Page 4 - GLNG Week 10

GLNG COMMENTARY GLNG
Oil price crash could be mixed blessing for LNG
Cautious optimism that the collapse in crude prices will benefit some LNG market players has emerged, though others could stand to take a hit
PERFORMANCE
WHAT:
The LNG industry is assessing how it will be affected by this week’s collapse in crude prices.
WHY:
Buyers under oil-indexed contracts will benefit from lower LNG prices, though this is not welcome news to sellers.
WHAT NEXT:
In the longer term, a
drop in associated gas production could ease the global glut.
THE oil price crash this week has left the energy industry reeling, and at least some oil companies are scrambling to cut spending immediately in order to survive a new environment of crude prices below $35 per barrel. However, the silver lining is that the LNG market could potentially benefit from the oil industry turmoil.
Two ways in which the crash could help LNG has already been identified – though it is worth noting that this is still playing out against the backdrop of depressed global demand caused by the coronavirus pandemic, which threatens to offset potential gains. On one hand, there is cautious optimism among LNG buyers under long-term contracts that are indexed to the price of crude. On the other, in the longer term, it is possible that a drop-off in associated natural gas production from regions such as the US’ Permian Basin as oil drillers scale back activ- ity could help ease a global gas glut, boosting demand. And while some LNG players could benefit from these new trends, for others the emerging picture is more of a mixed bag.
Oil-indexed
Despite a growing shift to the spot market, most of the world’s LNG is still sold under long-term contracts that are indexed to oil. Indeed, as spot prices have languished in recent months, many LNG buyers have been unable to capitalise on this as they are still locked into long-term con- tracts. This has affected buyers in leading cen- tres of LNG demand including Japan, China and South Korea. Indeed, a number of buyers have been pushing to renegotiate contract terms in order to access more favourable pricing, with mixed success.
Among those trying to exit or renegotiate long-term contracts has been Pakistan LNG, which was reported to be considering exercising termination closes in contracts with Italy’s Eni and Gunvor Group in 2017. Meanwhile, Japan’s Osaka Gas entered into arbitration with the mar- keting unit of ExxonMobil’s PNG LNG project last year after a dispute during a price review. And most recently, Qatar – one of the world’s leading suppliers of LNG – indicated that it was
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w w w . N E W S B A S E . c o m Week 10 13•February•2020