Next wave of U.S. gas and LNG to bring new pricing models

Sep 19, 2019
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Major LNG players got behind the revamp of the pricing model for the U.S. LNG market as a consistent and significant flow of associated gas from the Permian Basin sits on the horizon.
At Gastech Exhibition & Conference’s Global Business Leaders’ Panel, top LNG players see a demand for shifting models from global buyers, a key factor for the next wave of LNG as U.S. will increasingly become an export country.
Paul Varello, CEO, Commonwealth LNG said that although the first wave of LNG had direct sales from the supplier to end user, the new wave of LNG introduces portfolio traders. “To a degree this helps us a great deal in that they can commit to longer-term, which helps us underpin our financing and then they can shop around the market for best prices anywhere in the world,” he said.
“We’re finding that this is a vital part in the linkage of the supplier and the customer - its not a negative - yes they get a premium but it serves the customer with shorter tenures at times when they need it and that flexibility really makes traders effective at what they do. It’s all about the arbitrage yet for its buyer, putting in a a multi-billion project needs consistency.
So that mix of deep pocketed portfolio traders plays a vital part of where where we see the next wave of LNG going,” Varello said.
Additionally, Justin Bird, President, Sempra LNG, the North American infrastructure company involved in the Cameron LNG Train 1, said that on the demand side, people are looking for different pricing models. “As producers allow us to buy on different indices, we’re happy to sell it on that same index. Associated gas is creating a supply push to get it to foreign markets - this is an interesting development and I see it continuing,” he said.  
Meanwhile, Matt Schatzman, Chairman & CEO, NextDecade, a company focused on LNG exports and associated pipeline in Texas, said the Permian basin will drive the next wave of LNG.
“Producers need to move this gas; a byproduct of oil. A lot of high-quality producers are billions in the Permian so the oil is coming and gas is coming with it, which has to be exported,” he said. “What that means for the LNG business is that for several decades the first wave of LNG was pilled but later, it will be pushed by the producers. They will take whatever the market price is  because they have to sell the gas.”
Producers are unlikely to be flaring billions of cubic feet of associated gas, which means a dramatic change in the gas market is coming by the end of the next decade, the NextDecade CEO said.
“We have the cheapest path to the water and are able to handle large quantities - that is key to pricing. Expect a market where LNG pricing will be cleared at whatever the market price demands because the producers will take it,” he said.
Separately, Mark Gyetvay, Deputy Chairman & CFO of Novatek, Russia’s largest LNG producer, which has a large gas portfolio and recently gave FID approval for the $21 billion Arctic LNG 2 project said it will step into the market place to create demand for its LNG. “The idea is to service and develop new markets that need gas so we’re going to take an equity position in projects going forward,” he said.
Novatek, which won an award at Gastech for its Yamal LNG project saw the largest modular construction project in the world.
This is expected to become more common with large projects to achieve efficient and reliability.
“You have to work very closely with EPC contractors and they have to be involved closely from the beginning,” Gyetvay said.
Adding to that, Commonwealth LNG’s Varello said the company models construction against the Russian Yamal project. Modular construction also allows for the construction to be done right before moving on site.

“We’re working on modular LNG tanks - this is something new for the industry and it’s going to be a very creative way of going forward - its not only saving us cost but is also innovative. We thoughts it about time to steal back from smart Russian ideas,” he said.  

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