LNG contracting off to a great start in 2024
D. TOLEMAN, Research Director, Global LNG, Wood Mackenzie; and K. GOGOLI, Senior Research Analyst, Gas & LNG, Wood Mackenzie
Long-term LNG contracting activity is off to a strong start in 2024. Since the beginning of the year, 58 MMtpy of LNG SPAs (sales purchase agreements), capacity agreements and Heads of Agreements (HOAs) have been signed despite the Biden Pause. This follows over 94 MMtpy of new LNG SPAs and HOAs agreed upon last year.
Contracting by traditional buyers (end users) for use in their home markets has been particularly strong with 38 MMtpy already signed. Another 12 MMtpy of long-term deals is required to break last year’s record.
Volume trends: Middle East sellers capture market share. Large deals are back in vogue with 60% of the volumes signed this year having a deal size of greater than 2 MMtpy. QatarEnergy is leading the way having signed long term deals with existing customers in particular, with Taiwan’s CPC (4 MMtpy), Kuwait Petroleum (3 MMtpy) and India’s Petronet (7.5 MMtpy). Other large deals signed include Aramco’s 5 MMtpy HOA from Port Arthur LNG Phase 2 and Amigo LNG in Mexico entering into an HOA with E&H Energy of Malaysia for a long-term supply of 3.6 MMtpy of LNG.
Qatar’s deal with Petronet underlines a trend of Indian buyers returning to the long-term market. This has been supported by falling contract prices, which have been dragged down by a lower spot price outlook. Some sellers have been offering oil linked slopes in the low 12% DES range and this has brought Indian buyers back to the market, particularly GAIL and Petronet.
Alongside Qatar, other Middle Eastern suppliers have been active, taking advantage of the Biden Pause to capture buyer attention. Oman LNG has converted its binding arrangements with Shell, Jera, SEFE and BOTAS signed in 2022-2023 to SPAs. ADNOC has announced 15-year HOAs for LNG supplies with European and Asian buyers totaling 3.4 MMtpy from its Ruwais projects alongside HOAs for a total of 1.6 MMtpy with portfolio players Shell and Mitsui&Co, who will also take equity interests in the project. These agreements gave ADNOC the confidence to FID the project in June this year.
Deals have continued to be signed in the US, despite the Biden Administration pause announced in January, but total volumes contracted from US projects have fallen. At the time of writing (end August) New US LNG SPAs and HOAs inked since the beginning of the year account for 18.9 MMtpy (including the 5 MMtpy Aramco deal).
Activity has often focused on projects which are less affected by the pause. Notable deals include Rio Grande LNG Train 4 with ADNOC for 1.9 MMtpy and Aramco for 1.2 MMtpy. Texas LNG has also signed tolling agreement, SPAs and HOAs for 3 MMtpy with EQT and other counterparties bringing it close to the commercial thresholds required to raise debt financing for its project.
Meanwhile, on the west coast of North America, in April 2024, Cedar LNG signed the second 20-year LNG capacity deal for 1.5 MMtpy with Pembina Pipeline Corp following a similar deal with ARC Resources signed a year before. Woodfibre LNG is fully booked following a third deal with BP, and Mexico Pacific has completed marketing for its first three trains.
Moving forward, Wood Mackenzie expects contracting activity to remain high. Additional North American LNG contracting is required for projects to move forward.
Price trends: The price of Oil-linked and HH-inked deals delivered into North East Asia are converging. Most of the recent long-term oil-linked deals for LNG supplies into Asia have been in the 12.0%-12.5% DES range. Volumes available earlier from post-FID projects are attracting a premium – while buyers are offering pre-FID suppliers delivering volume towards the end of the decade slopes in low 12%s.
Prices continue to vary based on the terms, tenure and start date of new deals. The market remains bifurcated with contracts starting before or after 2026, attracting premiums or discounts to this range, respectively.
Deals into South Asia have been negotiated at lower slopes than deals to Northeast Asia, which follows an implied shipping delta for Middle Eastern and Northern African volumes.
Several price reviews have also been agreed. The majority of these contracts have been agreed from 2023 to 2027, FOB, with oil linked slopes in the low-to-mid 13% range. You can see in more detail in our price review reports. However, some sellers with specific price review clauses have been able to conclude price reviews higher than this range.
US liquefaction tariffs have also risen significantly. Deals signed in 2022 and early 2023 for 20 years starting in 2026/27 were presumed to be priced between US$2.15-2.30/MMtpy and we understand from mid-2023 to June 2024, some projects are receiving tariffs in the US$2.40-2.50/MMtpy range. Shorter-term deals are likely to charge a premium but deals still appear to be somewhat below the US$2.75/MMtpy that has been quoted by some analysts.
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