Russian Sakhalin Energy wants to increase long-term contract prices, threatening to drive up energy costs in South Korea and Japan.
Sakhalin Energy sees a tighter gas market now than it did earlier. Accordingly, the talks in North Asia began late last year as part of a regular price review that takes place every five years. However, the buyers haven’t yet accepted the higher prices proposed by the Russian company, an unnamed source told Bloomberg.
The Russian exporter is asking for long-term LNG prices that are roughly 14 per cent linked to Brent crude. It is standard procedure for contracts involving super-chilled fuel to calculate the value of the shipments as a multiple of the oil price.
This move defies a broader pattern of declining long-term LNG contract prices. With the beginning of new projects in the U.S. and Qatar, the market is anticipated to be oversupplied as early as next year, forcing suppliers to lower prices to lock in clients.
The Sakhalin-2 LNG export planet supplied almost 10 per cent of Japan’s LNG demand last year, as its facility is the closest to North Asia. Moreover, it hasn’t been targeted by Western sanctions due in part to the need to guarantee energy security.
Ship-tracking data from the previous year indicates that Japan received more than half of Sakhalin-2’s exports, according to information gathered by Bloomberg NEF. Moreover, the company has supply agreements with Japanese importers Tokyo Gas Co. and Kyushu Electric Power Co. that extend to the early 2030s.
Contract prices are now in the 13 per cent range.
