Asian LNG Prices Will Remain Predominantly Oil-Linked for The Foreseeable Future

Asian LNG prices will remain predominantly oil-linked for the foreseeable future, Shahriar Fesharaki, COO at consultancy Facts Global Energy, said at a conference in Singapore Friday. 

"Asian LNG price will remain predominantly linked to oil for the next 20 or so years," Fesharaki said, citing existing oil-linked long-term contracts of 160 million mt/year to Asian buyers, and future incremental oil-linked volumes coming from Australian projects over the next couple of years. 

"The incremental volumes over the next few years are coming from Australia and they are linked to oil, and in 2016-2017 we could see some US projects coming online, so Henry Hub linkage will increase a bit, but the incremental volumes will still be linked to oil," Fesharaki said. 

Future Canadian LNG projects would also be linked to oil due to their unique cost structure. While the price of feed-gas in Canada would be quite similar to Henry Hub, the additional pipeline transportation fees to bring the gas over large distances from fields to specific projects on the West coast, combined with high Canadian greenfield LNG terminal costs, would mean the Canadian projects would have to price their LNG with some kind of oil linkage, Fesharaki said. 

"While Canadian exports will be linked primarily to oil because of their cost structure, and US LNG exports will be linked to Henry Hub, a large portion of US LNG exports will be lifted by aggregators, who will then sell [the LNG as part of their portfolio to buyers] on an oil-linked basis," Fesharaki said, underscoring the diminished impact portfolio players would have on pushing for gas-linked prices.