09:55 - 10:20
Thursday, 19 September 2019
S1.7 Twenty Twenty Five Vision: Designing the LNG Portfolio Business of the Future
A lot has been written in the last 18 months about the rise of LNG portfolio players and their role as ‘kingmakers’ in the industry. This has only been further confirmed by the most recent project FIDs, with LNG Canada, Greater Tortue and Golden Pass being underpinned by participants who can take LNG volumes into equity portfolios. Beyond the established majors, there is a push into LNG ‘portfolio approaches’ from across the broad spectrum of LNG industry players.
Ultimately this has been driven by the demand for shorter term and more flexible LNG marketing and trading. Emerging price indices, liberalising markets, the threat of decarbonisation, greater competition and buyer and seller sophistication, all on the back of a more commoditised mindset developed from the US and Australian supply wave, has contributed to this changing LNG market.
Flexible LNG is in demand and highly valued, and participants across the chain are seeking to provide and access this value. There is also evidence value has shifted from the upstream to the midstream, with the demand for access and control in the midstream driving this value. With the traditional long-term LNG contracting model limiting midstream flexibility, this has spurred companies to look at more active management of an LNG portfolio, blurring the line between buyers and sellers over an increasing spectrum of terms. Different sub-groups have different motives:
- Upstream players: adapting their approach to ensure upstream resources aren’t left stranded
- Traders: taking advantage of natural trading capability within a highly physical market
- LNG Buyers: managing increasing flexibility requirements and future uncertainty in price and energy mix
- Project developers: developing models and marketing strategies to avoid the buyer-seller mismatch of recent times
As we look forward, we expect the development of LNG portfolios and dynamic portfolio management to be a big theme of the next two to three years. Whilst the increasingly shorter-term and commoditising LNG market is driving the current move towards LNG portfolio development, how can the portfolio approaches being designed now be successful in the market environment of 2025 and beyond? Will those companies driven by immediate requirements have the foresight to consider positioning themselves for future success? Replication of recent models will be unlikely to lead to success, particularly as margins are squeezed by increased competition.
There will undoubtedly be winners and losers and the ability to tailor an approach to a specific participants strengths, requirements, capabilities and risk appetite will be key. As more companies enter this space, they will need to develop, amongst other things:
- Flexibility being-built into a portfolio to adapt to changing market dynamics
- A more developed and sophisticated view of global markets
- Risk management capability and the balance of volume and price exposure
- Shipping strategy
- Highly capable team, systems, processes and tools
At GasTech 2019 we will explore the drivers for increased portfolio approaches and the different models for industry participants as they seek to ensure they strike a risk and reward balance in dynamic portfolio management that can move with the evolving industry.