Some days ago on my way to the subway, I saw a man donning a shirt saying “You will get what you are given”. I could not help it, but the current stalemate in the LNG industry immediately jumped to mind. It’s hard to get LNG if you need it – its even downright impossible if you are competing in a pipeline gas driven market. Much of the blame lies with the buyers as I have pointed out in many posts. But the seller’s attitudes are not helpful.
Do you remember Charles Dickens novel Oliver Twist? In one scene – quite at the beginning of the tale – there is the stone hall where Oliver summons all the courage he can muster and asks for one more bowl of porridge.
Its a classic novel children learn the world over (their parents might even hope their kids are grateful for the outstanding life they have now). But it also tellingly reminds me of the LNG world. The LNG seller is the master with an apron who keeps the buyers eternally hungry hoping that he might get ever more cash forever less product.
The very same gamble had haunted the European Natural Gas scene with Russians, Norwegians, and Algerians wielding the big stick. But in Europe, the Natural Gas market has faltered and as a result, attitudes have softened – to a degree. They will no doubt soften much more.
In LNG, the old gamble is still in full swing – and with a vengeance.
To a point, I understand the sellers. They want to maximize returns and keep the blowheads at bay. Any business with LNG style margins always attracts a horrible lot of middle-man who supposedly will get you what you want – for a little something of course. Sellers are exposed to them just as bad as buyers are. I personally have never seen one single such deal materialize but desperate buyers are willing victims.
But when it comes to the legit buyers, attitudes are just as bad as LNG sellers behave as if they have a monopoly in selling the stuff and hence everyone has to accept whatever they are thrown at.
They have a point as today’s world really starves for more LNG. Up until 2011, it looked as if the market is going to loosen a bit which in turn would have changed sellers attitudes towards buyers a bit.
Then came Fukushima and everything went for the steam cooker. Sellers have gotten so used to this crazy state of affairs that for a sellers representative just being seen behaving a bit buyer friendly would seriously put his career in jeopardy. And if you are a sellers representative, you squeeze the lemon as much as you possibly can with absolutely no regard for the ulterior damage.
Prince Waleed bin Talal has recently warned the king of Saudi Arabia that the current shale gas revolution puts his countries fortunes in the gravest danger since the establishment of the state of Saudi Arabia. Its hard to be heard in a world where oil is still at over 100 USD a barrel and when it can be produced as cheaply as it is possible in Saudi Arabia.
But the danger comes from somewhere else. Huge margins as today’s oil world throw at sellers, have gotten them spendthrift. When money is no problem, one uses to take care of any problem by throwing that money at it until the problem goes away. Many oil producing countries have used large swathes of their oil riches in order to pacify a restive population by doling out cheap energy, housing, and food.
But those subsidies have grown exponentially and rolled them back for just a little bit is like throwing a burning torch into a barrel full with gasoline vapors. It’s going to blow.
The high oil price and a feeling that it will go higher still has lured the oil producers into believing that the bonanza would be never-ending. They have stopped working on their real problems so they have lost the capability to do so. Now they are dependent on expensive oil for their survival and this was of their own doing. Shale had no part in this.
The gas revolution in the US – still the biggest energy user worldwide – puts this fragile house of cards in grave danger. Lets put it in blunt words. The current situation is much more serious for sellers than it is for buyers. And the atmosphere in the sellers camp must be poisonous right now – a little bit like the situation in the Führerbunker in the dying days of the second world war. Hitler was nuts and everyone knew it. Most Germans had already realized that everything was lost already and the only realistic option was an immediate ceasefire.
But telling the Führer meant confronting him and that was certain death. One cannot blame people do not want to risk the wrath of the Führer when death was certain. Hope, things might turn out otherwise was still prevalent even if no one had a clue what that might realistically be in the end.
The comparison with the dying days of the Third Reich is a bit crass as LNG sellers are not even remotely comparable Nazi thugs. I am not referring to the actors in play but rather point my finger at the mechanics at play as this is basic human nature. This same human inertia is at play just as bad in European utility companies that cannot realize that the oil link is dead and that their beloved land of milk and honey has gone for good.
I have said so in a post more than 6 months ago – sellers will have to get used to a world where they have to compete for buyers as the so-called sellers market (honestly, what market in a so-called seller’s market anyhow?) will give way to a much more reasonable state of affairs. A market – and any healthy market is always driven by consumers and their every whim.
Sellers will not like this but there really is no choice. And don’t expect them to give in easily. They will resist it to the very last bullet. Organisations and companies of this size cannot change because it is wise to change. They only change when death is imminent. Sometimes death has to be almost consumed as otherwise, no-one makes the hard choices necessary. Look at Greece. How long do they know that they have a problem? Quite a while. When have they started to fix something in earnest? 5 minutes past 12 actually.
Price Waleed is absolutely right with what he says. But it will not change a thing in the kingdom as there is still an awful lot of substance to waste. And so will LNG sellers attitudes not change as well. Why should they when the world is a huge apple pie to them.