What will be some of the great debates at the upcoming LNG 18 conference in Perth? 2016 will prove to be a pivotal year, as the challenges facing the liquefied natural gas (LNG) sector are legion. What has happened to demand? With all the momentum behind natural gas as a Triple-A energy (abundant, affordable, available) and a clean fuel, we should be seeing strong demand. Instead, it’s been way off this past year. Did the pundits who have been forecasting strong growth simply get it wrong? Is the softening of the Chinese economy exerting an out-sized influence on demand? Since LNG is most often sold on long contracts for many years into the future, how do economists explain why there seems to be all this excess supply floating around? And why haven’t more customers signed up for supply given the soft pricing situation? There will be a lot of pressure at the conference to explain why demand appears to have evaporated like so much rogue methane. Of course, producers will continue to be optimistic about overall demand, but I would expect a country-by-country analysis of demand from key importers (Korea, Japan, China), views from various think tanks, and an outlook for the rising new demand sources in Europe. Which new projects will proceed? LNG is a long game – you can see the competition coming for years. It can take a decade or more to line up customers, pipelines, gas supply, governments, royalty structures, builders, vessels, ports, LNG and re-gas plants, and these days, society in general. But the current oil market downturn has decisively throttled the ambitions of many a supplier. There hasn’t been a Final Investment Decision (FID) taken in over a year for a big new project. The competitive field has been crowded for the past two years, with new prospects in offshore Israel, the new African frontiers of Tanzania and Mozambique, more than 40 US projects, the Canadian 19 greenfield projects, the Russian Arctic projects, the mooted Iranian supply… Economists will be busy predicting when the ‘window’ for new supply will open and who is best positioned to meet demand. But with gas so abundant and affordable, the only real question I would pose to unsanctioned projects is “do you have a customer”? Will pricing models change? There will be considerable attention at LNG 18 on the question of pricing of LNG. Its historic link to the price of oil has served us well, but now that oil markets are growing only at 1% per year (as compared to 5% for gas), the link to oil is starting to look strained. Natural gas consumption is generally different from oil – it’s viewed by customers as more of a utility fuel, like electricity, meant to be always available, and so begs the question of whether it should have the pricing volatility oil features. Buyers say no. Gas pricing has delinked from oil markets in many locations around the world, and there are signs that given a bit of competition, some gas sellers can move on pricing. Clearly though, low oil prices (and therefore low LNG prices) are preventing gas sellers from unlocking projects that require higher pricing. Other pricing forces include the rise of mega buyers, LNG buying clubs, and recent benchmark contract negotiations. Will contracting terms loosen? The Trans-Pacific Partnership (TPP) and the arrival of the US tolling model for LNG production should go some lengths to shaking up contracting terms, specifically those dealing with the restrictions on the destination of cargoes. But will it happen? Customers are clearly aching for change. For example, Japan has historically consumed all the gas it imports, but with a shrinking economy, its gas buyers will need greater flexibility to trade, redirect cargoes, reload, and so forth. Contracts should get shorter, with fewer destination restrictions. Look for a debate on the next generation contracting structures that will try to meet these changing customer needs, while trying to satisfy seller needs for demand assurance. Is the era of the LNG megaproject over? The biggest debate will centre on the long-term viability of the LNG mega project approach, the gigantic plant designs of the recent past. The overruns and delivery uncertainties have most certainly alarmed the next generation of buyers and investors, who may not have the economic resilience to withstand the overruns of the past. And most, if not all, of the proposed greenfield and brownfield projects are just more of the same – mega projects. Expect lots of conversations on the on-going enthusiasm for these kinds of projects, the lessons from the recent projects, and whether a different path forward would be preferred. What will be the role of trading hubs? Several locations are vying to establish trading hubs to help promote more open LNG transacting. Singapore is the noisiest in its ambition, building up tankage, attracting traders and related services companies, and connecting the physical world with the financial world via trading instruments and pricing indices. But old habits, like long LNG contracts, are hard to undo. There’s risk to working with a trading hub for a utility-like fuel as it brings both pricing and supply uncertainty. It’s not at all clear how many trading hubs the global market can support, besides Singapore, both Shanghai and Tokyo have hubs on their minds. The debate will address the role that these hubs can play, how many would be sensible, which is the best overall location, and what features will make them most attractive. Suffice to say, I’m looking forward to these and other great debates. What are the lessons from Australia’s great LNG construction boom? Pre-register for a copy of a new Deloitte thought leadership on the Australian LNG sector launching soon.