A bumper year for LNG contracting

Contracting by traditional buyers for use in their home markets has been particularly strong with 38 million tpy already signed. Another 12 million tpy of long-term deals is required to break last year’s record.

Volume trends: Middle East sellers capture market share

Large deals are back in vogue with 60% of the volumes signed this year having a deal size of greater than 2 million tpy. QatarEnergy is leading the way having signed long-term deals with existing customers in particular, with Taiwan’s CPC (4 million tpy), Kuwait Petroleum (3 million tpy) and India’s Petronet (7.5m million tpy). Other large deals signed include Aramco’s 5 million tpy HOA from Port Arthur LNG Phase 2 and Amigo LNG in Mexico entering into a HOA with E&H Energy of Malaysia for a long-term supply of 3.6 million tpy of LNG.

Qatar’s deal with Petronet underlines a trend of Indian buyers returning to the long-term market. This has been supported by falling contract prices, which have been dragged down by a lower spot price outlook. Some sellers have been offering oil-linked slopes in the low 12% DES range, bringing back Indian buyers to the market, particularly GAIL and Petronet.

Alongside Qatar, other Middle Eastern suppliers have been active, taking advantage of the Biden Pause to capture buyer attention. Oman LNG has converted its binding arrangements with Shell, JERA, SEFE and BOTAS signed in 2022 - 2023 to SPAs. ADNOC has announced 15-year HOAs for LNG supplies with European and Asian buyers totalling 3.4 million tpy from its Ruwais projects alongside HOAs for a total of 1.6 million tpy with portfolio players Shell and Mitsui & Co., who will also take equity interests in the project. These agreements gave ADNOC the confidence to FID the project in June this year.

Deals have continued to be signed in the US, despite the Biden Administration pause announced in January, but total volumes contracted from US projects have fallen. At the end of August, new US LNG SPAs and HOAs linked since the beginning of the year account for 18.9 million tpy (including the 5 million tpy Aramco deal).

Activity has often focused on projects which are less affected by the pause. Notable deals include Rio Grande LNG Train 4 with ADNOC for 1.9 million tpy and Aramco for 1.2 million tpy. Texas LNG has also signed tolling agreement, SPAs and HOAs for 3 million tpy with EQT and other counterparties, bringing it close to the commercial thresholds required to raise debt financing for its project.

Meanwhile, on the west coast of North America, in April 2024, Cedar LNG signed the second 20-year LNG capacity deal for 1.5 million tpy with Pembina Pipeline Corp. following a similar deal with ARC Resources signed a year before. Woodfibre LNG is fully booked following a third deal with BP, and Mexico Pacific has completed marketing for its first three trains.

Moving forward, Wood Mackenzie expects contracting activity to remain high. Additional North American LNG contracting is required for projects to move forward.

Price trends: the price of oil-linked and HH-linked deals delivered into North East Asia are converging

Most of the recent long-term oil-linked deals for LNG supplies into Asia have been in the 12.0%-12.5% DES range. Volumes available earlier from post-FID projects are attracting a premium – while buyers are offering pre-FID suppliers delivering volume towards the end of the decade slopes into the low 12%s.

Prices continue to vary based on the terms, tenure and start date of new deals. The market remains bifurcated with contracts starting before or after 2026, attracting premiums or discounts to this range, respectively.

Deals into South Asia have been negotiated at lower slopes than deals to Northeast Asia, which follows an implied shipping delta for Middle Eastern and Northern African volumes.

Several price reviews have also been agreed. The majority of these contracts have been agreed from 2023 to 2027, FOB, with oil linked slopes in the low-to-mid 13% range. However, some sellers with specific price review clauses have been able to conclude price reviews higher than this range.

US liquefaction tariffs have also risen significantly. Deals signed in 2022 and early 2023 for 20 years starting in 2026/27 were presumed to be priced between US$2.15-2.30/million Btu and we understand from mid-2023 to June 2024, some projects are receiving tariffs in the US$2.40-2.50/million Btu range. Shorter-term deals are likely to charge a premium, but deals still appear to be somewhat below the US$2.75/million Btu that has been quoted by some analysts.

Written by Daniel Toleman, Research Director, Global LNG, and Kristina Gogoli, Senior Research Analyst, Gas & LNG, Wood Mackenzie.

Read the article online at: https://www.hydrocarbonengineering.com/gas-processing/20092024/a-bumper-year-for-lng-contracting/