Adapting to a LNG market in mutation: An Interview with Patrick Dugas of Total Gas & Power

The past decade has seen tremendous changes in the LNG industry.

The traditional supply chain has been challenged and the new order has not been set yet.

But in this transformation, there are new opportunities to explore, emerging markets to penetrate, pocket demand to supply and fresh consumer attitudes to satisfy.

Patrick Dugas, Head of LNG Trading in the Gas & Power Division at TOTAL, speaks about the challenges of operating in the new market.

Can you give us an overview of the current global LNG suppliers? Who are the new players and how do they compare to more established suppliers?

"The LNG market is far more competitive than a few years ago. It used to be (and remains still) a very capital intensive market. If you didn’t have the capability to invest, you were not in a position to enter into this market. With the US projects, a lot of free destination volumes became available on the market.

"As a matter of fact, the LNG industry is mutating nowadays with fierce competition with different kinds of LNG players. We have the Trading Houses who have benefited from the additional production and excess LNG volumes in recent years. We have the Portfolio Players, we have the Gas Producers and the historical Utilities. Some of the historical Buyers have even become Sellers because of the lack of their domestic demand which has been a change in the market.

"Lastly, our industry has witnessed major consolidations which  has created very big players such as SHELL or JERA in Japan. In this period of LNG surplus, you need to pay the utmost attention to customer needs, starting with the best flexibility at a competitive price.

"Over the years, as more LNG became available, the sellers’ market turned into a buyers’ market. LNG players used to pay more attention on how to source the LNG, but now the focus is more on the demand. How do you secure the outlets? This is the major evolution of the recent years. You need to pay attention to the customer’s constraints and to their needs in order to secure the LNG markets."

How fast is the global LNG demand growing? Where are the new markets?

"With its energy efficiency and the transportation flexibility it offers, LNG has come into its own as an essential component of the global gas balance in the last decade. Its surge is poised to continue.

"A fully fledged LNG market has grown up around the main consumer regions of North-East Asia, Europe and North America. Today, Asia is the LNG market’s main driver. Alongside long time importers (Japan, South Korea and Taiwan), China and India should provide the industry with strong growth opportunities. New LNG import regions are also emerging with the Middle East, South America and South East Asia. Moreover, FSRUs have allowed the unlocking of pockets of LNG demand which did not exist few years ago. As examples, FSRUs enabled Egypt, Jordan and Pakistan to import around 14 MT in 2016."

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In your experience, which one is more challenging: closing long-term or short-term purchase agreements?

"I would say that the key challenge is to understand first the needs of the LNG customers as a buyer or a seller. The LNG market is becoming more liquid with more opportunities to offer greater flexibility. The short and midterm deals represent nowadays close to 30% of the LNG traded around the world. The buyers, at least some of them, have indeed a tendency for the time being not to commit too much on the long term but rather on the spot or the midterm basis.

"The globalisation of gas markets has transformed marketing practices in the LNG industry and the opportunities for trading have expanded considerably. LNG is expected to account for close to 15% of the volume of the global gas supply by 2025."

In the current growth of the market, what is the greatest challenge in the LNG industry?

"LNG’s growth is contingent on meeting the very strict and the highest safety shipping standards. Shipping, within this logistical chain, is a priority for the industry because of the safety requirements as the LNG chain grows longer and longer with the fragmentation of the LNG market from the standard conventional cargo into small scale including, but not limited to barging and LNG trucking.

"Safety must be priority number one."

What are your predictions for the future of LNG against other energy sources like oil and renewables?

"I am confident in the growth of the LNG market as it represents a commodity which produces lower carbon emissions when burnt than oil or coal. On a global scale, natural gas is cleaner than coal and it can substitute coal for power generation in a much more cost-effective manner. As such, we can consider that the use of LNG will constitute a sustainable bridge to a clean renewable energy economy. We also have to consider that renewables will take time to gain market share and it will not happen overnight. Meanwhile, LNG will remain a preponderant component of the world energy mix."

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