A new paper from Deloitte - entitled ‘Sales and marketing of LNG is evolving. Are you prepared?' – suggests that the Australian LNG market needs to evolve quickly if producers are to become accomplished marketers and traders in the global market.
The paper presents the results of a global survey of LNG sector participants, including producers, customers and traders.
Some of the key findings from the survey include the following:
- Global LNG markets are maturing rapidly at the same time as many projects are transitioning from construction to production. Many LNG producers and customers may have less time to prepare, and more to do, than they realise.
- There appears to be a substantial divide in energy trading risk maturity between companies that are established globally as traders in multi energy commodities and the regional Asia-Pacific LNG-only focused companies. This is relevant in light of the changing market and customer demands.
- Organisations that have been marketing and trading commodities with more mature markets have existing marketing and trading functions, often with relatively mature trading and risk management frameworks developed over many years. They have also been able to leverage past lessons and existing risk management capability across their portfolios to extract flexibility and value. For companies without these established functions and experience to draw on, the rapid development of global LNG markets presents both significant threats and opportunities.
- The evolution of LNG markets, and the increase in sales and marketing activity and complexity, will place high demands on existing and new operations, and their owners. The need to establish and drive maturity growth in their marketing and trading functions, with a risk management framework a crucial part of meeting these demands, will become increasingly important, if not critical.
Alex Georgievski, Deloitte Specialist Advisory Partner, Energy Trading Risk Management, said: “The Australian LNG sector has been in an enviable position for the past decade […] The market has been growing strongly. We’ve done well so far, but what happens next is crucial. To realise the full potential of the LNG market we have invested so much in, we need to ensure as a sector we are equipped to lead the selling, trading and marketing of LNG across the Asia-Pacific region.
“A tidal wave of LNG is about to come into the global market. The sector will, on average, see a new 4 million t LNG train come online every month for the next two years. But demand hasn’t kept pace with this increase in supply, and with the current price of LNG at an all-time low, we’re moving into a prolonged period of LNG oversupply.
“Australia’s LNG companies, traditionally producers and shippers, also need to become adept at selling and trading LNG. In the past, their businesses have been designed around exploration and production to deliver primarily against the long-term contracts underwriting those projects.
“As the needs and demands of new and different, as well as existing, customers are changing, it’s imperative that Australian producers adapt to the new model of selling and trading on spot and short-term terms.”
Energy trading risk management
Respondents to Deloitte’s survey also gave their views on the importance of energy trading risk management (ETRM) frameworks – the overarching risk governance framework by which organisations can develop the necessary parameters to market and trade LNG.
Jamie Hamilton, Deloitte Consulting Partner, Oil and Gas, added: “Australia has seen tremendous LNG development in recent years and is now expected to become the largest global LNG producer by 2020. LNG sales and marketing activity is expected to increase dramatically across the Asia-Pacific region, placing high demands on existing and new operations, and their owners, to establish and mature their ETRM frameworks.
“These demands will come in response to customer desires for greater flexibility and diversification of supply across regions, contract size, contract tenure and pricing basis. They will also come from the new activities sales and marketing functions LNG businesses will undertake, including the marketing of increasingly uncontracted merchant LNG, managing potential delays in project ramp up or even early ramp up, managing production and outage risk and optimising portfolio LNG and shipping arbitrage in addition to re-trading of gas imbalances.”
Edited from press release by Callum O'Reilly
Read the article online at: https://www.lngindustry.com/liquid-natural-gas/06062016/australian-lng-producers-must-evolve-2551/