Optimism abounds at landmark Australian LNG summit
Australia last week welcomed the world’s largest global Gas conference, against a backdrop of considerable market upheaval and transformation. In total, 1,800 exhibitors and close to some 2,000 delegates were in attendance at what was hailed as the biggest gathering of top oil and gas executives in the country for almost two decades.
For Mark Coughlin, head of PwC’s energy, utilities and mining practice in Australia, the timing of the convention was in itself highly pertinent. “The conference came at a decisive juncture for the sector: last year’s Paris climate change agreement suggested that the de-carbonization of the global economy is fully under way, while the surplus volumes of LNG in today’s market could well hasten the advent of more dynamic and deeper spot markets for LNG,” he predicts.
Situating the event in Perth also seemed very appropriate. Some of the largest LNG facilities in the world remain located in Australia, and plummeting global oil prices have raised concerns regarding further investments in the sector. With many local projects in a state of transition as they progress from installation to production phase, these challenges have been compounded by stuttering demand from major actors such as Japan and China, which have only served to exacerbate a state of global surplus. Nonetheless, a general feeling of optimism was exhibited by participants, highlighting the projection that Australia still remains set to overtake Qatar as the world’s biggest LNG exporter by 2020 after $200 billion of boom-time construction approvals.
“Market conditions are, of course, challenging, but at the same time, new markets are opening up such as Thailand, Pakistan and Poland,” Shell CEO, Ben van Beurden told delegates. Whereas several of these markets were long thought to be “too small to consider,” the rapid growth of floating re-gasification facilities has “considerably lowered access costs for importers,” he enthused.
Further emphasizing significant market shifts, ExxonMobil, the world’s biggest and most profitable oil and gas company, called for action to grasp opportunities to drive extra demand. Houston-based head of gas and power, Richard Guerrant, confidently declared that “now is the time, with an oversupply, to be capitalizing on opportunities and developing new markets.”
Noting an extension of new markets and buyers around the world, Guerrant underscored the value of these potential opportunities. “South Africa and Morocco are planning for LNG imports, Panama and Colombia are entering the LNG marketplace, Indonesia is becoming a significant LNG importer, while Bangladesh and new areas of India are becoming LNG importers,” he analyzed.
Another topic raised related to how growing production capacity and rising spot liquidity are accelerating the commoditization of the LNG markets with Andree Stracke, CEO of RWE Supply and Trading, suggesting that the market has already “moved step closer to LNG-based price indexation.”
Referencing themes such as new markets and enhanced collaboration, in a panel entitled “A New Era of Partnership,” Melody Meyer, President of Chevron Asia Pacific E&P, meanwhile drew attention to the immense potential of the world’s emergent middle class. With the global middle class anticipated to double to 5 billion in the coming 20 years, Meyer stressed that energy consumption, primarily in regions with rapid growth in South Asia and Asia Pacific, “can only continue to rise,” implying that contemporary gluts are merely a temporary concern.
Rounding out the conference, some of the industry’s heavyweight players reviewed the lessons learned, taking stock of the milestones of their projects and the growing pains encountered. Andrew Smith, Country Chair and VP for Upstream at Shell Australia, for example, commented on the company’s flagship Prelude project, addressing how the implementation of one of the world’s largest floating LNG facilities would not have been possible without intricate collaboration throughout the project development phase and emphasizing the strong linkages between joined-up-action and cost containment.
Others illustrated how collaboration can extend beyond private sector actors, with Roy Krzywosinki, Managing Director of Chevron Australia highlighting the LNG sector’s direct contribution to the national economy, noting that Chevron projects alone added the public purse while creating new jobs to the tune of 150,000 in the process.
Despite the murmurings of ongoing market malaise, Origin Energy managing director and LNG 18 chairman Grant King lauded the event, observing that the mood was decisively more buoyant than the World LNG summit in Paris in June. “The gas story may have been bit depressed at that time, but today there is a much greater sense of optimism about the future,” he asserted.
Capturing the sentiment of many participants, King concluded that the signs are that, “despite surprising growth in coal of late thanks to cheap prices, governments are expected to legislate to encourage the use of gas in power in line with their globally agreed-upon commitments.” In other words, LNG is assuming importance not only on a regional economic level, but also in regard to international accords to promote more environmentally sustainable energy resources.
Article by: Louis Haynes and Christopher Crachiola