Global LNG Contract Terms and Revisions An Empirical Analysis Mark - PowerPoint PPT Presentation

Global LNG Contract Terms and Revisions An Empirical Analysis Mark Agerton Graduate Fellow Center for Energy Studies, Rice University magerton@rice.edu IAEE International Conference, June 17, 2014

Research question I How is LNG priced under long-term contracts (LTC)? – Pricing terms are not public – Rules of thumb? – JKM spot price? Mark Agerton 2 / 31

How to infer characteristics of LTC terms? I Exploit public customs data – Importer + Exporter – Total volume + value I Characterize statistical relationship I Understand LTC pricing terms better I Overcome econometric issues – Cointegration – Unknown structural breaks Mark Agerton 3 / 31

Why focus on JKST, and Japan especially? 250 200 million metric tons Others 150 Taiwan Spain 100 Korea Japan 50 0 1970 1980 1990 2000 2010 Source: Petroleum Economist Mark Agerton 4 / 31

Asian markets are tight Atlantic Pacific 150 million metric tons 100 LTC Actual Total 50 0 2000 2005 2010 2000 2005 2010 Source: GIIGNL and author's calculations Mark Agerton 5 / 31

Customs data capture LTC, not spot cargoes Atlantic Pacific 150 million metric tons 100 Actual Total Spot + ST 50 0 2000 2005 2010 2000 2005 2010 Source: GIIGNL and author's calculations Mark Agerton 6 / 31

What do LTC pricing formulas look like? I Alaskan LNG export license I Oil benchmark LNG I S-curve I Regimes j = 1 , . . . , m + 1 Oil p + 1 X y t = c j + � j ✓ jr z t − r + u t t = T j − 1 + 1 , . . . , T j r = 0 Mark Agerton 7 / 31

Why worry about structural breaks? I Renegotiation clauses (Weems, 2006) I Changing value of LNG – Substitutes – Supply and demand shocks I S-curves = ⇒ nonlinearities I Heterogeneity in underlying contracts Mark Agerton 8 / 31

DOLS with structural breaks p + 1 X y t = c j + δ j θ jr z t − r + u t r = 0 m p X y t = c j + δ j z t + π js ∆ z t − s + u t s = 0 I Dynamic OLS I Minimize SSR I UD max , sup Wald and SEQ ( k | k + 1 ) I Bai and Perron (1998, 2003); Kejriwal and Perron (2008b, 2010) Mark Agerton 9 / 31

Breaks in the LNG–oil relationship Country of origin Taiwan Indonesia Spain Qatar Nigeria Algeria Korea Oman Breaks in time or Qatar s-curve kinks? Japan Indonesia USA Fukushima? UAE Brunei Malaysia Australia Qatar 1988 1992 1996 2000 2004 2008 2012 Elimination of s-curves is contract revision Mark Agerton 10 / 31

Breaks in the LNG–oil relationship Country of origin Taiwan Indonesia Spain Qatar Nigeria Algeria Korea Oman Breaks in time or Qatar s-curve kinks? Japan Indonesia USA Fukushima? UAE Brunei Malaysia Australia Qatar 1988 1992 1996 2000 2004 2008 2012 Elimination of s-curves is contract revision Mark Agerton 10 / 31

Breaks in the LNG–oil relationship Country of origin Taiwan Indonesia Spain Qatar Nigeria Algeria Korea Oman Breaks in time or Qatar s-curve kinks? Japan Indonesia USA Fukushima? UAE Brunei Malaysia Australia Qatar 1988 1992 1996 2000 2004 2008 2012 Elimination of s-curves is contract revision Mark Agerton 10 / 31

Breaks in the LNG–oil relationship Country of origin Taiwan Indonesia Spain Qatar Nigeria Algeria Korea Oman Breaks in time or Qatar s-curve kinks? Japan Indonesia USA Fukushima? UAE Brunei Malaysia Australia Qatar 1988 1992 1996 2000 2004 2008 2012 Elimination of s-curves is contract revision Mark Agerton 10 / 31

Breaks in the LNG–oil relationship Country of origin Taiwan Indonesia Spain Qatar Nigeria Algeria Korea Oman Breaks in time or Qatar s-curve kinks? Japan Indonesia USA Fukushima? UAE Brunei Malaysia Australia Qatar 1988 1992 1996 2000 2004 2008 2012 Elimination of s-curves is contract revision Mark Agerton 10 / 31

Japan: LNG vs oil prices USA Indonesia Malaysia Brunei 20 15 10 ● ● ● ● ●● ● ● ● ● ● ● ● ● ● ● ● ● 5 ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● LNG Australia UAE Qatar 20 Regime 5 15 4 3 10 2 1 ● ● ● ● ● ● ● 5 ● ● ● ● ● ● ● ● ● ● ● ● ● ● ●● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● 0 50 100 0 50 100 0 50 100 Oil Mark Agerton 11 / 31