LNG Investors Get Cold Feet: DNV GL

The vast majority (85%) of professionals working in the LNG sector believe that more investment is needed in to meet demand after 2025, industry consultancy DNV GL said April 3.

But more than two-thirds (69%) stated that uncertainty over prices is limiting spending in the mega-projects needed to feed the world's growing appetite for LNG.

And according to DNV GL's new report: The LNG era takes shape, oil-indexed LNG pricing is part of the issue. Recent oil price swings have made LNG sellers reluctant to peg decades-long contracts to volatile crude markets, yet they still need long-term commitments to make infrastructure investments viable. Half (49%) of the LNG professionals questioned expect contracted LNG prices to continue to be linked to the oil price, while a significant proportion (30%) disagree.

Some companies are even going for a mix of indexation, with Shell agreeing to buy US LNG off a mix of Brent crude (75%) and US gas prices (25%), NGW reported April 2.

Agile approaches to LNG production are most likely to come in the form of smaller-scale floating liquefied natural gas (FLNG) projects. Smaller FLNG vessels and LNG tanker conversions are preferred by 59% of LNG professionals over the development of large-scale floating production units. These are cheaper to build and operate, faster to deploy and more effective at exploiting smaller volumes of stranded gas for more market

Agility will also be key to protecting LNG buyers against risk. Three quarters (72%) of LNG professionals believe that buyers need more flexible contracts, where LNG volumes can be reduced, tenures shortened, and delivery locations changed.

"New market actors could be key to bridging the divergent interests of LNG buyers wanting flexibility, and sellers, who demand long-term cash-flow certainty to support major investments. This was once the domain of oil majors, but commodity traders are now emerging as a significant new breed," the report says.