New Players New Models

The LNG business is in a period of considerable change as it moves from a structured to a traded market. The entry of new players has resulted in a more flexible value chain model, where the bilateral linkages between suppliers and buyers are no longer ‘fixed’. The increase in spot purchases and short-term trading has resulted in a market that is increasingly liquid, but still not liquid enough to underpin new liquefaction plant FIDs without the support of medium/long-term contracts from high credit intermediaries. This OIES PowerPoint report discusses what LNG models could underpin the next wave of LNG liquefaction capacity, and asks if the market participants (aggregators, portfolio companies, and intermediaries) have the financial and commercial capacity to support such new models.

The report concludes that for new FIDs to happen, in the absence of a fully liquid market and the lack of availability of independent LNG pricing indices, long-term contracts or equity investment/offtake structures with high credit counterparties will still be required. Steps towards a market/traded LNG market have been taken although there is still a long way to go before a fully functioning traded market, but it is just a question of when, not if, it will arrive. The market needs to see compromise between buyers and sellers on contracts and lenders need to develop funding packages that support the move towards a fully traded market.

Executive Summary – New Players New Models

By: David Ledesma , Mike Fulwood