Investing in LNG Growth
The global LNG market is entering a period of rapid expansion. This growth is the result of a structural shift towards natural gas as a cleaner fuel and an increase in gas import dependence in Europe and Asia. At the same time, the volume of global liquefaction capacity is set to double over the next decade, requiring an estimated $1 trillion of new investment.
By David Stokes & Olly Spinks
THE LNG MARKET has traditionally been dominated by long term oil-indexed contracts with fixed destination clauses. While long term contracts remain a feature of the market, the physical and contractual flexibility of LNG is increasing. Pronounced inter-regional price differentials and improvements in gas hub liquidity have been a catalyst for contract re-negotiation, secondary trading and the diversion of cargoes.
market price signals. As a result, there is typically an important relationship between the value of an individual LNG asset investment and its interaction with the surrounding portfolio.
The LNG Market in Perspective The global LNG market is still in a stage of
relative infancy. Only a small portion of global gas consumption is currently satisfied by LNG (around
Figure 1: Summary of the Global Gas Market
Sources: BP Statistical Review of World Energy, 2012; Timera Energy The evolution of the LNG market presents some
compelling investment opportunities but also some specific challenges. The LNG supply chain is inherently more complex and interdependent than that for pipeline gas. Value across the supply chain is driven by the interaction between bespoke supply contract structures, underlying asset flexibility and
10% as illustrated in Figure 1). Only a relatively small volume of LNG has the contractual flexibility for diversion in response to price dynamics. Current constraints around global LNG flexibility are reflected in the regional price divergence across Asia (tight market post Fukushima), Europe (broadly tracking oil-indexed contract supply) and
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