Willing LNG buyers in Europe look at a bleak supply picture. There are not too many opportunities. That does not mean that they all do what should be done in such a situation.
It’s THE big issue out there for many players and frankly, it’s the one I have decided to hang my coat onto.
When it comes to securing LNG supply, people get starry eyes. Atlantic basin utility companies take downstream LNG positions as if the stuff could be bought at the next fueling station. Nothing could be further from the truth.
It’s true that LNG has come a long way since before 2000 but whatever anyone likes to tell you, it’s not a commodity yet. And you should not hold your breath for it to become one.
LNG typically is part of a supply chain transaction which means that the buyer gets involved in the whole chain from liquefaction to regasification. If that is not your way you are prey to the portfolio players and let’s be frank. If you are number 37 in the line and it’s your turn you are left with what 36 before you did not want. Not the best option I guess.
To those not yet exposed to the problem, I have a word of advice. Either you get comfortable with upstream business in uncomfortable parts of the world or stay out. It’s not for you.
All those who absolutely need to secure LNG supplies – listen up. I remember my oil times. One in 100 deals was real. The rest was garbage. In LNG the proportion is more like 0 in 100 deal proposals.
Let’s come to the options:
- you can go to Qatar and pay their price. It likely will be a price that you cannot or do not want to pay. But you can do that. It’s a safe way but it will lose you tons of money.
- you can test your luck on the spot market which is highly speculative. There sure is a spot market but your regasification capacity will go empty an awful lot of times as volumes of spot LNG available are not endless. And every time there is a cold snap in Japan the market is sucked dry.
- you can team up with one of the portfolio players who will squeeze you like a lemon.
- or you can finally start working on real long-term supply. Let’s concentrate on this option.
As said above, LNG supply is usually a function of some kind of involvement in a liquefaction venture. That often means going upstream and dealing with some difficult countries.
Also, there are not a million places where new LNG supply is likely. We all know Australia but the price tag is heavy. North America seems to be the blockbuster these days but feed-gas is priced on Henry Hub and even if this seems to be cheap right now, by LNG feed-gas standards this is very expensive gas. Besides, you take Henry Hub risk in your supply contracts and who knows if this is a good thing in the long run. Besides, the US is similarly to Australia a high labor cost environment. Not a good formula for sensibly priced LNG supplies.
Remains – apart from a couple of outposts such as Russia – AFRICA. East Africa currently sees its own LNG project ambitions of unseen proportions. But equally, West Africa is still a gas province with a drop of oil. Gas is being flared in huge quantities in Nigeria alone and much of this gas should become LNG.
It just is very difficult to pull off a project in those countries as this means way more than having the means to do so and a couple of high-level contacts.