At the 2019 Trinidad and Tobago Energy Conference, the keynote speaker was Michael Stoppard, Vice President and Chief Strategist for Global Gas, IHS Markit.
His presentation focused on big trends in global energy, global gas and liquefied natural gas (LNG). Stoppard indicated that the role of natural gas will become increasingly important in a world that is experiencing an energy transition. Earlier at the conference, Claire Fitzpatrick, Regional President at BPTT, characterised this as the dual challenge — where the world is demanding more energy but needs it with a lower carbon footprint.
Natural gas accomplishes this as it is the cleanest-burning fossil fuel. This is important as it bridges the gap between coal and diesel power producers, and renewable energy. While the more carbon-intensive resources are set to decline in prevalence in terms of demand, natural gas is projected to continue to play a major role in the energy mix.
Natural gas can move from source to user in two ways — either onshore via pipeline or across the sea as LNG. As The National Gas Company of Trinidad and Tobago Limited (NGC) has stated after signing key new contracts to downstream petrochemical plants, contracts are now likely to be shorter than that experienced in the past. For LNG players, however, the contracting arrangement is also likely to change away from very long-term contracts.
Stoppard indicated that when Trinidad and Tobago began LNG production, there was 4,800 TCF of global natural gas reserves. Over time, he said there was a net increase in reserves of 44 per cent, and in 2018, the world had 6,800 TCF in reserves.
The reason for this is partly because the market has expanded. Stoppard said that in 1999, there were 11 countries that were exporting LNG. At present there are 19 countries that are exporters. The dynamics have also changed among those exporters. In the past, Indonesia was the largest exporter, followed by Algeria and Malaysia. At present, the largest exporters are Qatar, Australia and Malaysia.
What is interesting to note is that the USA moved from being one of the largest importers of LNG in the 1990s to one of the largest LNG exporters in 2018.
Conversely, in terms of importers, in 1999, there were nine importing countries and currently there are 42 countries with regasification terminals.
Stoppard indicated that LNG growth is projected at a compound annual rate of 4 per cent to 2040. LNG is expected to outstrip crude oil and gas in terms of growth in the future. The new markets are expected to be the driver of the growth, he said.
The chief strategist indicated that to deal with this, there are two scenarios that may emerge. He said that there are some signs that the market is moving away from long-term contracts and there may be the emergence of spot markets.
He said that there are some pricing services reporting daily LNG spot prices. The growth has occurred in the pacific basin in parts of Asia and growth is expected in the Gulf of Mexico.
The biggest risk to a spot market for LNG is the issue of volume risk which LNG developers may be particularly pleased with since that risk is now removed — you therefore do not need to have long-term contracts since they have a market to sell into.
The volume risk is now replaced by price risk, volatility and oscillation.
The second scenario, he said, is more likely. According to Stoppard, increasingly, the big oil companies are prepared to take on the risk and responsibility of offering long-term contracts required to develop new LNG projects, and selling them based on complex short-term, medium-term and long-term risks often into lower credit markets.
He said that the days of signing long-term contracts with high-credit players are over but you can sign a contract with a big oil company that will market to a multiplicity of small players and find the right solution.
For Trinidad and Tobago, this is of particular interest as we are still one of the largest exporters of LNG to the world. While the contracting arrangements that the private sector engage in are confidential, there are now different options available for the LNG producers to consider.