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Australian Energy Producers Journal Australian Energy Producers Journal Society
Journal of Australian Energy Producers
RESEARCH ARTICLE (Non peer reviewed)

Top three LNG buyers to search for alternative LNG pricing structure after paying a total cost premium of $56 billion for oil-indexed LNG contracts in 2019 and 2020 – how will this affect Australia as the number one supplier to this market?

Sindre Knutsson
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Rystad Energy, Oslo, Norway. Email: sindre.knutsson@rystadenergy.com

The APPEA Journal 61(2) 412-416 https://doi.org/10.1071/AJ20164
Accepted: 1 April 2021   Published: 2 July 2021

Abstract

Increasing spreads between spot liquefied natural gas (LNG) and oil-indexed contracts have resulted in the world’s top three LNG buyers paying a cost premium of $33 billion in 2019 and 23 billion in 2020. The top three buyers are Japan, China and South Korea, which had a combined 151 Mt of long-term LNG contracts indexed to oil in 2020. This cost premium shows what top Asian buyers are currently paying for the security of LNG supply through long-term oil-indexed contracts. However, it also shows the potential reward Asian buyers have if they manage to develop a liquid LNG pricing hub in Asia to which they can index their contracts. Japanese buyers’ efforts of increasing flexibility in contracts, both through take-or-pay agreements and destination flexibility and aims of growing the spot market, will increasingly support the liquidity of the LNG market. However, there will be resistance from the other side of the table, for where someone is paying a premium, or making a loss, someone is making money. 2020 was another year of plenty for LNG producers selling oil-indexed volumes to Asian markets. Australia is the largest seller of LNG to Japan, China and South Korea with over 60 Mt of long-term LNG contracts indexed to oil in 2020. Australia has benefited from having their contracts indexed to oil, but what’s next? In this paper, Rystad Energy will discuss the future market for Australian LNG exports including development in LNG demand, contract trends and price spreads.

Keywords: Australia, LNG, spot, LNG contracts, LNG imports, LNG prices, oil index, LNG demand.

Sindre Knutsson is Vice President in Rystad Energy’s markets team with focus on global natural gas and LNG. He is responsible for the development of Rystad Energy’s Gas Market Solutions service providing data and analyses on global natural gas markets and fundamentals. Sindre holds a bachelor in Economics from the Norwegian School of Economics and Business Administration, an MSc in Accounting and Finance from the London School of Economics and Political Science. Prior to joining Rystad Energy, Sindre has 4 years of experience from the Norwegian Armed Forces working with Electronic Warfare and Intelligence.