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How Strong Buyers’ Power Could Impact Cheniere Energy

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LNG spot prices

Cheniere Energy (LNG) benefited heavily from high Asian LNG (liquefied natural gas) spot prices during the fourth quarter of 2016. Asian LNG prices were driven by a huge surge in LNG demand from China, the shutdown of the Gorgon facility in Australia, and unplanned outages at other liquefaction plants.

In December 2016, the Singapore spot LNG index rose to its highest level that year, averaging $8.25 per MMBtu (million British thermal units). According to the EIA (U.S. Energy Information Administration), “Spot LNG prices in Japan reached $8.00 per million British thermal units (MMBtu) in December, the highest level since August 2015, according to Japan’s Ministry of Economy.” 

lng prices

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Buyers’ consortium

The three major LNG consumers—Japan’s JERA, South Korea’s KOGAS, and China National Offshore Oil—recently signed a memorandum of understanding for the joint procurement of LNG and other activities. India (EEM) has also shown interest in joining the club. This development is expected to increase buyers’ power in deciding LNG prices, which could impact Cheniere Energy’s and other suppliers’ uncontracted capacity. In a worst-case scenario, Cheniere Energy’s fixed “take-or-pay” contracts could be negotiated for more flexible contracts, which may result in volatile cash flow in the future.

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