IHS CERAWeek: Executives show optimism on future of global LNG

By Adrienne Blume
Executive Editor

HOUSTON -- Wednesday morning at IHS CERAWeek was abuzz with talk of energy transitions and market concerns and opportunities. The morning global gas plenary session, chaired by Michael Stoppard, chief strategist for global gas and vice chair of CERAWeek for IHS, posed several questions to attendees.

These questions included: What regrets will emerge in 2020 if too much caution is exercised in the tough market in 2016? Will renewable energies emerge as competitors or compliments to natural gas? Are low energy prices necessarily a bad thing, or can they help set up a new platform for the market going forward? Also, how will the market—and the customer—respond and react as additional LNG and pipeline gas volumes enter the market through the remainder of the decade?

Customers will drive change. Iain Conn, CEO of Centrica, spoke about customer relationships with regard to the changing energy landscape. Consumer-driven trends are changing the energy market, Conn noted. These trends will be significant over the long term, and will involve marked increases in natural gas use.

Cost-competitive renewable fuels are an important part of the solution, as is the decreased use of coal. Gas will play transitional role in the transition to a lower-carbon economy for heat and power. Governments have the job of establishing policy frameworks to encourage these transitions. However, consumers are the real enablers of change, since they dictate where and how energy will be used, Conn explained.

Three key drivers are transforming the global energy system: what customers want and what they can control, the availability of new and improved technology, and customer use of energy data and actionable insight.

Five major impacts of the changes resulting from these drivers will include:

• A shift in where energy is generated and managed, which will give businesses and consumers greater control over how their energy is managed and used
• Accelerated access to energy
• A competitive landscape with new value chains, business models and competitors
• Increased complexity during the transition; the customer will become the price-setter rather than the price-taker
• Continued divergence of GDP, energy use and CO₂ emissions.

"All of these impacts lead to an overarching conclusion," Conn said. "There will inevitably be winners and losers as we make the energy transition to the future. The winners will be those with advantaged assets … This is a transitional moment for the energy industry. The real winner, however, will be the consumer, as well as those of us who can respond to this transformation with new capabilities and imagination."

Gas: A growing commodity. Alexander Medvedev (pictured), deputy chairman of the management committee of Gazprom, next discussed the rising prominence of natural gas in global energy usage.

"The global energy industry landscape is changing fast," he said. The oil price drop and ambitious targets toward a low-carbon economy have impacted the energy market in recent years, and will continue to do so.

"Gas is a hot commodity" in today's evolving energy sphere, Medvedev acknowledged. Gas is replacing coal, gaining share in power generation and becoming a prominent energy source for the world. Overall, the company forecasts a 70-Bcm increase in global gas use by 2020. Gazprom also expects gas demand to make a comeback in Europe as new applications for the hydrocarbon emerge.

LNG rising in US, Asian markets. Yuji Kakimi, president of Japanese LNG joint venture (JV) JERA, next discussed the export of LNG from the US and innovation in the Asian LNG market.

Kakimi acknowledged that a fundamental change is underway in Japan on the demand side. Quantitative LNG demand is less certain, and the deregulation of Japan's gas and power sectors requires LNG pricing to become more rational and transparent.

On the supply side, the inflow of non-oil-price-linked LNG from the US could have a huge impact on the Asian market, Kakimi said. It could enhance the tradability of LNG in the Asian market and introduce LNG with a lower production cost.

JERA, as one of the world's largest buyers of LNG, will catalyze changes and innovation in the Asian energy market, Kakimi said. The JV plans to do this through four means: portfolio diversification, price index diversification, enhancement of trading functions to enable response to demand fluctuations and market conditions, and contribution to project development through investment.

US LNG exports growth. Meg Gentle, president of Cheniere Marketing, closed the plenary with a talk about the impact of US LNG on the global gas market. Cheniere's Sabine Pass liquefaction plant in Louisiana is in the process of loading its first vessel for shipment to Brazil. Gentle shared some recent video footage from the project that showed LNG being loaded onto the vessel.

Gentle next discussed US LNG exports in the context of the global gas market. Global natural gas consumption was approximately 328 Bcfd in 2014. By 2030, LNG will make up 15% of the global gas market, as demand for the fuel nearly doubles between 2015 and 2030.

Gentle acknowledged that 42 new LNG trains would need to reach final investment decision around the world in the next five years to meet this increasing demand.

The US is expected to become the world's third-largest LNG supplier over the next few years. The country will also be one of the lowest-cost places to produce LNG, Gentle said, echoing JERA's Kakimi.

US LNG exports are "not only driving growth, but also bringing about a fundamental change in the market," Gentle said. Flexible contract terms and high liquidity will contribute to this fundamental change.

Gentle closed by noting, "Even assuming aggressive growth in renewable energies, hydrocarbons will be needed for the foreseeable future, particularly natural gas."

IHS CERAWeek continues through Friday at the Hilton Americas in downtown Houston.

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