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Navigating the transformation of the gas market: Adapting to survive in a period of change

July 06, 2016

Executive summary

The global natural gas market is going through an unprecedented transformation. Gas is playing a huge role in the transition to a low-carbon world. It is also rapidly becoming a global commodity as its price crumbles on the open market. As recently as 2014, in Europe and Asia, liquid natural gas (LNG) enjoyed a golden age. Profit margins were high, and markets were growing. Sellers could secure long-term oil price–linked contracts and bask in the gains from high crude prices.

Now all of this is changing. With a growing glut in globally tradable LNG, all industry players — buyers, sellers, traders, and governments, to name just a few — will need to adjust their operating models. They should expect lower prices, more short-term trades, and demands for contractual flexibility. The right strategic response will vary from one player to another, and there is a great deal of risk and uncertainty. But any company in this industry can succeed by carving out a focused value proposition and developing the capabilities to deliver it.

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In a recent report, “New Energy Futures,” we argued that the energy sector is going through a period of sweeping transformation. This is especially true for natural gas. Given the pivotal role gas will play in the transition to a low-carbon world, combined with the tide of commoditization that is sweeping the sector, you must prepare for change. You will need to muster all the intelligence, resources, and creativity that your firm has on board. In a future where risk levels, liquidity, and price volatility will increase, the certainties underpinning long-term supply contracts will ebb away. Lower margins and uncertain trading outcomes will replace them. To prosper, you will need to be ready. Those who aren’t ready will fail.

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Adrian Del Maestro

Adrian Del Maestro

Director, PwC United Kingdom

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