter-term, more flexible contracts. This divergence has contributed to a slowdown in final investment decisions and the emerging risk that the market may soon be undersupplied. This paper examines how the oil sector progressed through a similar turbulent period, weathering commodity cycles while remaining an attractive sector for investment. The paper also considers what it will take for investors to have confidence in new LNG projects within the realities of an increasingly liquid and global commodity.
Keywords: Brent, commoditisation, commodity, crude oil, exchange, futures, gas, Japan/Korea Marker (JKM), liquefied natural gas (LNG), natural gas, risk management, spot, trading, West Texas Intermediate (WTI).
Bernadette Cullinane is Deloitte’s Australian Oil, Gas and Chemicals Leader and Global LNG Leader. Bernadette has worked across the oil and gas value chain and at all stages of the capital project to operations lifecycle. She helps Australian and international companies improve business performance, implement growth strategies and transition to a decarbonising economy where LNG and electricity play increasing roles. Bernadette is a Fellow of the Institution of Engineers, Australia. She is a Director of METS Ignited, the industry growth centre for the mining equipment and technology services sector, and is a founding board member of Women in Oil and Gas in Australia, an organisation with more than 2000 members. |
Susan L. Sakmar is licenced to practice law in California and currently is a Visiting Law Professor at the University of Houston Law Center, where she teaches a seminar on Shale Gas and LNG. Susan also consults on various aspects of global gas markets and has worked on several training projects related to LNG, as well as several projects focused on regulatory and environmental issues for global shale gas development. Susan’s LNG book, Energy For The 21st Century: Opportunities And Challenges For Liquefied Natural Gas (LNG), was chosen as an Outstanding Academic Title for 2014 by Choice Magazine and analyses the critical role LNG will play in the 21st Century as the ‘glue’ linking global gas markets. |
Nye Hill is the industry research analyst in Deloitte Australia’s Market Intelligence team, covering oil and gas, power and utilities and metals and mining. Nye conducts extensive analysis on industry trends, market dynamics, business issues and talking points across the E&R space. Nye joined the Australian firm in 2009 following a move from Deloitte’s London office. Prior to joining Deloitte UK in 2004, Nye worked in research roles for McKinsey, Macquarie Bank and ABN Amro Bank. |
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