The liquified natural gas (LNG) and natural gas industry is expected to see more non-traditional sources of capital investment in the form of infrastructure funds and private equity, according to Ashurst.
Outlined in its Future of LNG and Natural Gas Infrastructure, Asia-Pacific report, Ashurst used its network in the sector to ask how leaders across the Asia-Pacific region were responding to the changing dynamic and what the future holds.
“In our survey, 60 per cent of industry leaders see varying degrees of disaggregation occurring across the industry in the next five to 10 years. The traditional operating model in the LNG and natural gas sector is under scrutiny and is likely to change,” Ashurst outlined.
“Major energy companies are considering monetising their upstream and midstream infrastructure assets and recycling capital in pursuit of capital efficiency, increased investment in renewables and greater influence across the energy value chain.”
The adviser reported that 60 per cent of its respondents also considered infrastructure funds to be a key source of funding for future LNG and natural gas infrastructure development, resulting in players keen to divest infrastructure assets into a commercial model that allows for stable infrastructure rates of return.
Ashurst believes the landscape of the industry is set to evolve with two different leagues of players – masters and maestros.
Masters will be characterised by a desire to broaden and deepen their influence and control across the entire energy value chain, with LNG and natural gas being a key pillar of influence. Maestros, on the other hand, will carve out niches based on specialisation.
In addition, the report highlighted that LNG and natural gas will be pivotal as a transitional fuel, as the industry moves towards a lower emissions future, and a long term partner to renewables.
“LNG and natural gas will play an important role as a transition fuel towards a low emissions future because of its cleaner-skies footprint compared to other fossil fuels. Natural gas is expected to play a role to complement renewable energy supply, with gas-fired power providing solutions to the power system security issues created by the often intermittent nature of renewable power, with flexibility to respond to peaks in demand,” Ashurst stated.
“LNG and natural gas can be deployed quickly to emerging markets in the Asia-Pacific region in large quantities, particularly through floating regasification facilities.”
Some of the world’s largest oil and gas companies are paying attention to energy transition, including investment in renewables and the move to hydrogen as part of energy transition.
“Over the last 15 years or so, infrastructure funds and utilities alike have established structures that allow for the development of portfolios of renewable energy assets. These structures allow project financing on a case by case basis, with the developed renewable power assets owned by equity investors,” Ashurst partner Michael Harrison said.
“These structures also allow the sale of assets to realise the equity investment in due course. We see these structures as providing capital to allow IOCs to develop renewable energy assets and to realise and recycle capital over time.”
When it comes to barriers to growth in the Asia-Pacific region, supply-side competition from other LNG sources outside the region are the most threatening, according those surveyed.
Survey respondents also cited regulation and the absence of open access to infrastructure as barriers to growth in the Asia-Pacific region.