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    Low Crude to Delay LNG: TImera


The fall in crude prices is good news for LNG buyers at a testing time.

by: William Powell

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Natural Gas & LNG News, World, Corporate, Market News

Low Crude to Delay LNG: TImera

The almost halving of the Brent crude oil price has brought long-term oil indexed contracts for LNG closer to the spot market prices. This will keep LNG prices lower for longer, say energy market analyst company Timera. 

The gap that had opened up between long term oil indexed contracts and gas hub prices will now narrow substantially. That translates into further resistance to gas price recovery, at least across the Covid-19 demand shock horizon in 2020, it said in a research paper March 23. 

This means cost relief for LNG buyers. Before crude fell, buyers of oil indexed contracts faced contract prices well above current hub prices but now with time they will see something closer to hubs assuming crude prices remain at or below $30/mn Btu and that hub prices do not fall any lower. "For example a $30/barrel crude price and 10% slope means a contract gas price around $3/mn Btu. But "lower crude will typically take some time to feed into settled LNG contract prices due to averaging and lagging." 

But as well as a sudden plunge in prices, crude volatility has surged and as traders step away from the market, liquidity has been eroded. This makes the daily job of traders in dynamically managing exposures more difficult, Timera says.

These market conditions also have a big impact on middle office and risk teams, for example the need to recalibrate and rerunning LNG portfolio models to update value and risk metrics.