From the SMH:
Santos defended its high-risk transformation into an LNG exporter at an investor briefing this morning, stressing the demand outlook for Australian gas remained strong and talking up recent exploration successes.
…Chief executive David Knox said Santos’s share of these projects would amount to 3.3 million tonnes per annum of LNG – sold under long-term, oil-linked contracts to customers including Tepco, Tokyo Gas, Kogas, Petronas, CPC and Osaka Gas – and highlighted this was a ‘‘very strong profile to have for a company of our size”.
…Santos strategy and sales vice-president Peter Cleary discounted fears that Australian LNG exports sold at traditional oil-linked prices above $US14 per mmbtu would face heavy competition in Asian markets from exports of US LNG, where gas prices at the Henry Hub are $US3.90 today.
‘‘We’ve got to get over the fundamental misconception that because the price at the Henry Hub is cheap, therefore that gas is going to land cheaply in Asia,’’ he said. ‘‘It’s not necessarily that easy.’’
Mr Cleary said after liquefaction and shipping costs were added, and forecast increases at the Henry Hub were factored in, gas from the US would likely land in Asia at more than $US14.25/mmbtu.
He said if oil was priced at $US100/barrel, there was ‘‘not much difference’’ in the pricing between oil-linked and Henry Hub pricing and sophisticated Asian customers would ‘‘want a bit of both”.
‘‘What you won’t see is a dramatic shift from oil linkage to Henry Hub,’’ Mr Cleary said.
Mr Cleary said some of Santos’ long-term contracts did include price review mechanisms that allowed ‘‘small’’ adjustments to LNG prices – plus or minus 5 per cent against previous prices – every five years. But the clauses only allowed reference to other prices in the Australian region, not gas prices in other regions such as North America.
Happy to have some reader input into this. As far as I know a decade ago we were selling LNG at $3 per/mmbtu profitably so the claim that it’s going to cost $14 for the US produce LNG, even accounting for longer shipping routes, needs more substance.
Moreover, I can’t see why Asian customers are agitating to break the oil price benchmarks if there’s no price benefit in them doing so. Why even bother otherwise?
I can’t see either why the ten US projects with applications to export, with a total capacity three times the size of Australia’s developing capcacity, would bother aiming at the arbitrage if there isn’t one.
