Interview with Esteban Papanicolau, LNG Advisor, Energía del Pacífico

Our understanding is that we are facing a transition in risk allocation in the LNG world, with a “case by case” approach and no off the shelf solutions that apply across the board.

1. How are buyers managing risk reward in the current climate?
Our understanding is that we are facing a transition in risk allocation in the LNG world, with a “case by case” approach and no off the shelf solutions that apply across the board. We need to differentiate new buyers, or buyers from new facilities that need to be financed and built from buyers from existing LNG import terminals. The LNG industry needs new buyers, and most of the new buyers need differentiated logistics, financial solutions and tailor made LNG supply contracts and this is the focus of GasPorto International, that is, to encourage new entrants to the LNG market. The current window of opportunity of abundant LNG should be the biggest trigger for new LNG import terminals, as well as for older contracts re-negotiations.

2. How is the current oil market, and in turn the LNG price, impacting gas demand in South America?
Each country in Latin America has its reasons and its strategy to buy LNG the way they do it. LNG has been a transition fuel in Argentina and Brazil where abundant reserves of natural gas have been discovered but will take some time to reach the market. Chile turned to LNG when Argentina suddenly stopped delivering natural gas through its several interconnection pipelines. Those countries buying LNG in the spot market are doing better this year than previous times. However, the lower price has not triggered higher demand.

3. How can the industry make sure gas is competitive compared to coal, oil and renewables?
Our vision from GasPorto is to transition to an “eco-thermal” power generation matrix, with natural gas and renewables offering base power to the system. Brazil is moving in that direction allowing more firm off¬-take from new power plants running on natural gas. This firm off¬-take allows for competitive long term LNG supply contracts. Coal and Oil based power generation is tougher to finance, though there is space for merchant plants running on cheaper fuels like coal. However, environmental licensing is a real challenge for the dirtier fuels.

4. What LNG pricing formulae are needed for Latin America buyers to stimulate demand?
For the specific case of LNG displacing liquid fuels, the trend is towards Brent indexed contracts. This does not mean that HH linked contracts are not viable in Latin America.

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