NEW YORK—Late in 2017, the first commercial LNG shipment from British Columbia arrived in China, putting both North American gas-exporting countries in the global LNG market.

At a recent market outlook by Haynes and Boone LLP, presenters from that law firm as well as maritime brokers and analysts Poten & Partners, and logistics operator USD Group suggested that the immediate need for LNG growth worldwide is midstream infrastructure to connect regasification facilities to users. By 2022 new long-term supply is likely to be needed, but the key to continued growth and diversification of global LNG is on the midstream for the last mile.

Mark Cole, co-general counsel and secretary at USD, offered an investment-case approach.

“There is abundant and growing supply of LNG worldwide, notably in the U.S. and Australia,” he said. “There is also abundant and growing demand. But there is potentially inadequate pipeline and terminal infrastructure.”

Poten estimated that between 2010 and 2017, $312 billion was invested worldwide in liquefaction, of which two-thirds was by end-users and one-third by energy majors or aggregators. In the same period, about $45 billion was invested in shipping, of which roughly half is contractually committed. Also in the same period, about $47 billion was invested in regasification, of which a glaring 72% remains unused or underused.

A large part of the problem is the way global LNG markets developed before 2010, explained Chad Mills, partner with Haynes and Boone.

“LNG has very high capital costs, so historically each project was its own dedicated bundle of infrastructure with long-term contracts,” he said. “Terms were designed around certainty and supply security and were therefore very inflexible with take-or-pay rules, precise annual scheduling, tight delivery windows, and restrictions on destinations so buyers could not resell or divert shipments.”

Several developments wrought change, but most notably the shale bonanza in the U.S. caused a sudden reversal from vast plans to import LNG to modest plans to export. Major suppliers had to scramble to find new markets for the LNG they planned to sell to the U.S.

“The new model, where there are many possible structures for reserves, production, gathering, liquefaction, transport, trading, and regas, open opportunities to monetize many steps in the chain,” Mills said.

He added that “many buyers of LNG still want oil-based pricing. For the most part these are not the most dynamic organizations in the world. Often they are state-owned or state-controlled utilities and the people there don’t want to make mistakes. Oil is a global market that they understand. No one is going to get fired for wanting an oil-indexed price.”

That said, there are examples of midstream development.

“I am a big fan of Skangas,” said Cole. “The Nordic firm is vertically integrated from supply to distribution, liquefaction to ships and even trucks. They are demonstrating the feasibility of LNG markets on a smaller scale.”

To underscore that point, the first LNG export from Canada to China was done by container ship. The 17 metric tons of LNG left FortisBC’s Tilbury plant outside Vancouver on Nov. 22. It was marketed and shipped by True North Energy and China’s CIMC Enric Holdings. Dedicated LNG tank containers enable intermodal shipments. Fortis primarily supplies remote Canadian villages and industries, and is investing more than $300 million to expand its Tilbury operation to 250,000 metric tons a year.

At the Haynes and Boone briefing there was no overt call for U.S. or Canadian midstream operators to leap into foreign markets. Indeed, Cole stressed that companies hoping to participate in the potential for LNG growth “identify cross-border and local experts” and pay close attention to anti-bribery and anti-corruption due diligence, as well as different options for project insurance including political risk and trade credit.

Still, the obvious need in the growing global LNG business is the last mile. The wide and deep North American gas transportation and distribution network does not exist anywhere else in the world. And while it is not likely to be replicated, there are clear opportunities for growth on the regas side of LNG.

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