LNG18 Conference, Perth – Apr 11-15, 2016
Malaysian energy giant Petronas expects a bright future for the global liquefied natural gas industry despite the downturn in global oil and gas prices, the company’s CEO Datuk Wan Zulkiflee Wan Ariffin said on Wednesday.
Speaking on the changing LNG market at the LNG18 conference in Perth, Wan Zulkiflee said that the market is going through a characteristic down cycle with buyers having a “paradigm of abundance“.
According to the CEO, LNG buyers are shifting their focus from long-term value propositions such as “reliability and security of supply to trying to make short term gains and securing immediate cost savings“.
“Like it or not the shift in the buyers’ priorities will have an impact on the LNG producers’ investments in new projects as the outlook for returns fall below expectations,” Wan Zulkiflee said.
“As a long-term player in the LNG industry, Petronas is not immune to market cycles. Experience tells us that timely investment will enable us to take full advantage of the upside later. We are bullish on the prospects of LNG in the medium and long term, tandem with IEA’s projection of 40% growth by 2040,” Wan Zulkiflee added.
According to the CEO, major LNG stakeholders need to continue investing throughout the whole LNG chain in order for the industry to continue to grow.
“For producers like Petronas, I believe it is about taking the long-term view and continuing to put in the investments in hard and soft infrastructure through the cycles,” Wan Zulkiflee said.
“We’re not only investing in the upstream development projects, plants and LNG vessels but also in developing the capability of the people operating them, talents throughout the whole value chain from geologists, to plant technicians, right up to the mariners, LNG marketers and traders.”
Buyers and contractors
“LNG buyers must understand that our returns must match our upkeep of current facilities and our ability to reinvest in future supplies,” the CEO said.
According to Wan Zulkiflee, the conversation should shift from just talking about the best price producers could offer.
“For example, in the Far East markets, I would urge the buyers not to be fixated on the slope of the S-curve but more importantly to evaluate the best value proposition and overall packaging we bring to the table in terms of supply security and flexibility of terms,” he said.
Speaking on LNG contractors, Wan Zulkiflee said that in the current environment, contractors and vendors must continue to aggressively invest in research and development.
“LNG contractors must offer game-changing technology to lower the cost structure, and to execute innovative project management schemes in collaboration with project developers to improve the delivery of LNG projects, with the objective of shortening the development period and reduce costs of bringing LNG to market.”
Governments and host authorities play an important role in shaping the direction of the LNG market, Wan Zulkiflee said, adding that to date, the priorities of energy policies in many countries have been dictated by the financial cost of the total energy mix.
“Increasingly, the electorate is demanding policies that also consider the social cost linked to emissions, chronic pollution and billions in healthcare cost. Especially in countries that are in the early stages of considering LNG importation, Governments could also play the role in nurturing investments in support infrastructure,” he said.
“Host governments must also ensure certainty in policies and a conducive environment for investing. I certainly hope that there will be more political will to translate policies into concrete action that supports LNG adoption.”
Collaboration is the key
Summing up, Wan Zulkiflee said that ensuring continued investments in LNG is not the sole responsibility of producers but also the collective responsibility of buyers, governments, contractors and ultimately consumers.
“Therefore, the advocacy for gas is a necessary effort by all industry stakeholders to ensure investments will continue,” Wan Zulkiflee said.