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Dear @shazbkhanzdaGEO you’re once again confusing the mechanism & this time with LNG Pricing Index,You’ve been more likely busy googling JKM forward curve modelling/ Pricing Slope esp for long term contacts & definitely not applicable in our case. https://twitter.com/shazbkhanzdageo/status/1335312463491895299
@shazbkhanzdaGEO you prolly find linking natural gas to crude oil “fabricated” However, nearly three-quarters of all the world’s LNG trade is tied to oil prices & not the %.
Unlike Oil, the global gas trade has no single benchmark to unify it like Brent. The market has grown more liquid over time as more LNG producers, large commodity traders have gotten more involved,led to more short-term and spot buying with gas hub-linked prices almost everywhere
Under Brent linked contracts the buyer (Pakistan in this case) agrees to pay a certain % of a crude indicator called a slope(Its ok to learn new stuff while being an Anchor) . It’s generally assumed that contracts carry a slope of roughly 11-15%.
(Hope You Following?)
(Hope You Following?)
However, the ceiling, or the highest slope a contract could carry, is 17.2%. Crude oil has a 5.8-to-1 heating value equivalent to Gas. The reciprocal of that is 17.2%,means if the slope of Gas is greater than 17.2%, then gas would be expensive than crude on heating value basis.
Brent’s slide recently is likely to squeeze the margins of LNG producers with supply contracts tied to Brent, Assuming Brent Price of $35/bbl at a slope of 15%, Brent-linked LNG would cost about $5.25/MMBtu, well above major global gas benchmarks or...
Well below about $2.00/MMBtu, but far less that the $12.00/MMBtu that brent-linked LNG was fetching at this time let’s say previously, Even then prices aren’t likely to slip below the breakeven levels of LNG producers with more exposure to Brent Price.
Spot Buying Brent linked contracts are insulated by formulas to guard against the impact of high crude prices on buyers (Pakistan ) & low crude prices on seller reason why some buyers have been sidelined from participating in spot gas prices as its not beneficial for sellers.
Hopefully you’d get the gist of diff in calculating pricing mechanism & also that The Pace & Dynamics of the oil market shock have important implications for the LNG market.
It’s ok to criticise decisions made by a sitting Govt but playing victim card when we call ur bluff is
It’s ok to criticise decisions made by a sitting Govt but playing victim card when we call ur bluff is
