Uncharted waters: LNG demand in a transforming industry

Uncharted waters: LNG demand in a transforming industry

A transforming LNG market is marked by globalisation, changing pricing models, and major demand uncertainties. Prices have fallen sharply and the market appears likely to be over-supplied for some years.

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Prices have fallen sharply and the market appears likely to be over-supplied for some years. Traditional Japan-South Korea-Taiwan LNG buyers appear mature, while European demand depends heavily on Russian strategies, as well as environmental policy. Chinese LNG requirements are key, but influenced strongly by pipeline gas competition, economic growth and coal use. Emerging LNG markets in Asia, the Middle East, Latin America and in transport (shipping and road) present a major growth opportunity, but have to be developed actively.

Such an LNG market presents all participants with challenges. Uncertainty over demand from traditionally dominant buyers requires eyes for new markets from LNG producers and traders. They have to understand buyers' strategies and maintain optionality and competitiveness in their portfolio of supply – and be ready to launch new projects quickly – when market conditions permit.

Buyers, conversely, should make the most of their current strong position, while deploying new strategies. They need to understand their bargaining position as well as that of sellers; engaging on regulation and government policy; and creating buyer alliances such as Japan's JERA.

The winners along the value chain will be those who can act counter-cyclically, who can create and maximise markets, instead of reacting passively to them, who can identify the major long-term trends driving LNG demand, while also staying flexible to seize emerging opportunities.

The KPMG GEI report ‘Uncharted waters: LNG demand in a transforming industry’, highlights and discusses the short-, medium- and long-term demand uncertainties:

  • Short-term: Japanese nuclear restarts, Ukraine crisis, LNG storage, trading house vertical integration
  • Medium-term: New buyer alliances (JERA), Japanese deregulation, Chinese economic growth, new Russian pipelines, new importers
  • Long-term: Asian urbanisation, LNG in transport, renewable energy, climate policy. 

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