CPC's LNG deal with Woodside includes JKM in pricing formula for at least 2 years

The LNG deal between Taiwan's CPC and Woodside for the supply of 6 million mt LNG over 10 years between 2024 and 2034 has hybrid pricing and includes JKM in the pricing consideration for the deal's early years, sources told S&P Global Commodity Insights.

According to sources, the deal is priced to JKM for the early years of July 2024 to 2026, when Scarborough LNG project starts.

Once the Scarborough LNG project starts, the deal is priced at a slope of approximately 12.7% to crude oil, the sources said. This two-tier pricing is largely in line with the market as global LNG balances are expected to be tight for the next two to three years until new supply from projects begins later in the decade. Near-term LNG contracts and volumes have been increasingly linked to spot market pricing.

Woodside declined to comment and CPC did not respond at the time of publishing.

However, the July 11 statement said the LNG delivered to CPC under the sale and purchase agreement will be sourced from volumes across Woodside's global portfolio.

Woodside may also deliver around 8.4 million mt of LNG to CPC over a further 10 years, from 2034 to 2043, subject to conditions and agreement on terms for this period, Woodside said while announcing the SPA.

This is the second LNG SPA for CPC announced in quick succession. The previous deal was for 4 million mt/year with Qatar Energy likely beginning in 2026-27 for a tenure of 27 years, which was priced at a 12.7%-12.8% slope to crude oil.

Hybrid pricing

Since the latest deal is linked to spot LNG prices for the early period of the deal, CPC would protect itself from the elevated slopes that were offered for long-term contracts earlier for supply beginning before 2026.

In 2023, some of the companies that signed medium-term contracts for LNG supply beginning in 2024 for a period of one to five years were offered slopes of 13%-15%, and sometimes even higher.

A 15% slope against a crude oil price of $80/b would have meant a price near $12/MMBtu equivalent for 2024. However, Commodity Insights data showed that the price stayed below the $12/MMBtu mark for a large period in 2024 with the average JKM settlement for 2024 so far at $11.10/MMBtu monthly.

With the deal being priced at a slope of approximately 12.7% to crude oil when Scarborough LNG starts, which is expected to be 2026, this indicates expectations from the buyer of either stronger-than-expected spot LNG prices or weaker-than-prevailing crude oil prices.

The forward curve as assessed by Platts, part of Commodity Insights, on Aug. 6 showed the average price for 2027 at $10.325/MMBtu.

For a large part of 2024, Dated Brent averaged around $80/b, and a 12.7% slope would imply a fixed price of $10.16/MMBtu.

Given the additional supply expected to hit the market from 2026, market participants are looking to see how the additional supply and uncontracted LNG volumes affect spot prices in comparison to the slopes to crude oil that are being signed by buyers in Northeast Asia.

However, Woodside is also a portfolio player in the LNG industry, and having supply from different sources allows it to tap different hybrid pricing mechanisms that a pure play producer would be unable to offer its customers. Taiwan's CPC in particular has typically been in favor of conventional long-term contracts.