New Business Model for Stalled LNG

Published on July 16, 2018

Bauer Energy Fellow Proposes Strategy to Jumpstart LNG Projects

Finance Executive Professor Chris Ross.

Leaders of the LNG industry in the United States, Europe and Asia discussed the mostly dismal state of financing for permitted U.S. liquefication projects at CWC World LNG & Gas Series Americas Summit in Houston this past spring.

Bauer College Professor Chris Ross and MBA student Justin Varghese have proposed a strategy to jumpstart LNG projects. The proposal would create a broad collaborative that would include the full LNG value chain: natural gas producers, pipeline companies, Engineering, Procurement and Construction (EPC) companies, equipment manufacturers and end users to identify international nodes of industrial and power oil users and help them switch to LNG. Each participant would have skin in the game with a low floor price for its link in the value chain but will be rewarded by a share of the large expected spread between the price of oil and the price of LNG.

In the past, developers and producers have depended on third parties to stimulate demand for their product and sign long term supply contracts that underwrote project finance for new projects, Ross wrote in a blog post for Forbes.

However, LNG market prices have dropped due to a surge in supplies and traditional buyers are no longer willing to commit to long term contracts. This proposal aims to find new buyers and reinforce the credit of the project by spreading risks across participants representing the full LNG value chain.

“The International Energy Agency predicts that global oil use will decline as it is replaced by natural gas and renewables. The collaboration we are proposing could accelerate the switch.”
Read the Forbes piece here and see an interview with Ross here.

By Julie Bonnin