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lowly but surely, oil-linked contracts are being replaced
by natural gas-linked contracts in the LNG industry.
Eventually, there will be enough liquidity to graduate
to an LNG market with open-access infrastructure and a
liquid spot market. The right Commodities Trading and Risk
Management (CTRM) tools are vital to take advantage of
opportunities in this ever-evolving market.
Change is in the air
The LNG sector has grown exponentially in recent years,
benefitting from huge economic growth in the Asia-Pacific
region as a whole. Growth in this region is expected to
continue, although at a slower pace. This is likely to result in
an LNG supply glut, as projects in Australia and the US come
online. In its
Medium-Term Gas Market Report 2015,
the
International Energy Agency (IEA) states states that global
LNG export capacity is set to increase by more than 40% by
2020.
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Although some forecasts suggest that oversupply will
send LNG prices crashing downwards, this is not necessarily
the case. With the US recently exporting its first LNG cargo,
natural gas prices may start to rise in the US, which could
potentially create a natural gas price convergence around the
world. Moreover, the majority of LNG contracts are still linked
to the price of oil. And although it is unlikely that the oil price
will reach US$100/bbl again in the near future, it is quite likely
that the oil price will rebound from its current lows, taking
LNG contracts with it. The fact that many are switching to
natural gas-linked contracts will also help support prices to an
extent.
The LNG market is growing and maturing, which is
exciting news for traders.
LNG markets: grown up
The gradual migration from oil-linked contracts to gas-linked
contracts is just one way in which the LNGmarket is maturing.
However, there is another crucial way in which the market is
coming of age.
Currently, the vast majority of LNG contracts are long-term
ones. Though there are often break clauses for renegotiation
Wendi Orlando, OpenLink, USA,
explains how real-time CTRM
can help businesses adapt to a
changing LNG market.
