E&Y: New LNG exporters could change pricing status quo

A broadening of the LNG supply base will support anticipated demand growth in the next 10-20 years, although pricing scenarios are likely to change with more price-sensitive buyers becoming less willing to pay supply security premiums, according to a recent report by Ernst & Young.

Algeria, Malaysia, and Indonesia were the first to dominate world LNG supply and then were joined by Qatar and Australia, said the E&Y report entitled “Global LNG: Will new demand and new supply mean new pricing.”

E&Y said, “The third wave could come from as many as 25 other countries, many of which currently have little or no capacity; but by 2020, these countries could provide as much as 30% of the world’s LNG capacity.”

Analysts believe diverse new supply sources will change the LNG status quo with Asian buyers presumably looking to modify or possibly replace their long-standing and relatively expensive pricing model of gas prices tied explicitly to oil prices.

“High LNG development costs will require iron-clad, long-term, off-take agreements. However, more recently, the market is witnessing the inherent conflict of increasingly more-expensive projects trying to sell to increasingly more price-sensitive buyers,” the report said.

New potential LNG exporters, most important to the issue of pricing are those in the US and Western Canada, where the source gas is likely to be priced on a spot basis, unlike gas elsewhere in the world which is generally priced (wholly or partially) on an oil-linked basis, E&Y said.

“Critically, the possibility of spot gas-linked contracts for North American LNG could upset the traditional LNG pricing structure,” the report said. Proposed North American LNG export projects are particularly well-positioned for a cost advantage.

“As substantial volumes of lower-cost LNG move into Asian markets, projects at the high end of the supply curve—namely, many of the Australian projects—will become increasingly vulnerable,” E&Y said.

Going forward over the medium to long term, E&Y analysts expect to see a gradual but partial migration away from oil-linked pricing to more spot or hub-based pricing.

Contact Paula Dittrick at paulad@ogjonline.com.

Related Articles

Market watch: Energy futures prices rose slightly Friday

05/06/2002 Crude oil futures prices rose slightly Friday amid lingering uncertainty about a possible disruption of Middle East supplies, although tensions in ...

Gulf of Mexico oil service sector showing signs of an upturn

05/06/2002 The Gulf of Mexico oil service sector is experiencing the signs of an upturn, analysts with Simmons & Co. International, UBS Warburg LLC, and RBC D...

OTC: Industry, national agencies need to work together to make FPSOs work in the gulf

05/06/2002 Over the coming years, the oil and gas industry will have to keep an open line of communication with national agencies such as the US Coast Guard a...

Market watch: Energy futures prices fall as Iraq lifts embargo

05/07/2002 Crude oil futures prices fell Monday after Iraq announced plans to lift a self-imposed export embargo with exports expected to resume by Wednesday.

Careers at TOTAL

Careers at TOTAL - Videos

More than 600 job openings are now online, watch videos and learn more!

 

Click Here to Watch

Other Oil & Gas Industry Jobs

Search More Job Listings >>
Stay Connected