SINGAPORE/SHANGHAI—U.S. producers of LNG are wooing buyers with offers to sell gas priced against benchmarks other than U.S. domestic prices, ahead of an expected flood of supplies on global markets this year.
The United States, the world’s fastest growing gas exporter thanks to surging output from shale fields, is set to become the world’s third-largest LNG exporter this year, taking on more established suppliers such as Qatar and Australia.
U.S. producers only began exporting LNG in early 2016 and typically price their sales against U.S. domestic benchmarks such as Henry Hub.
To stand out, at least two developers of new U.S. terminals have signed binding and non-binding deals using alternative pricing, executives said on the sidelines of the LNG2019 conference in Shanghai this week.
On April 3, Tellurian Inc. (NASDAQ: TELL) and French oil and gas major Total SA (NYSE: TOT) signed a deal that includes both companies entering into a binding agreement for 1.5 million tonnes per annum (mtpa) of LNG from Tellurian, which is developing the Driftwood LNG project in Louisiana.
The price was based on Platts Japan Korea Marker (JKM), which is a fast-developing Asian benchmark for LNG though mainly for spot cargoes. Most LNG contracts in Asia are still priced off Brent crude.
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Tellurian and commodities trader Vitol have also signed a memorandum of understanding for long-term LNG supply priced off JKM.
“I believe LNG is moving (toward) a gas index,” said Total’s CEO Patrick Pouyanne.
“Gas linked to oil is old world and we have seen in the past two years the JKM-linked market is growing,” he added.
Banks are also getting more supportive of JKM-linked pricing for the sale of LNG cargoes, said Tellurian’s CEO Meg Gentle.
NextDecade Corp. (NASDAQ: NEXT), which is developing the Rio Grande LNG export project in Brownsville, Texas, said on April 2 it has signed a 20-year binding sales and purchase agreement (SPA) with Royal Dutch Shell for two million tonnes a year of LNG, which it said was first U.S. long-term contract indexed to Brent.
Three quarters of the LNG will be indexed to Brent crude oil prices and the remaining volumes will be indexed to domestic U.S. gas price markers, including Henry Hub, the company said.
NextDecade is also offering its potential buyers LNG priced on other U.S. gas indexes such as Agua Dulce and Waha.
“U.S. gas producers may be willing to take exposure to oil linked LNG netback pricing compared with the depressed U.S. gas prices seen lately,” said Saul Kavonic, a Credit Suisse analyst.
Next-day natural gas prices at the Waha hub in West Texas plunged to negative levels in late March, but have recovered slightly since.
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