Opportunities ahead in LNG and natural gas infrastructure shakeup

Highlights

• More non-traditional investors (such as infrastructure funds) are set to eye-off investments in LNG projects in the Asia Pacific region 
• Energy transition continues to impact decisions of major players - investment is rapidly shifting towards clean energy solutions 
• Long term LNG tolling arrangements can present attractive opportunities
• Restructuring of the LNG ownership model continues apace

Non-traditional investors (such as infrastructure funds) are preparing to ramp-up investment in LNG assets as traditional exploration and production companies seek to monetise hard assets and re-allocate capital, a study by global law firm Ashurst reveals. 

The study, "The Future of LNG and Natural Gas Infrastructure", compiled the views of general counsel and executives across exploration, production, offtake customers and investors in the Asia Pacific region. The study indicates non-traditional investors, including cashed-up infrastructure funds, are set to eye off LNG plants and associated facilities as an attractive investment. 

Key findings include: 

• 60% of respondents see varying degrees of disaggregation occurring across the industry in the next 5 to 10 years;
• 60% of respondents considered that infrastructure funds will likely be a key source of funding for future LNG and natural gas infrastructure development; and
• a price on carbon would provide greater certainty to investment planning.

Ashurst's Asia Pacific Head of Oil & Gas, partner Peter Vaughan, explains: “The opportunity for this change is being created by a multitude of factors, including international oil companies seeking to monetise some of the huge sums invested in LNG processing facilities to free up capital for allocation into burgeoning new energies businesses or into other exploration and production plays."

“Everywhere we look, the energy transition is impacting decisions. In the minds of our clients in the LNG business, the energy transition is here, it’s real. It’s just a matter how they can be in a position to capitalise on it." 

“Another driver is that these expensive LNG assets are held in complicated joint venture structures – and many of these joint ventures are ready to change as their original gas fields deplete and new gas is being courted under tolling arrangements. In this environment, some international oil and gas companies may be considering an exit, while some infrastructure players may be attracted to long term tolling infrastructure as an investment.”

The survey found: of infrastructure funds and private equity investors, the most attractive reasons for investing in gas and LNG infrastructure are long-term tolling arrangements and market outlook for LNG demand.

To enable this, traditional players keen to monetise infrastructure assets may need to repackage them into a commercial model that allows for not only divestment, but also for stable infrastructure rates of return via service and tolling arrangements for the processing and handling of LNG and natural gas.

Across the board, it is recognised that the bigger players are broadening their reach through the energy sector.  Survey respondents cited the “electrification" of the global energy system – driven by the uptake of renewables – as another force for change.

Ashurst’s research report, "The Future of LNG and Natural Gas Infrastructure", is available here.