What are the current trends in the gas market today? Characteristics of the market are strong supply, weaker demand and therefore lower prices. This is making life tough for liquefied natural gas (LNG) exporters who need to drive value out of their substantial investments.
What are their options? As the LNG sector expands, so do the opportunities and the good news is that there are more LNG buyers appearing all over the world. However, LNG producers will have to adapt quickly to this changing market; a big part of that adaptation is to operate with a lower cost base. Future LNG projects will likely be smaller-scale, margins will be thinner due to lower oil and gas prices while the market is also becoming more competitive.
Therefore, flexibility is the name of the game. Today, we are already starting to see new LNG export projects developing which look quite different to those being set up a few years ago. For example, one of the new LNG export projects in Mozambique will be developed as a floating LNG project; its gas will be sold on an oil-linked, free-on-board basis, at prices competitive with US LNG. Its gas buyers are also agreeing to be flexible - if LNG volumes are lower than expected or late.
Building flexibility into LNG contracts is not the only tactic however. As the LNG market expands, current sellers (who don’t have much of a market presence today) are making investments in terminals and in storage to allow greater destination and volume flexibility. This new infrastructure also needs third-party access with flexible delivery options to build its value. Ultimately it will create a more competitive LNG market where flexible players will be rewarded with more options and price arbitrage opportunities. Listen here to find out more about the current trends in the LNG market today.