New LNG capacity owners find themselves in excruciating economic pain. They have only themselves to blame but this crazy situation might hold the seeds for them, to become the superstars of the gas age. Or else they die.
Those who know me, will be aware that I hold a sweet spot. It’s for those who entered the LNG business a couple of years ago by signing up to regasification capacity without long-term supply in place. They trusted, the market would be there when the terminal would be ready.
No mistake to be made here – this is no attempt to make something awful look better. They all miscalculated grossly but the mistake was not the fact that they have gotten their feet into LNG. It was also not the fact that they booked firm regasification capacity on speculation.
Their real mistake was to underestimate the task. It was to not getting ready for the insane, for the unexpected, for the outright craziness of it all. The mistake was to assume that this is going to be business as usual when it must have been clear that it wasn’t. In LNG, no stone has remained in its traditional place over the last 10 years. You must have lived on Mars to not have noticed that.
LNG is changing to the bone and the journey has just about begun. Natural gas, the underlying feedstock of LNG undergoes tremendous change In its own right. The upstream business, on the other side, has changed beyond recognition as well and oil is now constantly hovering around a hundred bucks a barrel. Tell me, that this is the world you would have imagined 10 years ago.
Someone attacking entirely new business lines must be ready for some nasty shocks. But this is more than simple change or more complex business. If at the same time – when you open Pandora’s box – world war 3 hits you at the home front, this is a paradigm change. And paradigms never change in a linear fashion. It’s a bit like flying at warp speed in pea soup.
The remedy must be just as crazy. This goes beyond simple restructuring of the old business. It must involve getting rid of some of your dearest convictions, some of your most cherished business lines. It involves questioning age-old corporate dogmas. You will have to think outside the box, and the zany speed of it all forces you to do so permanently.
This cannot be done within the old structure. The players of the old structure are at their respective place because they believe in it. They have usually invested in it, so much in fact that they will fiercely resist any change in the status quo. Even if that means the demise of the company.
Since the dawn of time, man had always trusted in what he believes to know and has always resisted the unknown. Because investment theory has it that the last 20 years cannot have been useless.
Also, one usually likes to build upon past learning and experiences as improvement means adding to what exists. But as real creative people know well, there can be no creativity without prior destruction. This is not for everyone.
LNG was supposed to be just another supply contract with complicated logistics. That’s why some companies got great logistics teams in place when in fact they needed to rethink their entire business. Many thought that trading would take care of it all but this is subject of another post that comes your way soon.
But I digress. Because there is a silver lining for those unlucky few.
Pain has its own ways to force change. Most big corporate changes have been enacted as the result of overwhelming economic pain rather than superior strategy. I have made the experience in my own life. In 1999 I lived in Paris and went to law school. I worked as a tourist guide in order to make ends meet but somehow they never quite met.
Late 1999 the company I worked for went bankrupt and I found myself in a bleak situation. It was then, when things were at their worst when I made the decision to create a little tour guiding agency with a friend. Life was real hard as first business was hard to get. But we persevered, changed what we had to change in order to get the business into shape and guess what, the company still exists. Because there was no choice.
Was it a joyride? Hell no. It was one of the hardest times of my life.
And this process goes beyond just taking care of the situation. It changes you as a person, or company to pull it back to our LNG players. It leaves an imprint on you and makes you a better corporate being. It rips your soul out and makes place for growing a new one. It’s a hugely beneficial process. Or else you go where all mortal things end, on the scrap-heap of history as just another failed company.
I think that those exposed players will have an economical advantage later (if they survive the medicine) compared to their peers and this is just what you need when everything around you becomes mush. The others, those who are not exposed, live with the treacherous belief they can afford to linger on with their good (bad) old ways for another while, just long enough to sail through unscathed. But there is no escaping the market and history. This fallacious luxury is exactly what is going to cost them their position (and their corporate lives).
This is true for old LNG players as well, as the defining factor is not the exposure to LNG. It’s the pain it delivers to newbies and the resulting changes this brings.