Think back to the millennium celebrations at the start of this century, then think how much the energy landscape has changed in that time. Until recently, Liquified Natural Gas (LNG) customers typically signed up to a buyer’s contract lasting two decades. But now “flexibility” has become the buzzword for this booming market.
Increasingly, gas buyers are looking for agile purchasing terms that treat LNG as a commodity to be traded, rather than entering long-term fixed contracts. This is prompting small and mid-scale LNG operators to rethink existing business models and innovate to stay ahead of a rapidly evolving marketplace.
One catalyst for this change is rising global demand for LNG, particularly in the emerging economies of Southeast Asia and South Asia. Mitsubishi Heavy Industries (MHI) Group’s industry paper, Agile Solutions for LNG by 2024, suggests there may be a shift in balance of the LNG market, with supply outstripping demand over the next few years.
Market expansion brings with it greater diversity of customers, adding a new dynamic to how the gas is produced and traded.
Speaking at Gastech 2019, Olivier Mussat, International Finance Corporation Chief Investment Officer summed up the new mood, explaining that traditional 20-year contracts from buyers, still favored by investors, are unlikely to be a key feature in emerging economies with a blank page upon which to design and build LNG import infrastructure.
New Financing Models
As the industry drifts away from long-term contracts, there is less financial certainty for smaller producers and their investors. And that means traditional financing structures are being rethought.
One example of this is export facilities developer Tellurian. It is partnering with oil majors including Total to secure the financing necessary to build its Driftwood LNG project without long-term contracts from end users of the gas.
The company is a terminal operator that will also drill for natural gas and therefore become a producer in its own right.
The Driftwood site sits between Houston and New Orleans. With the first LNG set to flow in 2023, the completed terminal will be able to export 27.6 million tons to customers around the world each year. Pipelines will connect the facility to a compressor station, two major offshore Gulf of Mexico pipelines and three different LNG trading zones.
Having secured the necessary finances to build the terminal, the company is seeking an $8 billion investment for a majority stake in its LNG production, pipeline and terminal operations.
The Bottom Line
Innovation is not only reshaping how projects are financed but also how producers construct their facilities.
Venture Global LNG is embracing factory-built, modular construction of its plants to reduce costs and increase the company’s ability to be flexible and respond to individual customer needs.
The company’s Calcasieu Pass LNG production and export facility is made up of nine 1.2 million ton liquefaction blocks and two vast containment storage tanks.
In addition to reducing the capital needed for the build, the company’s modular approach lowers operating costs and facilitates fast-to-market LNG production.
“We were able to push production of the systems into a factory environment, which allowed us to contract for specific schedules, specific costs and therefore price,” explains Mike Sabel, co-CEO and founder.
Fabricated offsite, the mid-scale modules were delivered complete and pre-tested, cutting down installation time and reducing exposure to adverse weather conditions or unplanned stoppages.
The modular approach enables the site’s capacity to be split, boosting reliability and availability: if any single block is unavailable, the plant would still be able to operate at almost 90% of its production capacity.
New developments like this help the industry find stability as it goes through a period of transformation, but there are doubtless more to come.
In a rapidly changing market, producers need to innovate, stay agile and respond to what’s happening around them, enabling them to help create a blueprint for the future of the LNG industry.
Johnny Wood has been a journalist for over 15 years working in different parts of the world – Asia, Europe, and the Middle East. As well as an accomplished features writer he has edited several prestigious lifestyle magazines and corporate publications.