LNG price’s flux threatens Nigeria’s $1bn revenue

The instability in global price of Liquefied Natural Gas (LNG), which provides $1 billion revenue annually to the Federal Government, will create a tighter and geographically proximate sale for Nigeria and others, Deloitte has said. The global consulting firm, which said this in its latest report, Deloitte Touche Tohmatsu Limited’s (DTTL) Oil and Gas Reality Check 2015, stated that the price stability was no more a model for global LNG market stability. “The price of LNG was once a model for stability, it is less so now. Until prices stabilise, natural gas will trade in more geographically proximate regions,” said the report. This, according to the report, means that “Australian LNG will likely retain its north/south advantage, providing supply to Singapore, Taiwan, Japan and South Korea. Conversely, North American producers have a more natural trading advantage with Europe. Besides, it noted that the most cost-efficient producers are the ones most likely to win global market share, especially as supply-demand economics kick in. “This may ultimately give the United States (and, perhaps, Canada) a competitive advantage, as their breakeven points on LNG projects are typically lower,” the study added. It stated that the cyclicality of the oil and gas industry is unlikely to impact the longterm trajectory of the sector. However, the current fluctuations may speed up some of the trends that were already unfolding. The report outlines six of the major issues currently impacting the oil and gas industry (and the upstream market in particular). These issues include an anticipated shift in supply-demand fundamentals, the emergence of new trading patterns, consideration of OPEC’s role in the market, falling LNG prices, the long-term costs of complex projects and evolving dynamics between integrated oil companies (IOCs) and national oil companies (NOCs). Anton Botes, Deloitte Touche Tohmatsu Limited’s Global Oil & Gas Leader, said: “The oil and gas industry has been built on long-term investments and has successfully emerged from cyclical downturns in the past. As these trends play out, companies across the board need to adapt and remain agile to emerge a leaner, fitter business. At the same time, it’s worth remembering that weaker price signals spur innovation. With that in mind, it’s not unreasonable to expect that lagging oil prices will spur greater innovation.” The report highlighted other key trends to include shift in supply-demand fundamentals, new trading patterns emerging, OPEC: under pressure; investing in innovation: the cost of complexity and national and integrated oil companies: evolving dynamics. The study noted: “Fluctuating industry dynamics are fuelling a power play between traditional and new oil suppliers. For example, the United States continues to maintain its place as a major producer of both oil and gas, while historical energy trade patterns are shifting. With the loss of the United States as an anchor market, the world’s major oil suppliers are searching for new buyers. “As oil and gas supply and demand fundamentals continue to evolve, new global trading patterns are emerging. As relations between emerging trading blocs strengthen, OPEC may look to expand its share of the Western European market.”