The natural gas and LNG market is becoming more competitive, liquid, and sophisticated. Given the global focus on decarbonization, gas is increasingly becoming a key source in the future energy mix. In this context, companies across the LNG value chain must assess competitive positioning, exposure to market disruptions, and emerging opportunities.
The trends are clear. As we move from a tight market to a period of oversupply and increasing liquidity, prices and margins for liquefied natural gas are decreasing. Further, there has been a liberalization of end markets, making it more challenging to sign the long-term contracts that would ensure attractive returns. And thanks to liberalization, there is also a growing importance of both niche markets—with no capability for point-to-point sales—and emerging buyers in traditional markets.
International oil and gas companies sell about 50% of the total volume of LNG through LNG portfolio sales rather traditional point-to-point sales. As a result, suppliers must develop sophisticated sales and trading strategies to address the needs of emerging buyers and improve their risk management processes as smaller, higher-risk contracts become more prevalent.
This sophisticated structure may include, among other things:
Beyond defining a clear LNG and natural gas strategy to compete in the current market environment, it is of the utmost importance to gather the right organizational structure and set of capabilities to implement this strategy and act efficiently in the long run. This means having strong customer relationship management, top-notch LNG marketing capabilities, expertise in contract origination and renegotiation, and adequate pricing of value-added services, as well as optimized risk management and supply and logistics operations.
Today’s market conditions force sellers to go beyond the pure selling of gas molecules. In an environment of Liquefied Natural Gas oversupply, players need to lock in demand and achieve higher prices through vertical integration by considering selective downstream investments that can support the development of new markets. A further integration across the LNG value chain requires the design of much more complex ventures.
Transforming export ventures starts with assessing potential markets and identifying the attractiveness of incremental natural gas and LNG exports to different segments within potential receiving markets. Next, the suppliers define the necessary infrastructure requirements of the export venture, as well as the core contractual structure and partnership strategy. Finally, it’s key to assess the business model, financials, and strategic targets of the integrated export venture.
In recent years, the industry has been focused on LNG project execution, rather than LNG cost structure. This has resulted in:
Liquefied Natural Gas players should launch only those projects that are competitive under current pricing and postpone any with very high costs. They should also implement structural cost-saving measures, such as standardized, modular approaches to plant construction; the fostering of competition among suppliers; and the implementation of lean approaches throughout the development process.
In light of the pandemic and the supply shock in oil markets, gas companies must strengthen their positions and plan ahead.
This report, coproduced by BCG and the International Gas Union, assesses recent trends shaping today's global gas industry and the factors that will affect the market in the future.
