14:50 - 15:15
Thursday, 19 September 2019
S1.9 LNG Liquidity Sparks New Commercial Models
There is an old saying that time waits for no one, and that is certainly true of the evolving LNG market. The past few years have seen an unprecedented shift, with LNG breaking from its regionalised shackles to become a globally traded liquid commodity.
Today’s LNG industry is radically different from the clubby and staid market of the past. Qatar, and its cousin down under, Australia, are global leaders in supply, while the US is aiming to leapfrog both. China and India are the bright spots for demand. Trading houses have boldly emerged as disruptive players in the market. These changes have created an environment ripe for innovative commercial strategies. In such a dynamic setting, asset ownership, project structures and risk exposures are continuously morphing, making financing LNG projects challenging and risky. Current regulatory pressures on banks and third party lenders further compound these dynamics.
Prospective project developers are required to offer compelling, competitive commercial models to attract investors who have a plethora of choice. The stakes are high - the optimal commercial structure can significantly drive returns over the project lifecycle.
To gain insight into the trends and future directions in LNG commercial models, Deloitte will share the results of a recent comprehensive study of industry players including producers, buyers, trading houses, commodity exchanges, price reporting agencies and professional services companies.
Understanding the evolving landscape is particularly relevant for Australia, whose LNG export projects have been based on the ‘old world’ model – Asian utilities contracting long-term, oil -linked, destination-restricted volumes. These constraints are anathema to the current marketplace. New commercial arrangements must be fit for purpose - be it new projects, life extensions or backfill of aging infrastructure.
The need for next generation commercial models is not unique to Australia. The second wave US LNG export projects are also searching for mechanisms to be cost competitive and ensure security of demand. In this whirlwind of fast-paced disruption, novel combinations including standardised contracts, increased sponsor equity, portfolio style ‘aggregator’ deals, 100% Government owned structures, commercial carry arrangements and ECA financings could all play a role, together with variations on the existing tolling structures already in place. To paraphrase Charles Darwin, “those most adaptable to change survive”. This applies perfectly to the next wave of LNG.
Providing insight from market-wide perspectives, this paper will shed new light on the opportunities and challenges of an emerging liquid LNG market. With this transformation, the spark of commercial creativity driving the industry forward has been lit, and it will burn brightly!