By Naureen S. Malik, Bloomberg News
Surging liquefied natural gas production from the U.S. to Australia is transforming what was once a sleepy market, prompting suppliers to come up with new contract structures as they compete for a fast-growing pool of buyers. Here are a few ways to price cargoes of the super-chilled fuel:
Crude Benchmark
LNG, gas that has been condensed into liquid to be loaded onto tankers, is traditionally priced off of crude oil. That’s because in Asia, the biggest gas-consuming region, the fuels compete for heating and power generation. Such contracts, typically 20 years or longer, are based on Brent, the Japanese Crude Cocktail, Indonesian crude or a basket. But oil-linked deals are now priced at 11% to 13.5% of crude, down from 14.5% historically,
said Madeline Jowdy, senior director of global gas and LNG at S&P Global Platts.
Even as rival pricing schemes emerge, oil will still dominate, according to Royal Dutch Shell Plc, the world’s largest LNG trader. Last month, Shell signedthe first crude-linked deal with a U.S. LNG terminal developer, NextDecade Corp.
Henry Hub
As the U.S. moves up the ranks of the world’s biggest LNG suppliers with the startup of export terminals, the Henry Hub benchmark in Louisiana has become one of the primary ways to price the fuel. Cheniere Energy Inc., the first company to send U.S. shale gas overseas, started the trend by signing 20-year contracts that price the fuel at 115% of Henry Hub. Venture Global LNG Inc. is sticking to Cheniere’s model for its Calcasieu Pass terminal in Louisiana, but will offer smaller premium, co-CEO Mike Sabel said in a February interview.
Asia’s New Benchmark
The Platts Japan Korea Marker, or JKM, is emerging as an LNG benchmark for spot or shorter-term contracts with buyers in Asia, the fastest-growing demand region. Tellurian Inc, which is developing the Driftwood LNG project in Louisiana, signed a 15-year deal last month with Total SA priced off of JKM, a first for a U.S. terminal.
Coal Contracts
Last month, Shell agreed to sell LNG to Tokyo Gas Co. at prices that include a link to coal, the latest innovation in the booming gas market. The two fossil fuels face off in Japan, Europe and other major markets to produce power. Tokyo Gas said it aims to stabilize costs by diversifying away from oil-based LNG contracts. In the wake of that deal, Japan’s Jera Co. is mulling linking some of its purchases to coal as well, President Satoshi Onoda said in an April 17 interview.
European Spot Prices
There are no known long-term contracts linked to European gas hubs, but spot cargoes have been sold priced off of the Dutch Title Transfer Facility, or TTF, and the U.K.’s National Balancing Point, or NBP. Derivatives are also being developed around these and other contracts.
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