Asia's need for secure energy supplies from nearby sources will keep
most regional liquefied natural gas volumes tied up in long-term contracts
linked to the price of oil for the "foreseeable future," Santos Vice
President, Strategy and Corporate Development, Peter Cleary said Tuesday.
"I strongly believe that convergence of the various regional hub prices
is still some time away," Cleary said in a speech at the 16th Asia Oil and
Gas Conference in Kuala Lumpur, Malaysia.
"Oil-linked pricing has worked in Asia because buyers are comfortable
that oil is an established, well-understood and globally traded commodity...
Producers also support oil-linked pricing, (because) strong prices are
required to underpin new projects," he said. "Oil-linked pricing of LNG has
been the commercial driver required to build real scale and tackle
challenging gas developments."
Nevertheless, the way LNG is traded has been changing rapidly, with the
spot and short-term market now accounting for around 20% of all LNG volumes.
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"The volume, depth and liquidity of the short term market give project
proponents the confidence to proceed with LNG supply projects without the
need to lock in long-term customers for their entire output," Cleary said.
On the buyer side, the development of spot and short term trades have
been helpful to Asian buyers as a more flexible to balance demand and supply.
"However, I do not believe that buyers will be comfortable with a total
reliance on short-term supply. For security of supply reasons, we believe
buyers will continue to look for long-term contracts to meet the majority of
their needs," Cleary said.
Currently, short term sales typically go to the traditional established
buyers in Japan, South Korea and Taiwan, while spot sales flow to the highest
netback market, generally in North and Southeast Asia, Cleary said.
Santos recently began construction of its $16 billion Gladstone LNG
plant on Curtis Island off Queensland.
Santos and its partners made their final investment decision on the $16
billion 7.8 million mt/year project in January. First shipments from the
two-train projects are slated for 2015.
Both South Korea's Kogas and Malaysia's Petronas have signed 20-year
Santos holds a 30% stake in the GLNG project with France's Total
(27.5%), Malaysia's Petronas (27.5%) and Kogas (15%).
--Thomas Hogue, email@example.com