Project Development & Finance

Competition, Commoditisation & Consolidation 15 is worthwhile attempting to identify the key uncertainties and to consider possible scenarios. One major uncertainty will be the global response to climate change and the impact on the energy policies of individual governments. As part of the Paris Agreement in 2015, countries were required to submit climate action pledges called Nationally Determined Contributions (NDCs). The pledges are supposed to ramp up in ambition over five-year cycles, so there will be another round of NDCs in 2020 and a third in 2025. A determined effort to reduce the use of coal could work strongly in favour of gas. It is likely that by 2030, investors may be reluctant to back new capital-intensive liquefaction projects with lives of 20-30 years as the 2050 deadline for net-zero carbon emission looms, unless carbon capture, utilisation and storage (CCUS) makes a lot more progress than currently seems likely. We have already seen companies such as Engie and Iberdrola divesting their LNG businesses to focus on low/zero-carbon energies, and in the process creating M&A opportunities (see p6). It is conceivable that this trend will gather momentum, to the extent that some large oil and gas companies decide to divest their oil interests to Several countries are working on developing their first LNG import projects – among them Bahrain, Cyprus, Croatia, the Philippines and Australia – and the list of countries that would like to import LNG is a long one. Among the larger ones are Myanmar and Vietnam. So we will see growth in the number of LNG producers and the number of LNG buyers. What is less easy to fathom is how the intermediaries – the portfolio players and traders – will develop. Shell and Total have said they will continue to consolidate their positions and other IOGCs will look to build scale as portfolio players. It is unlikely that NOGCs new to the LNG business, such as Saudi Aramco, will make much impact on the global market in this timescale without big bold acquisitions of existing players. Aramco, for example, will not have molecules to trade from its Port Arthur deal until the end of this five-year period. A company to watch is Russia's Novatek, which is planning physical FOB delivery hubs at transhipment terminals it plans to construct at Kamchatka and Murmansk. WHAT MIGHT THE LNG INDUSTRY LOOK LIKE 10 YEARS FROM NOW? Over a timescale of a decade the uncertainties multiply. However, it focus on natural gas and electricity. We could perhaps see the emergence of a new breed of gas/ LNG/electricity super-majors, as scale and integration downstream become the prerequisites of value creation. Much will depend on developments in technology, perhaps the biggest uncertainty of all. Large-scale deployment of renewables has failed to halt the growth of GHG emissions so far but costs have been falling dramatically. Grid-scale batteries are still a niche technology but there are hopes that they will become commercially viable as a mainstream technology. Electric vehicles could have a transformative effect on power systems but numbers would have to grow much faster than they are now. Meanwhile solutions to decarbonise non-power sectors such as heating, industrial processes and transport look even trickier than those aimed at decarbonising electricity. Progress on CCUS remains disappointing. The blunt reality is that ten years is not a very long timeframe at all when it comes to the development of new energy technologies. Proven technologies that can have a meaningful effect on the mitigation of GHGs – such as LNG – will be needed for some time to come.

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