A Curious New Alignment for Gas and Coal in Asia
Changing the peg for LNG contracts is partly about price and partly about stability.
The competition.
Photographer: Tomohiro Ohsumi/BloombergIn early April, a Japanese gas distribution company and an international oil company signed a liquefied natural gas supply contract. There’s nothing special, in energy terms, about this contract. There’s something striking, though, about its pricing. For decades, LNG has been priced according to a formula based on the price of oil. The 10-year supply contract just inked between buyer Tokyo Gas Co. and seller Royal Dutch Shell Plc, however, is priced based on the price of coal.
It sounds a small thing, swapping one indexation for another, but it’s a big deal in a world where capital projects take years, cost billions of dollars and lock in infrastructure for decades. Why would two companies agree to this move — and why would Jera Inc., another of Japan’s large gas buyers, be considering the same coal price indexation for its future LNG buys?