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Don Hubbard, advisor InterEnergy (R), in a panel with Koji Amano, LNG president, Mitsu & Co (CR), with Jimmy Straughn, BP Americas (CL) and Vera de Gyarfas, partner, King & Spalding (L)
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No golden buyers for US second wave

Producers will need to aggregate demand from around the world to get projects over the finishing line

The second wave of US Gulf of Mexico LNG liquefaction plants—some of which have taken FID in recent months while others battle to do so—will face much more challenging market conditions to contract their output than the first wave, delegates heard at an event co-hosted by law firm King & Spalding and Petroleum Economist on Monday.

The briefing, chaired by King & Spalding partner Vera de Gyarfas ahead of the Gastech conference in Houston, focused on the factors on which buyers base their decision of preferred LNG supply.

It will be “very difficult” for producers to differentiate themselves, says Jimmy Straughan, chief commercial officer for BP’s LNG Americas division. “What we are looking for is value,” he says, of which price is a large component but, as BP is “trying to bring [supply] into our portfolio and extract value from it”, factors such as flexibility and shorter terms are also important.

Izumi Kai, president of the American division of Japanese utility trading joint venture Jera, also stresses the importance of considering the fit of any new supply source on the overall portfolio. “We have to consider what will happen once we get a project into our portfolio, how competitive the entire business will be. That is very important for us.”

“We are left perplexed as to which projects really are going to reach the finish line,” Don Hubbard.

Don Hubbard, advisor at Central and South American power project developer Interenergy, says certainty is a key factor. In the scrum of projects jostling for position, it is unclear even that projects which have already taken FID will materialise. “We are left perplexed as to which projects really are going to reach the finish line,” he says. “If there is a project development team that comes in, it helps us clear that certainty hurdle.”

Most of the projects that Interenergy is developing are in emerging markets because “there is a big market there to displace fuel oil”, says Hubbard. While emerging market buyers are very likely to have lower credit ratings, they can benefit from credit enhancement from multilateral banks, such as from the IFC, that are targeting carbon emissions and other pollution, he continues.

The first wave of Gulf of Mexico LNG found willing buyers for substantial slices of overall capacity, particularly in Asia. The panel agreed that demand for the second wave will be far more diverse. “Unfortunately for the developers, I do not think there is a golden buyer,” says BP’s Straughan. “There is going to be an aggregation of a whole bunch of different buyers. Portfolio players will be one of those, but not enough to do this [alone]. The days of someone stepping in and buying 4-5mn t in one whack are probably gone.”

It is “a different market” to how it was in 2012-3, says Hubbard. “You may have to go directly downstream. We have developed a terminal that has becomes a utility of sorts, a buyer that then distributes LNG. Then you have credit enhancement issues and a lot more complications, so it is a little bit harder to market now than it was.”

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