Wanna get into LNG? A reality check.

Back in early 2012, I dashed down some thoughts I had with a client buddy onto my scratchboard. He was giving “getting himself into the LNG business” some serious thought. Here is what I told him back then:

Quote:

LNG is not like oil, it’s not like oil products. Not even like any commodity you have ever known. When in your life were you able to say that you are dealing in boiling cryo liquid? Because that’s what LNG really is. Wait long enough, and your cargo literally turns into vapor. And with it all your money. Not an enviable prospect.

Luckily – there are ways to handle this. Most are simple. However, you know the dictum. Simple does not mean easy. Its the simple things that are sometimes the hardest to achieve. Try to lose some weight. Solution is simple. Eat less – move more. Implementation however, can be colossal.

LNG is a very long term business. No quick gains on the spreadsheet without long term preparation. BG’s blockbuster years were more than 10 years in the making and that’s also a reality for anyone else in the business. They did simple – but often very tough – things long before any profits materialized on the horizon.

If LNG is what you want, you need to do that too. LNG is no jump in, jump out business. It pays to get a deep education about what LNG really means for your company before you really engage. So you know what you are dealing with. That should be done in more than in a simple masterclass and in a couple of days.

realitycheck2My experience is that companies, teams, managers and procedures in any company are grown for a reason. Adapting them to LNG and then acid testing them to some of the nasty pieces of the business is money well spent. It’s better to spend a couple of hundred thousand on getting the information you need to make an educated decision than losing two digit millions on one single LNG cargo.

If you are beyond the point of deciding if and how you want to engage in LNG but you lack the structures for getting yourself where you want to be, you need a strategic planner and roughneck business developer.

Make no mistake. Producing results in this business is not a matter of hanging out with other LNG Business Developers at posh conferences and events. It involves a lot of waiting time in hot countries inside buildings with bad air conditioning. It involves countless fruitless attempts to meet decision makers and it most importantly involves boots on the ground.

The relationships you are able to establish are not going to save your LNG business if the fundamentals are just not right. But they can make the difference if you make all the right moves.

Unquote

What has changed since I dashed those few words down about 4 years ago? The price of oil has gone down from dizzyingly high to almost low. LNG has followed suit. There is a tsunami of LNG flooding markets now when 2 years ago it seemed impossible to secure a single spot cargo.

Some projects that looked like superstars at the time look like disasters now and the buyers market is upon us – finally – with no sign for this to change anytime soon in the offing. Some projects have even gone through more than one cycle of disaster as they have morphed when their original business models fell apart. Many US based liquefaction projects today have been import projects not so long ago and they have tried to jump onto the other side of the fence when shale killed the urge to import gas into North America. Now, lower oil prices and consequently lower LNG prices kill their customers as they cannot support those cost stacks for a long time.

Not easy - but good things are never easy ...

Not easy – but good things are never easy …

Has this changed the words from before in any way? Not at all. Plenty of LNG on the horizon just has shuffled the cards and dealt everyone a different deck but the cards themselves are still the same.

LNG is still very much of a hands-on business where someone can cut himself a new world. It’s a bit like in Computing in the eighties. The entry requirements are still there but they are not so forbiddingly high that it automatically crushes everyone who ever tried. 15 years ago, you would have to stomp up many millions in development cost up-front plus crank up a big organisation to churn out a brand new LNG project. It would keep dozens of highly paid experts busy for years until first bricks could be laid. And it would require specialist knowledge that only a few companies possessed.

That’s different today. Small- and Mid-scale LNG has spread the business beyond its original confines. LNG is maybe not at the reach of regular Joe’s but it has gone from being an interesting business for just a very few – to scores of smaller companies that might get interested in the energy space.

But that means that the old “Be in the right club and it will work out” kind of Business Development does not work anymore. You will work hard, you will sweat, you will fail at times, survive it and dust yourself off just to do it again.

And that’s just the way it is.

4 Comments on "Wanna get into LNG? A reality check."

  1. James Shepperd | March 8, 2016 at 9:05 am | Reply

    Dear Rudolf,

    Any comment on the Small Scale terminal to be built at the Bratislava Harbor?
    How do small scale projects (like this) compete against the dominant use of and de facto state sanction of Diesel and other legacy fuels in the inland transport mix?

    • Rudolf Huber | March 8, 2016 at 12:11 pm | Reply

      Dear James,

      the short answer is that in today’s fuel price environment in Europe they cannot compete in any way we would understand competition normally. It took double-digit price spreads between diesel and LNG as a fuel in North America in order to build real momentum there. And we don’t have them in Europe.

      Still, it’s important to have projects like this as they set an example of what is possible and if they are carefully structured, they can work in their own bespoke environment. They should not pin their hopes on the general market as there is no such thing yet. They must be structured as the very first LNG projects were. With very strict supply lines, no flex, stringent offtake commitments and ToP rules, etc. China does LNG as a fuel because of air quality reasons, not so much the cash. That’s what we should go for.

      It’s a long fight and I carry the scars but it’s a fight that’s worth it.

  2. thank you very much for the exceptional but simple summary of why experienced professionals and experienced boots in the ground originator are required for this business.

    I recently had a dinner with an LNG trader at major uk Oil & gas company. This person, although obviously trades the portfolio, did not seem to have a clue how certain relationships with govt / state owned entity started the process. And the grit and work it takes to bring that to realization. That UK company has privileged relationship due to 100 years of being a partner to govt. in emerging markets countries. But most companies that want to crack LNG will not have such advantage. Worth remembering that one of the 4 largest privately owned global traders (and it is not vitol / trafigura or Glencore 🙂 ) has tried twice to set up an LNG desk , but closed the project in both occasions

    • Rudolf Huber | March 25, 2016 at 6:46 am | Reply

      Thank you Marco. Big LNG was afforded a cloak and dagger situation in the past – the cloak being that nobody saw LNG as a business and the dagger was that everyone thought that the price for entry is too high to afford. There is also a mist of Black Art around the business which enables a lot of impostors to have a free meal. However, that’s changing …

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.

%d bloggers like this: