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LNG World Shipping Ship/Shore Interface Conference Europe: first day thoughts

Thu 22 Nov 2018

LNG World Shipping Ship/Shore Interface Conference Europe: first day thoughts

Riviera Maritime Media head of content Edwin Lampert interviews Norton Rose Fulbright partner Nick Prowse and CS LNG managing director Keith Bainbridge on the morning of the first day of the conference

Riviera Maritime Media head of content Edwin Lampert: In your presentation this morning, you challenged some misconceptions around gas and price.

Norton Rose Fulbright partner Nick Prowse: I think from a pricing perspective, we have seen a number of buyers enter the US market when the price has been low compared to other gas pricing around the world, looking for cheap gas. But gas pricing in the US market has historically been very volatile. Although the volumes are very high, they are not necessarily going to be representative of gas pricing going forward and only time will tell. The cost of producing gas in the US is not necessarily the cheapest around the world. If you compare the cost of gas going into the inlet flange of the liquefaction plants in Russia in the Arctic, those production costs were substantially lower. Of course, the liquefaction costs may well be higher, but all these factors need to be borne in mind when you put your portfolio together to make your purchases competitive in the global gas market.

Edwin Lampert: Keith, when it comes to the world’s global gas markets, it’s all looking good. Are we going to jeopardise it by behaving in the same way we always do?

CS LNG managing director Keith Bainbridge: History tells you we get it wrong all the time, especially when it comes to the US. This is about the third phase for the US and LNG. The liberalisation of the gas market in the later 1970s destroyed the LNG market. Then they decided to import LNG. No sooner were the terminals built, then they realised there was shale gas and now we have exports. It is a question of how long these exports can be sustained and into which market. Yes, they have captured the Asian market as the more local suppliers to Asia are not ready yet. It is back to a shipping delta – the cost of the gas going into the inlet flange of the liquefaction plants is unknown, the liquefaction costs are fixed for the contract and the shipping cost is unknown – it’s a real issue.

Edwin Lampert: If I was to ask each of you in turn to distil the three key messages for the 2019 market, what would you say?

Nick Prowse: I think the industry needs to take more financial investment decisions, rather than talk about taking financial investment decisions if the main gas players are seriously backing gas as a fuel of the future. The second takeaway point is to what extent the main LNG players are trying to create new gas markets. We have seen a surplus of LNG supply in the last few years. Now there are more long-term buyers, we may find the LNG sellers less keen to create new markets and invest in mid-stream and down-stream gas infrastructure. The third takeaway is consolidation: those industry players that are staking their future on gas are going big on gas. So, we have seen the BG/Shell merger and others and we are seeing a consolidation. This consolidation on the buy side will drive where projects will happen. We will see a much smaller number of key players going forward.

Keith Bainbridge: I think financing is one of the big issues and the terms of finance. The western financiers have to revisit their agendas. At the moment, the Chinese are the main financiers and the westerners aren’t. Sanctions play a part, and will the US administration lessen sanctions going forward? I think most of the new markets are looking for power, and how to keep the lights on. LNG is key. The third one is that shipping is a key player in the LNG portfolio and shipping always delivers. As soon as anyone suggests there might be a shortage of ships, owners go out and build new ships and will do so in 2019.

Edwin Lampert: How have you found the conference so far?

Nick Prowse: Excellent! The speeches so far have been very much aligned and particularly current in terms of the main issues facing LNG and the LNG industry.

Keith Bainbridge: It is very well attended and I do like the format where the questions can be put on the screen without having to be identified. You get some good questions posed discreetly.

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