An incoming government identified that its institutions had failed to recognise how the old rules of an industry built by earlier administrations to capitalise on this national resource had been overtaken by the new realities of global market. Its downstream industries were now only parts of global production portfolios. The criteria IOCs applied to upstream investment opportunities had changed too. And the sunk cost of existing production capacity was no longer sufficient to counter the competition from emerging lower cost gas provinces.
From production-first to customer-first
To participate successfully in global markets, whether for LNG or petrochemicals, you have to take a global perspective. That is a significant mindset-shift and refocusing for energy and finance ministries that have been able to ride the wave of embedded advantage from low-cost gas for many years. Only when challenged by the realisation that resources are depleting, and upstream players are not auto-investing, do they recognise that upstream and downstream players are now market-driven portfolio players for whose investment and product offtake their country is competing. By using competition for demand and investment to dictate the shape and potential of their LNG and industry operations, we were able to align government agencies and producers towards understanding the needs for a simplified commercial framework designed to sustain in a market focused on lowest delivered cost.
Communication is key
The systems that support nationally significant industries, like LNG and petrochemicals, are a complex matrix of global technical and commercial agendas that compete with national government agency expectations. These vested interests diverge over time, which can translate into entrenched positions and deep mistrust, both of which work against constructive change. Our independence and credibility introduced fact-based understanding into the debate.
The engagement and alignment we created through the project allowed us to support government and evolve the value chains towards a closer accommodation of all parties: commercial, physical, regulatory and institutional. Importantly, as domestic reserve deplete, it is also a framework shaped to attract fresh upstream investment from the world’s major IOCs, giving the ministry and the country a roadmap to extending its downstream and export industries and their key contribution to the national economy.