The LNG 17 Conference is considered to be one of the world’s premier LNG events, and is one of the few events conducted specifically by the LNG industry for the LNG industry. Because of this, the conference provided an excellent learning and networking opportunity for delegates.
The event brings together upstream exploration and production companies together with buyers, sellers, traders and suppliers; there is no doubt that this is the place to do business in LNG.
The conference mood was one of optimism for the growth of the LNG industry over the period 2010-30, with recognition of the considerable challenges facing the growth of the industry. Some of the key themes covered at the conference included:
Gas at the heart of a sustainable energy future
A clear message from most of the speakers was that gas is at the heart of a sustainable energy future and LNG demand is expected to double by 2025, with the main growth coming from the Middles East, Asia Pacific and South America.
United States LNG supply
The US Department of Energy (DOE) is evaluating 200 MMt/a of applications to export LNG to non-free trade agreement countries. The DOE is moving as fast as it can on the approvals but has also said that it will not be rushed as getting it right is important for the long term. Approval from the DOE is unlikely to be the only deciding factor in whether all of the US projects go ahead and commercial considerations (market demand, cost competitiveness, financing, etc.) are likely to also put upper bounds on the amount of LNG that will be economic to export. Additionally, LNG supply/demand estimates indicate that 150 MMt/a of new LNG is needed to take final investment decision by 2020 so to be in production by 2025. The cost of these new projects is critical to whether new projects will result in cheap gas. Keeping new LNG supply costs down is a real challenge for the industry. Over the short term, it will be difficult to see a number of new projects reaching FID with buyers seeking lower cost LNG at the same time as projects are grappling with the challenge of the high cost environment.
LNG pricing
There was much discussion about whether the arrival of Henry Hub-priced LNG into Japan will have an impact on LNG pricing in Asia, and whether the global model for LNG pricing is changing. Several speakers noted that even though Henry Hub pricing was being sought as a new benchmark for LNG pricing, it does not necessarily mean lower prices and US LNG will not be that much cheaper than LNG from Australia and East Africa.
Social highlights
Throughout the course of the week, there were many networking events the Australian Gas Industry Trust scholars attended. The organising committee of the LNG 18 Conference, to be hosted in Perth, Western Australia, from 12-15 April 2016, hosted a small cocktail party on the second evening of the conference. The function attracted some of the industry’s most prominent figures.
Origin Energy Chief Executive Officer and LNG18 Executive Committee Director Grant King welcomed attendees and discussed how Perth won the opportunity to host the conference, and how Australia and Qatar were in a two-horse race to host the conference. Prior to the announcement, the International Football Federation announced that Qatar had won the opportunity to host the 2018 World Cup. This announcement made the executive slightly nervous about Australia’s bid for the conference, but when Australia was announced as the winner, it made it all the sweeter.
Federal Minister for Energy Gary Gray followed Mr King’s presentation and made a sincere tribute to the former Minister for Energy Martin Ferguson for all his hard work in positioning Australia to be one of the world’s largest LNG exporters. He then outlined his vision for Australia to be a centre for engineering and technology excellence in LNG.
Western Australian Minister for Mines and Petroleum Bill Marmion followed with a discussion of the opportunities for Western Australia related to hosting such an event.
Building new commercial arrangements
After a busy week of back-to-back conference sessions, peer meetings and a plethora of social events, the crowds were thinning by the final day of LNG 17. For the more resilient delegates, the final day of the conference delivered some valuable insights into emerging LNG commercial arrangements in the US.
Discussed was how in traditional LNG markets, LNG suppliers, or “˜sellers’, take gas supply risk whilst LNG buyers take volume or market risk; with both parties exposed
to price risk through oil price volatility – this can be somewhat negated through S-curve contracts. LNG projects in the US are challenging this status quo due largely to a highly liquid domestic gas market, low gas prices and increasing supply volumes.
Cheniere Marketing President Davis Thames then provided an outline of Cheniere’s commercial LNG arrangements. Cheniere has inked several LNG supply deals with buyers, where Cheniere will sell LNG for 115 per cent of the benchmarked Henry Hub prices, plus a fixed fee of $US2.25-3 million Btu. This commercial structure, according to Mr Thames, is effectively a tolling agreement whereby sellers limit LNG feedstock volume and price risk (via a straight pass through to the buyer) while ensuring revenue to cover its capital investment in the liquefaction facility with buyers having a firm commitment to pay.
As at 17 April 2013, there were 19 proposed North American LNG export terminals – some of which may utilise similar commercial arrangements as Cheniere. While governmental approval is not yet assured for all of these projects, their ability to secure credit-worthy buyers and support from the banks will be a key discriminator in determining which projects ultimately go ahead.
Looking to LNG 18 in Perth
The finale of the conference included a ceremonial handover from the LNG 17 organising committee to the Perth LNG 18 organising committee. This handover included an address by Mr King, a traditional didgeridoo performance, as well as a children’s choir singing Australian classics.
It was then time for a more casual event, in which denim jeans and Texan 10 Gallon hats were actively encouraged. This started with an indoor rodeo sponsored by LNG 18, which was set up in one of the convention centre halls. It was a spectacular event that included dozens of animals, bull-riding competitions, rodeo clowns, bucking horses, trick rope performance, whip cracking, a team calf-lassoing competition and a whole range of cowboys and cowgirls.
After the rodeo, the delegates adjourned to an outdoor barbeque function held in the Discovery Green adjacent to the convention centre. As well as the buffet food and samples of Australian wine, there were also Texan attractions including armadillo racing, line-dancing demonstrations, and a mechanical bull ride.
This less formal event and atmosphere allowed for more networking and conversation with some of the thousands of delegates attendees hadn’t yet been able to meet previously, and was a great way to round out the convention.
