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Woodside LNG mark up ‘may set trend’



By Upstream staff 

Woodside Petroleum's move to raise liquefied natural gas prices to Japanese buyers may signal similar increases by other oil and gas suppliers, analysts said on today.

Woodside said yesterday that it and its partners in the A$20 billion (US$17.4 billion) North West Shelf Venture LNG project off Australia had agreed with customers on a provisional price increase for contracts agreed before 2006.

The increase could mean that other LNG sellers in Malaysia or Indonesia, which may have remaining long-term LNG contracts with Japanese and Korean buyers, would also push for higher prices, pinching profits at the north Asian utilities.

"We're watching this closely to see how many other long-term contracts are susceptible ... there could be a wider market impact," said Stacy Nieuwoudt, resource analyst at Tudor, Pickering, Holt & Co Securities, in a research note, Reuters reported.

Tokyo Electric Power, Chubu Electric Power and Osaka Gas are among the North West Shelf venture customers in Japan, the world's largest LNG buyer.

LNG prices in Asia are tied to the Japan crude cocktail benchmark, or the average price for customs-cleared crude imports.

"As the oil price has continued to increase over time, the price received for the Japanese basket of crudes has moved above the oil price range specified in North West Shelf venture LNG price formulae," Woodside, Australia's second-largest oil and gas producer, said yesterday in a quarterly production report.

"Consequently the North West Shelf Venture is negotiating 'price out of the range' LNG prices with regard to these contracts."

A Woodside spokesman declined comment today on the oil price range set in the original and new sales contracts.

LNG prices charged by the North West Shelf venture averaged about $7.60 per million British thermal units in the December quarter, up 30% compared with the previous quarter, Merrill Lynch's Sydney-based oil and gas analyst Cosimo Damiano said in a report today.

A review of LNG contract terms with Japanese customers could boost Woodside's LNG revenues from Japan by hundreds of millions of dollars, analysts said.

The quarterly report showed that preliminary contract adjustments led to a A$56.5 million boost in the company's LNG revenue between the third and fourth quarters last year - a gain of more than 33 percent.

Deutsche Bank's Melbourne-based resource analyst John Hirjee said today the higher LNG prices for Japanese customers could also set a precedent for Woodside to review prices with Chinese buyers.

"Chinese buyers are paying a very low price for LNG under existing contracts, so this could set a precedent. But I'm not sure if Chinese buyers will entertain such a thing," Hirjee said.

The North West Shelf Venture partners agreed in 2002 to sell 3 million tonnes of LNG a year, for a period of 25 years, to China's main offshore oil company, China National Offshore Oil Corporation.

The six equal partners in the North West Shelf joint-venture are Woodside, BHP Billiton, Chevron, BP, Shell, and Japan Australia LNG - a joint venture of Mitsubishi and Mitsui & Co.

Friday, 18 January, 2008, 06:48 GMT  | last updated: Friday, 18 January, 2008, 06:48 GMT

Source: Woodside has raised the price it charges its Japanese customers for gas from the North West Shelf Venture
 

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