Improved technology and infrastructure in LNG-producing countries will open up the sector in the near term, according to Standard Chartered.
Speaking at the DLA Piper oil and gas forum in London on May 30, StanChart managing director of oil and gas corporate finance Rob Tims pointed out that LNG is not yet a freely traded commodity and is still controlled by a small number of exporters and importers, but that the power balance is likely to shift in the medium term.
“In the near future, technology and infrastructure development will allow new importers to access the market more cheaply, which will make it increasingly fragmented,” he said.
Although the main LNG buyers are likely to remain Japan, Korea and Europe, the number of players in the sector is increasing dramatically thanks to arbitrage opportunities and technology developments, such as floating storage and regasification units (FSRU) or “mini” LNG, according to Tims.
Moreover, along with trade “highways” from Indonesia, Qatar and Australia to Japan and Korea, there will be new, smaller roads to smaller consumers, according to Tims.
Oil majors still dominate the market, benefiting from large portfolios that they can play around to lead their banks into gas project financing. However, due to their dependence on funding availability, LNG developers could opt for new players, more likely to use project financing than oil companies.
However, the changes will not affect financing standards: Due to the gap left by commercial banks and project bonds during the crisis, export credit agencies (ECAs) have stepped in to finance this expanding industry, keeping pricing arrangements low.
“Commercial banks aren’t really lenders in this field. ECAs step in a lot, so it is unlikely that we will see a real price rise in LNG financing,” he said, predicting that financing standards will remain focused on volume risk absorption and competitiveness on the cost curve.
According to Tims, the next round of project financing will focus on regions such as East Africa – particularly Mozambique – North America and Russia, and new technologies such as FSRU, floating LNG (FLNG) and mini-LNG.
He added that the LNG sector could experience oversupply in the near term, which would lower gas prices. “However, looking to the long term, the increasing importance of LNG to countries’ energy mix can be expected to quickly absorb additional capacity as it is brought onstream,” he concluded.