LNG producers argue in support of oil-linked pricing
(Gulf Times; Doha, Qatar; June 10) - Gas producers in Qatar to Australia are banking on Asian customers sticking with oil-linked pricing for LNG even as the lowest U.S. prices in 10 years tempt them to buy North American shale exports. Buyers shouldn't gamble on U.S. gas holding at current low prices, said RasGas, Qatar's second-biggest producer. U.S. sales may be limited by the nation's need for power generation and the fear that exports could drive up domestic prices, said Australia's Woodside Petroleum.
"Long-term contracts are for 25 years or so, and betting gas prices will remain low for 25 years is a big gamble for consumers," Hamad Rashid al-Mohannadi, managing director of RasGas, said June 6 at a gas conference in Malaysia. Oil-indexation gives buyers more clarity about future pricing, according to Brian Buckley, CEO of Oman LNG, which supplies utilities in South Korea and Japan. "Markets need first and foremost security of supply and then comes price," Buckley said. "Oil-indexation has worked all these years."
Producers such as Qatar, Russia and Australia typically sell LNG to Asia under long-term contracts linked to oil prices. "The link to the crude-oil price is no longer that reasonable, so we need to break that linkage," said Mitsunori Torihara, chairman of Tokyo Gas and the Japan Gas Association. Association members have been "recently more forthcoming" on purchasing from outside the region and "placing more emphasis" on proposals to peg imports to price benchmarks in the U.S. and Europe, he said.