1. How are Seller’s business strategies evolving in the current period of oversupply?
Undoubtedly, the traditional model is being disrupted. Sellers are being challenged to differentiate themselves in terms of offering flexibility, credit and pricing options for new projects and emerging buyers. There are multiple ways of doing this and it just requires a new approach. In a well-supplied market, there is a tendency for sellers to compete aggressively on price even at the cost of a risk-adjusted negative return. This is not sustainable because ultimately market, operational and credit risk factors need to be accounted for. It is for this reason that sellers in this environment need to figure out ways to compete more than on just price.
2. What do you foresee to be main challenges in LNG project financing between now and 2020?
Changing buying patterns from both traditional as well as emerging buyers are proving to be a challenge to underpin projects these days. Projects historically achieved financing due to reliable 20-year contracts backed by buyers with sound financials and strong positions in their local downstream markets. This has changed as buyers are looking for shorter term, more flexibility (volume and destination), and reduced volumes.
3. How do you see the trading market developing over the next five years?
At Bank of America Merrill Lynch we see a trading market developing over the next five years, not unlike what we’ve seen in coal and oil. But the market will need further standardisation and greater market participation. Given the near-term outlook on flexible supply, trading should definitely increase.
4. What do you think will be the most effective enabler(s) to support the growth of the gas and LNG industry?
Technology is definitely playing its part. Witness the new buyers who have come to the market in the past 24 months as a result of FSRU’s. The next step is now for the industry to figure a way to unlock the potential demand from the transport and power conversion sectors.