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The global gas market in the future

Hydrocarbon Engineering,

McKinsey has emphasized that, in order to prosper regardless of what the future holds, suppliers and buyers of LNG will need the foresight to predict how the market will evolve. Some supply and demand signposts will be obvious: for example, granting a series of new permits for US terminals, or final investment decisions for new LNG projects in Africa and Australia.

Less obvious demand indicators highlighted by McKinsey include the number of LNG filling stations in Asia and the extent of the development of gas pipeline networks there.

LNG buyers are in a powerful market position. As current proposed LNG supply capacity is likely to far exceed demand, buyers will be able to choose from a wide range of competing suppliers. McKinsey highlights that this creates an opportunity to negotiate terms with developers if new facilities that may be eager to lock in customers ahead of competitors.

New LNG projects outside of North America will inevitably be required in order to meet demand, however few are currently progressing. Every year of delay could carry significant costs given the likelihood that prices will stay high until around 2020, but thereafter only under the ‘Asian demand surge’ scenario will such high prices continue.

When the outlook does become clearer, suppliers will need the ability to respond rapidly. According to McKinsey, options include:

  • Forming partnerships with Asian gas buyers to guarantee a share of the Asian market.
  • Participating in marginal LNG projects that can be developed quickly when market conditions are right.

Companies will also have to develop new facilities more quickly, bringing them onstream rapidly once enough information is available to make an investment decision.

Beyond this, cost efficiency could prove crucial if higher cost developers are to remain competitive. Significant reductions can be captured in the delivered cost of LNG through project optimization, increased industry collaboration, and improved labour productivity.

Adapted from a report by Emma McAleavey.

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