Muscat, NOV 4 – The Sultanate, an important producer of liquefied natural gas (LNG) for the global market, has urged fellow producers around the world to make a strong pitch for gas as a comparatively clean fuel resource amid unprecedented challenges potentially imperilling the growth of the industry worldwide.
The appeal was made by Harib al Kitani (pictured), CEO of Oman LNG – the nation’s LNG flagship – to an audience representing gas and LNG producers, marketers and distributors, brokers and consultancies, and energy service providers hailing from around the world.
“We should increase advocacy for gas wherever possible,” said Al Kitani. “Gas being the number one fuel of choice should not be just left to its own mettle. We have to grow it, compete, and penetrate it into untapped markets by providing innovative solutions,” the CEO declared at the Gas & LNG Summit held here last week.
Earlier, the industry veteran warned that the global LNG industry was being buffeted by an array of unprecedented “phenomena” that threaten to hurt producers worldwide.
“We are experiencing new phenomena — which is a surprise in the market — of the kind it has never seen before,” Al Kitani noted. “Competition is on the increase, contractual flexibility is changing every time, innovation and the quest for alternative energy, business integration which is creating high competition but also forcing us to develop optimal technologies in order to counteract it; in addition to cost management and efficiency in everything we do.”
He further added: “From a traditional elite business of a few LNG sellers and few LNG buyers, our market has become amazingly fluid and almost commoditised. Traders have taken a huge chunk of our business from end users – the traditional way of doing business. New LNG projects have managed to attract buyers to join them in their investment, thus booking the offtake from the outset. That keeps expansion projects in some difficulty.”
LNG buyers are now mostly attracted to whoever can offer them the lowest price. Consequently, the “lifelong marriages” that characterised supply and purchase agreements of the past have given way to “short-term flexible destinations and crazy prices”, he lamented.
“In our opinion, this is not sustainable in the long run,” Al Kitani warned. “The very highs and very lows in prices in the market are being experienced now, including stranded cargoes and flat prices, but very high shipping costs. We need to think what has caused all of this. Our business is becoming speculative rather than based on traditional, long-term relationships. It is going to hurt some people!”
Compounding the challenges for producers are “economic and political pressures” of the kind that have been witnessed in Japan and Korea, for example.
In Asia, nuclear energy is slowly powering up again – after being offline for some time – thus creating some uncertainties with regard to the LNG market in Japan and Korea, said Al Kitani. “While Japan is relatively stable, Korea is said to be capping nuclear energy in favour of LNG. China, on the other hand, continues to expand, surpassing Japan, as the government in Beijing continues to support a no-coal policy, clearer skies, and seeks to lower CO2 emissions.”
Elsewhere around the Middle East and Asia, LNG related developments have ramifications for the market, he pointed out. LNG related developments are being witnessed in Pakistan, Bangladesh, Bahrain, Egypt and Jordan, while Kuwait is weighing an expansion.
At the same time, floating regasification terminals and mini-LNG projects, among other initiatives of this nature, are being promoted. Canada’s recent Final Investment Decision (FID) threatens to squeeze markets, while on the supply side, the United States is growing its market share. Also adding to a “mixed basket of good and bad news” are developments in Australia, Qatar and Mozambique, he stated.
However, citing projections, Al Kitani noted that the supply-demand gap would likely open up around 2022-23 in the wake of the expiry of mostly old contracts and the opening of new markets – a prospect that the entire LNG market is looking forward to.
Also boding well for a brightening outlook for the LNG industry are climate change concerns and the looming deadline for the introduction of cleaner shipping bunker fuel.
“The global demand for air quality and emissions reduction puts us a stronger footing,” said Oman LNG’s CEO. “Natural gas is playing an important role in energy supply because it can be delivered quickly and competitively. The desulphurisation of shipping fuel — with the International Maritime Organisation (IMO) announcing a 0.5 per cent cap on sulphur in bunker fuel by 2020 — LNG is in a stronger position to support these targets as LNG bunker is increasingly become the darling of the shipping industry when this regulation is enforced,” he added.