Petroleum Economist: Oil-Indexed LNG Coming Under Pressure in Asia

“Big Asian LNG customers are investigating alternative formulas to existing oil-linked contracts. But a switch to LNG prices based on US or UK gas-market prices isn’t imminent. Almost all LNG sold to Japan and South Korea are long-term contracts are based on oil prices. But with volatile crude prices rising over the last two years, and US gas prices staying low, some Asian buyers are investigating whether they can secure LNG supplies on an alternative pricing formula using US or UK gas-market prices instead. ‘Our discussions with Asian players revealed that actually there’s a general resistance to the rapid introduction towards Henry Hub [US gas] or NBP [UK gas] linked contracts in Asia. However, there’s a significant curiosity and interest in the idea, particularly from Asian buyers for short-term contracts and maybe medium-term contracts,’ says Kyoichi Miyazaki, LNG analyst at consultancy Poten & Partners speaking at Gastech.”