Cutting the operating cost of an LNG export facility is increasingly a key parameter for driving competitiveness in an ever more globalized sector, top LNG industry officials said Tuesday.
Speaking at the Oil & Money conference in London, officials agreed that while the cost of developing a project had come down, reducing operational costs were key to delivering a more economical landed LNG price.
"Operating cost is often overlooked," De La Rey Venter, Shell's executive vice president, Integrated Gas Ventures, said, adding that it was often assumed that operating costs were broadly similar at LNG projects across the world.
"That is not the case. And ultimately what matters [...] is the landed cost when the LNG gets into the arms of the customer," Venter said.
"Opex plus improving shipping costs, plus improving regasification costs, plus reducing in time -- and I hope soon -- costs for greenhouse gas up the chain as well, all of that will have to play powerfully as we continue to drive LNG down the cost curve," he said.
Mark Gyetvay, CFO of Russian LNG producer Novatek, agreed that operating costs needed to be prioritized.
"You have to look at the total package -- what is the lowest landed cost, that's what matters to the customer," he said.
LOW-COST PRODUCER
Gyetvay said being a low cost producer was key, a view expressed earlier in the conference by the head of Qatar Petroleum, Saad al-Kaabi.
Al-Kaabi said he was focused squarely on being the lowest-cost LNG producer so that Qatar would always be guaranteed a market.
Gyetvay said Novatek could deliver feed gas to its flagship Yamal LNG plant at a cost of less than $0.10/MMBtu.
"We can deliver gas similar to the cost structure that the Qataris talked about," he said.
While developers have succeeded in bringing down capital expenditure on new LNG projects to around $500 million-$750 million/mt of LNG produced, projects were having to be more flexible around financing.
Total vice president for LNG marketing and shipping, Andrew Seck (previously of Anadarko Petroleum), said he saw a greater need for flexibility in financing projects.
"In traditional project financing, there are limits to what you can do. Now other projects have to push that boundary," said Seck, who worked on LNG contracts for the now Total-operated Mozambique LNG project.
Seck said innovative models were also emerging on the consumer side, with new purchasing agreements between buyers.
PRICE EVOLUTION
The increasing flexibility in contracting and project financing is also leading to a more commoditized market.
"We're on a journey," Total's Seck said. "We've come a long way from pure oil-linked contracts," he said.
While pricing remains relatively regionalized, Seck said, there was increasing evidence that regional gas prices are more linked to each other, with prices converging more than ever.
"We are moving in the right direction," Seck said, adding that a true forward curve in the LNG market could be possible in the future.
Shell's Venter, however, dismissed the possibility of a global gas or LNG price.
"I don't think we'll ever see a global LNG price, it would be nonsensical," Venter said, pointing to different price drivers in different parts of the world.
"Why should the price of gas in the US be the same as in Vietnam or China? There are very different drivers," he said.
Venter said he expected more commoditization as different price drivers would "talk to each other more."
"But will you see a global price for gas? I think it's unlikely," he said.
Venter said the global LNG market at present was "relatively well supplied," which he said was driving talk of increased commoditization of the LNG market.
But, he said, the key difference between LNG and other commodities was the difficulty in storing LNG.
"You can't build up large inventories, therefore your spot prices will always be sensitive to periods when the market is well supplied. That volatility is hard to handle," he said.
Total's Seck added that the low spot price made "decision-making to commit to a project very difficult."
"This is the period to create [new] demand. It's going to be much harder to justify new projects beyond what has already got some momentum," he said.
