07 June 2011 11:49 [Source: ICIS news]
KUALA LUMPUR (ICIS)--The high entry costs to trade in the liquefied natural gas (LNG) market are likely to deter oil traders from becoming major players in the sector, Vitol CEO Ian Taylor on Tuesday.
Trading in the LNG market is different from the oil market principally because it requires much more investment, said Taylor, who was speaking at the Asia Oil and Gas Conference (AOGC) in Kuala Lumpur, Malaysia.
Although Taylor acknowledged that spot business will increase, he said LNG will fundamentally be a producer-to-consumer market.
“There will always be big take or pay contracts as producers and consumers need the certainty [of supply and demand]. We are trying to use a similar model in the LNG market for physical arbitrage, physical trade, as we do in the oil market.
“Obviously, many of the customers we have dealt with for 45 years in the oil business are also involved in the gas business…the big Japanese and north Asian consumers,” said Taylor.
He added that such connections in the oil industry make it possible to do business in LNG.
“However, things like shipping are extremely expensive in the LNG business. We have taken on some ships, but you need a big balance sheet to do this. The high costs are a barrier to entry for participants in this market,” he said.
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Commenting on Vitol’s investment plans in the LNG sector,
“Some investment in logistics and in shipping is essential to be a participant in the LNG market,” he added.
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