Oman LNG increases LNG indexation in long-term SPAs

Oman LNG is increasing the usage of JKM indexation in its term contracts, with trading houses observed to be takers for such indexation, market sources told Platts, part of S&P Global Commodity Insights.

Market sources said Oman LNG has been willing to sell up to half of the annual contract quantity on a JKM-linked basis. At least three sales and purchase agreements concluded by Oman LNG with portfolio companies and/or trading houses contain JKM linkage clauses for part of the volume.

More recently, Oman LNG signed one contract on an FOB basis with a trading house at around 13.8% slope to crude oil prices, and another contract with a trading house at 14.2%. These contracts had at least one cargo per month for 10 years or more.

Oman LNG did not respond to a request for comments on the matter.

Traders said the number of cargoes per year that could be chosen to switch index from crude oil to JKM implied a premium to the crude oil-linked price. For instance, the crude oil-linked price was different for whether the number of cargoes that could switch to JKM was 10%, 30% or 50%.

Mechanism

The flexibility to choose indexation could prove extremely valuable for buyers, as prices of crude oil and LNG could move in different directions.

For buyers, the expected increase in LNG supply from the Middle East and North America, along with the uncontracted supply starting from 2026, provides an opportunity to compare the LNG prices against the implied crude oil slopes in the market.

The buyers in such contracts could choose to switch indices if the crude oil-linked price was more expensive than LNG prices.

A market source said that the timing of the index switching could prove valuable, especially if it can be exercised closer to the delivery window in the annual delivery program.

However, derivative traders believe that the option to choose indices even during ADP negotiations would prove valuable as companies can find sufficient liquidity for the next 12-18 months to be able to lock spreads between crude-linked price and LNG prices such as JKM.

Recent history

Few companies signed long-term contracts in late 2022 and early 2023 on a crude oil-linked basis for tenures of four to 10 years at prices of 13%-14.2% slope to crude oil on FOB and DES basis for supplies beginning in 2025 and 2026.

The prices so far in 2025 demonstrate how crude oil-linked slopes may not be reflective of LNG demand and supply fundamentals.

The stark difference in the LNG versus crude oil-linked term contract prices means that sellers of low-to-mid 13% crude contracts in early 2023 potentially lost an opportunity as term prices remained below spot LNG prices for the first five months in 2025, even though these contracts were signed just two years ago.

To demonstrate, a slope of 13.3% to Dated Brent for contracts beginning in 2025 was $3.61/MMBtu cheaper than JKM so far in 2025. For over 2 million mt supplied January-May, the cost of lost opportunity could be quite substantial.

At least two end-users who had signed head of agreement contracts in early 2023 did not convert them into long-term sales and purchase agreements because of the dissonance between LNG and crude-linked prices, sources noted.

In 2024, LNG prices were below crude oil-linked term contract prices for an extended period between February and June, data showed.

Recent history highlights how crude oil-linked slopes do not reflect LNG market fundamentals. Further, forward-curve prices presently show that an implied slope of 13.3% would converge with the LNG forward curve in mid-2028, using Intercontinental Exchange data from June 11.

Elevated risk of mismatch

Since prevailing LNG prices are relatively strong and crude oil prices are conversely weak, implied slopes for January 2026-December 2030 are averaging 15.8%.

The risks of agreeing to the price mismatch between crude oil indexed contracts and JKM are elevated at present, sources said.

One of the sources familiar with long-term contracts said that while demand-related factors weighed on crude oil price expectations, the LNG price outlook was weighed by upcoming supply-related factors.

Another source does not expect crude oil prices to sustain near $65/b and would rise again, which could become more costly for buyers, and a choice of indexation would become more prevalent going forward.

A third source said that conceding flexibility was an option for buyers to obtain value in the term contract price. Similarly, such an option was valuable for traders and portfolio companies in capturing better margins.

Growing LNG indexation in long-term contracts avoids the risks of price mismatch while more clearly representing value for the marginal molecule in consideration of flexibilities.

Platts assessed JKM for July at $12.758/MMBtu on June 12.