Abu Dhabi National Oil Co. (ADNOC) LNG and ENN LNG (Singapore) Pte. Ltd are currently negotiating to develop their non-binding Heads of Agreement (HOA) for supply of 1 million mt/year LNG for 15 years into a firm deal, with pricing being discussed at around 12.6% slope to crude oil currently, market sources told S&P Global Commodity Insights.
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Register NowThe two companies signed a deal through which ADNOC LNG is expected to supply LNG from its Ruwais project, with deliveries expected to commence in 2028 when the facility begins commercial operations. The pricing discussions will lead to the signing of a final Sales and Purchase Agreement (SPA) if the talks are successful.
The concluded HOA deal is non-binding on a DES basis linked to Dated Brent crude oil prices, a source familiar with the matter said.
The deal is the first one for ADNOC's Ruwais project and includes elements of flexibility for the buyers that may not necessarily be reflected when one only looks at the pricing, the source added.
Typically, a non-binding HOA being converted into a sales and purchase agreement is subject to specific conditions being met. Between the time of a non-binding HOA being signed and converted into a sales and purchase agreement with more clarity and terms and conditions, prices can be subject to change.
The Ruwais project will have two 4.8 million mt/year LNG liquefaction trains with a total capacity of 9.6 million mt/year. Currently, ADNOC produces 6 million mt/year LNG from its Das Island facility.
At the time of writing, both ENN and ADNOC did not respond to a request for comment.
Market participants believe that the weakness in spot market prices recently amid healthy inventories and upcoming new supply from Canada and US projects in 2024 means that long-term contract prices may be negotiated lower compared to the deals that have been signed in earlier part of 2023.
"There is an expectation for the continuation of long-term contracts with a Brent slope around 12.6% in 2024, but there is also an anticipation of a gradual decline in the slope in the future," a source said.
Market sources said that buyers will increasingly be able to negotiate improved terms as more supply becomes available.
"Once the winter period is over and shoulder period starts and visibility of supply coming in for 2024 improves, people will be able to negotiate lower slopes," another source said.
India based sources said that buyers can potentially get lower slopes with the new supplies coming in the next two to three years.
Indian buyers expect lower slopes for long-term contracts being discussed with some buyers expecting a slope of low-12% to crude oil.
With the upcoming LNG supply starting in 2024 and with more supply expected to come in the years after that, market participants believe that more flexibility could be part of negotiations for long-term contracts.
Qatar Energy and Sinopec signed a sales and purchase agreement for supply of 3 million mt per year for 27 years and was likely priced around 12.7% slope to crude oil, with flexibility to receive LNG cargoes at Sinopec's terminals in China, S&P Global reported earlier.
The LNG contracts between Qatar Energy and Shell, ENI and TotalEnergies likely included exposure to natural gas hub pricing, which showed a sign of evolving European LNG markets, S&P Global reported earlier.
Platts, part of S&P Global, assessed February JKM at $11.249/MMBtu on Dec. 29.