Editorial comment
What do Mary Poppins, Russell Crowe and the modern global LNG industry have in common? That’s right, they all turn 50 this year! Back in 1964, as Cassius Clay won his first world heavyweight boxing championship and Beatlemania hit the US, the world’s first commercial-scale LNG plant started up at Arzew in Algeria.
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Just as The Beatles and Clay (aka Muhammad Ali) created a legacy that defined the future of their respective industries, it can be argued that the first shipments of LNG to Europe from Algeria changed the face of the energy industry forever.
Fifty years on and the LNG industry has matured into an essential part of the global energy puzzle. A growing demand for natural gas, which is forecast to reach 25% of the world’s energy mix by 20351, has led to a general consensus amongst industry analysts that LNG will experience average annual growth of around 5 - 7% per year through 2020. Meanwhile, the industry’s offspring, namely floating LNG and the use of LNG as fuel (both of which are featured within this issue), are beginning to come of age.
However, the LNG industry is facing up to a mid-life conundrum. Although analysts predict that we are in for another tight year as regasification capacity additions continue to outpace new supply, a wave of new projects – from a multitude of different sources – are due to add significant capacity in the near future. This is set to trigger an evolution in pricing as US LNG exports indexed to Henry Hub prices challenge the status quo of long-term oil-indexed LNG contracts in Asia. And herein lies the conundrum: how can increasingly expensive LNG projects sell to increasingly price sensitive buyers?
To remain competitive, producers will need to adapt. Although oil indexation will not disappear, it is likely that it will become one of several pricing mechanisms used throughout Asia. According to a recent report from Deloitte, producers must “compete not only on price, but also [on] non-price terms”. Examples of these non-price factors include flexibility in the quality of LNG, supply security, and equity stakes in upstream projects.2
As Bob Dylan sang, also back in 1964, “the times they are a-changin’”. It will be interesting to see what the next fifty years have in store for our industry...
The upcoming Gastech Conference & Exhibition will likely shed some light on this debate. LNG Industry will be in South Korea for the show, so please drop by Hall Stand A100 (‘Palladian Publications Ltd’) to say hello.
We have also recently launched our brand new website: www.lngindustry.com. Here you can keep up to date with the latest industry news and events, as well as read exclusive technical articles and Special Reports that are not available in this issue of the magazine. Just think of it as our birthday present to the industry.
- ‘World Energy Outlook’, International Energy Agency, 2012.
- ‘Oil and Gas Reality Check 2013 A look at the top issues facing the oil and gas sector’, Deloitte, 2013.
