An Interview with Platts' Head of LNG Analytics, Frank Konertz
Frank Konertz is the head of LNG Analytics for S&P Global Platts, a global analytics and price rating agency covering the energy and commodity markets. We spoke to him about to him about the shape of the LNG market, seasonal and regional demand distributions, the effects of renewed U.S. sanctions on Iran, and the development of the maritime sector into a major source of emerging demand.
Yes China will grow – but how much of that growth will be weighed to winter versus summer? What about some of the demand losses that we see partly in Latin America but also in the Middle East? How will those impact the seasonal balance of LNG, and how will that impact seasonal fluctuations in the market?
Forecasting the markets for gas and LNG is your particular area. How do you see them?
Changing, I reckon. Which is good, which keeps it interesting, and I think it is probably good for all in the market. I think a lot of the changes we see at the moment we actually saw coming. We foresaw the supply capacity additions, and I think there was a strong consensus in the market about demand growing very strongly now and also over the next couple of years, very much driven by Asia – China, but also South-East Asia. One of the key questions is what are the implications on trade flows? What does it mean for prices, and probably most interestingly, what does it mean for spreads? And I think we can talk about geographical spreads as well as seasonal spreads. We expect that there will be quite a lot of change, and probably there are more uncertainties on some of the price implications, rather than some of the fundamentals, which I think we have more certainty around for forecasting.
Does that make it more of an exciting time, or quite a concerning time?
Probably more the former. It’s very, very exciting; we hope to be able to take some of the concern out, and hopefully provide some thoughts around what would be the concerns if you don’t look forward, and don’t try to understand what some of the implications are. It’s always difficult to forecast so there’s some risk around it, but the key is in trying to think of what could happen, what different paths could happen, and what would the implications be on each of those paths. So let’s take the concern out of the excitement.
When people come to you and they’re looking at the markets, they’re looking to see where the smart money is going, what are the concerns that they have there?
A lot of the concerns really are around… probably the biggest thing is everybody said there is a glut, but it’s not coming, right? So that’s one of the key concerns. Where’s the risk on some of those fundamental forecasts that we and others provide, I think that’s one of the key concerns. The second concern again will be on pricing: what will the regional spreads be, how will a price benchmark like JKM fair compared to European prices or to Henry Hub? Will the spreads increase, or will they decrease? We talk a lot about convergence, and today in the conference we’ve talked about convergence already. I think there is a general consensus that yes, there will be convergence – but what will it mean? I think it doesn’t necessarily mean that prices will level out. There is a driver, there’s a reason why we probably will see premiums in some markets. And that reason is that we simply have demand growth outpacing supply growth in some of those regions. So yes, there is a reason for higher regional spreads. And equally on seasonal spreads we also have a lot of uncertainty around exactly when new supply will come onstream. Yes China will grow – but how much of that growth will be weighed to winter versus summer? What about some of the demand losses that we see partly in Latin America but also in the Middle East? How will those impact the seasonal balance of LNG, and how will that impact seasonal fluctuations in the market? So I think there’s – I wouldn’t necessarily call it concern – but there are question marks, there’s uncertainty around exactly that.
Well does that mean the smart money goes towards storage?
It may well go into storage – I’m not going to judge whether the Chinese money is smart money or not. But yes, there clearly is a scenario that we’re forecasting where there will be a need for more storage capacity, and again China is one of the countries that will build more storage capacity now.
Let’s talk politics. How do you see that playing into all these different markets? There’s been a lot of that talked about, even so far here at Flame.
It will, and it is, and I reckon from that perspective Flame is coming at a good time. Just a couple of days ago we had the US sanctions on Iran being renewed, and there are major global drivers onpolitical changes, and I think the Iran sanctions are a good example. They will likely be able to impact gas and LNG via the impact of oil prices on the gas and LNG market, but they also may impact some of the market players and how they want to position themselves, keeping political situations closely in mind. So I think there’s both a fundamental and a price perspective. There are more regional political changes that I think will be interesting as well. If you take the recent elections in Malaysia as an example, there’s going to be change in how the government will likely see the market liberalisation or regulation. So clearly, we will need to continue to look at political developments to assess the risk but also the potential that they will bring with them.
You didn’t mention any politics between the US and Russia. We’ve heard here at Flame that you have Russian companies, because of sanctions, now trying to develop more technology inside Russia to cope with that.
It’s a good point. Clearly yes, the U.S. and questions around Russia will be pivotal, and will be especially pivotal for the European market. I think we see changes in how for example NordStream is being discussed in the political media in Germany and overall in Europe. So yes, clearly there is uncertainty about it, most definitely so.
You’re talking there about Germany. Well let’s widen it out to Western Europe. We were hearing from the Russian [LNG company] Novatek earlier, and this idea that they feel that there is “good gas” and “bad gas”, and how this plays into a public perception of where the gas comes from. Do you think there is that sort of sentiment from the public still as well?
It’s extremely difficult to judge. Again we tend to take a very market driven approach. So our perspective is more on whether the gas is economical, will it flow. From that perspective I’m reluctant to make a gut feeling kind of judgement call on this. I think from a European perspective there clearly will be the need for more imports. There are fundamental drivers, whether that is Russian gas, Caspian gas, North African gas or LNG. Most likely yes, politics will – and could – play a role in that.
Talk to me about the actual mix that you see, and the percentage of gas within the energy mix for Europe.
We expect that gas will continue to play a strong role in Europe, and I think from where our demand drivers will be, there’s quite a facet on that. And I’d probably like to take it not only looking at Europe, but on a global level. Including LNG in the perspective, we have markets where gas and LNG will simply be needed to drive economic growth. Tapping markets that have no access to gas, or potentially have no electricity access, so gas being used to drive that equally. We have markets where gas and LNG can be used as a back-up option for renewables, which is clearly a very strong growth driver. And one other area, quite topical, is the maritime sector. So LNG and gas clearly can play a major role in that. Interestingly by 2030 we forecast that if bunkering were a country, we think it could be the second biggest growth market in the world for LNG. So that’s big changes again.
Let’s fast forward 3 years – what do you think we’ll be talking about.
In three years we’ll talk a lot about renewables, we’ll talk about what role gas can play, and on the LNG side specifically I think we’ll talk a lot about flexibility. On the shipping side, but also on the usage side, I think we’ll talk a lot more about downstream markets – so enabling the gas and the LNG to get to the market. How can countries, markets players and consortia enable access. So I think we’re drilling deeper, and we’re looking a little bit outside of gas and into the power market.
I look forward to talking to you about that, Frank-
In three years? [laughs]
In three years, yes! For the moment thank you very much.
