Asian LNG buyers target record low prices in watershed contract talks

SINGAPORE (Reuters) – Asian liquefied natural gas (LNG) buyers are starting talks with producers to renew long-term contracts due to expire over the next few years, aiming to secure all-time low prices in deals likely to set new industry benchmarks. A record volume of new LNG supply entered the market in 2019, driving spot prices to record lows for this time of the year and widened the gap with contracted supplies which are priced off stronger oil prices. The abundant supply has toughened buyers’ bargaining stance, forcing producers to lower their asking prices and discuss exit clauses in new contracts, according to industry sources. Most Asian buyers purchase LNG priced against Brent crude oil expressed as a price slope, or a percentage of the oil contract. Discussions for this price slope for new contracts have dropped to close to 11%, five industry sources familiar with LNG contract negotiations told Reuters. This compares with 13% to 15% about 10 years ago. “The main drivers … are low spot prices, oversupply and intense competition,” said Nicholas Browne, analyst at Wood Mackenzie. Most potential projects can achieve a satisfactory rate of return delivering LNG into Asia at 11.5% of $60 per barrel oil,… continue reading

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