LNG’s structural evolution quickens in February

The LNG industry is currently in a cycle of unprecedented supply growth, and market developments in February re-emphasized the ongoing structural evolution. LNG is moving towards a more advanced market structure, characterized by growing market-based pricing and hedging as well as increased buyer confidence in spot or short-term buying. Three developments in February highlighted this. 1. KOGAS-NWS: HIGH-PROFILE ASIAN LNG PRICING ARBITRATION HIGHLIGHTS GROWING NEED FOR MORE MARKET-BASED LNG PRICING In February, Kogas announced it has entered into arbitration with North West Shelf Gas. The arbitration was probably related to the oil-linked pricing of a term LNG contract. According to Macquarie’s December Global LNG report, “feedback from legal groups identified almost 80 LNG disputes, with more half since 2010. Interestingly, in the vast majority of these disputes, one or more parties eventually resorted to filing arbitration or litigation to resolve their disagreement … Pricing has been the most frequent subject of the disputes.” Over the duration of a term contract, using market-based LNG pricing can reduce incentives for one of the counterparties to re-negotiate/dispute/arbitrate the contract’s pricing terms. LNG price benchmark Platts JKM is increasingly used in spot and term LNG transactions as counterparties seek a pricing basis that reflects… continue reading

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Source: CTRM Center

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