Exxon's Pacific Gas Partner Sees LNG 'Revolution' Among Buyers

Exxon's Pacific Gas Partner Sees LNG 'Revolution' Among Buyers
Exxon Mobil Corp.'s partner in a $15 billion liquefied natural gas export project in Papua New Guinea sees Asian buyers pushing back on the pricing and structure of LNG contracts as a glut of supply gives them greater bargaining power.

(Bloomberg) -- Exxon Mobil Corp.’s partner in a $15 billion liquefied natural gas export project in Papua New Guinea sees Asian buyers pushing back on the pricing and structure of LNG contracts as a glut of supply gives them greater bargaining power.

Oil Search Ltd., the Sydney-based producer which owns a 29 percent stake in the Exxon-operated PNG LNG development, sees signing traditional long-term deals "very unlikely" in the current market, according to Managing Director Peter Botten. The company plans to begin negotiations for new contracts next year, it said in a presentation Tuesday.

"We’re seeing a revolution in the LNG market right now," Botten said in a phone interview with Bloomberg. "With oversupply, which is likely to be the case for some years, customers quite rightly are using this opportunity to recalibrate what they pay and how they pay it and the structure of any future contracts."

Asian spot prices for LNG have slumped by about 60 percent since September 2014 amid a global glut and as the pace of demand growth slows. Japan’s Jera Co., a joint venture between Tokyo Electric Power Co. Holdings and Chubu Electric Power Co. and one of the world’s largest buyers of LNG, has said it won’t sign new contracts that restrict where it can sell the fuel and will boost its share of supply from spot deals while reducing its reliance on long-term agreements.

Lower Prices

Historically, LNG has been sold on long-term contracts that guaranteed buyers supply and helped producers finance liquefaction plants at a time when less of the product was shipped. Twenty-eight percent of LNG traded in 2015 was on a spot or short-term basis, according to the International Group of Liquefied Natural Gas Importers. That’s up from 18.9 percent in 2010, according to the group.

Woodside Petroleum Ltd., Australia’s largest oil and gas producer, expects lower LNG prices as it renegotiates short-term contracts and says buyers across Asia will increasingly resist deals that restrict the reselling of the super-cooled fuel, Chief Executive Officer Peter Coleman said last week. Suppliers are being forced to offer lower prices for oil-linked LNG deals even as buyers demand more flexible terms amid the glut, he said.

To contact the reporter on this story: Perry Williams in Sydney at pwilliams113@bloomberg.net To contact the editors responsible for this story: Ramsey Al-Rikabi at ralrikabi@bloomberg.net Aaron Clark

Copyright 2016 Bloomberg News.

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Zsolt | Aug. 25, 2016
Investment decisions are taken on long term. Even if there is oversupply, the rise energy demand for the next 20 years in Asia is clear. LNG will pay-off as volumes will increase, unit operating cost decrease and more cash-flow will allow to improve transportation efficiency. No doubts that LNG is a gold mine, as companies like Exxon, Shell and Total invested into this before the crisis by low interest debt instruments.

Ronnie | Aug. 24, 2016
PNG LNG project ballooned from 9 billion USD to 17 billion USD. I just cannot how it can recover its capital. Even if customers have signed for long term contracts, they are expiring and the new prices will be way below recovery point. I also cannot see how Total can justify their proposed LNG project in PNG. Hard times ahead for PNG.


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