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As oil prices plunged on Monday and sent global energy markets into turmoil, plenty of implications were seen for liquefied natural gas (LNG), including the possibility of higher prices for U.S. buyers and relief for offtakers overseas.
Crude prices fell by double-digits as a price war between Russia and Saudia Arabia, and the promise of additional supplies, jolted the global markets at a time when energy demand is threatened by the coronavirus outbreak. Buyers with long-term, oil-linked LNG contracts, under which most global purchases are still made, could see relief if crude prices stay low.
“Oil-indexed LNG prices are typically on a three- to six-month lag, so a sustained drop in oil prices will lower buyers’ import costs under oil-indexed contracts later in the year,” said Energy Aspects analyst James Waddell of the trailing averages crude-linked at which LNG prices are set. “It will also bring down the cost of oil-indexed gas under European pipeline import contracts with Russia and Algeria, with these typically indexed over six to nine months.”
NGI’s Patrick Rau, director of strategy and research, added that LNG contracts tied to prompt-month Brent futures could benefit immediately.