Kogas deal underlines LNG deadlines

The kiddies at the AFR reckon Woodside deal to sign up Kogas as a client for Pluto gas is a Bobby Dazzler:

Woodside Petroleum has signed up the world’s biggest buyer of liquefied natural gas, Korea Gas Corporation, as a customer for its $15 billion Pluto project in Western Australia, at what is expected to be “strong” pricing.

The deal with Korea Gas, for up to 2.2 million tonnes of LNG over three years, adds to two existing long-term contracts with Japanese utilities Kansai Electric and Tokyo Gas. First deliveries will be made in April this year, Woodside said on Friday…Citigroup analyst Dale Koenders said he was assuming the Kogas deal was priced using a 15 per cent “slope” against crude oil, making it more expensive than the pricing for the Japanese customers.

Hmmm…a three year deal has replaced an option under 15 year contracts. I’m sure the pricing will be solid but the real story is the erosion of certainty in Woodside’s customer base. Woodside’s pending FLNG project, Browse, shows the growing problem. It still has no long term contracts as PetroChina, TaiwanCPC, Mitsubishi and Mitsui have all opted out of agreements in recent years.

In 2017, when Pluto LNG is again up for grabs, the pricing environment will not be so friendly. Here’s my LNG supply balance chart:

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Spot will be cheaper in 2017!

Houses and Holes

David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the fouding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.

He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.

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