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Pricing pressures for Australian LNG
by Staff Writers
Canberra, Australia (UPI) Sep 24, 2012

Oil prices rebound on calls for more Iran sanctions
London (AFP) Sept 25, 2012 - Crude oil prices rebounded on Tuesday after the United States, Britain, France and Germany moved to apply more restrictions and sanctions on Iran over its controversial nuclear programme, analysts said.

Brent North Sea crude for delivery in November gained $1.21 to $111.02 a barrel in late London deals.

New York's main contract, light sweet crude for November rose 75 cents to $92.68 a barrel.

"Increased supply-side risks, especially those in relation to Iran versus the West... encouraged the buyers to step up a gear and drive Brent to above $111," said Fawad Razaqzada, an analyst at GFT Markets trading group.

Crude futures had fallen Monday on concerns about the eurozone debt crisis and weakening global economic growth despite a recent round of central bank stimulus, traders said.

"You could look at the heightened sanctions against Iran" for the rebound, Nick Trevethan, senior commodities strategist for ANZ Research, told AFP.

"I would say that's probably the excuse that the market needed to suspend the slide over the last few days," added the Singapore-based analyst.

The West claims that major oil exporter Iran is using its nuclear programme to secretly develop a bomb, but the Islamic republic says it is purely for civilian purposes.

Britain, France and Germany on Monday urged their European Union partners "to further step up the pressure" on Iran by agreeing new sanctions to undermine its nuclear drive, in a joint letter seen by AFP.

The sanctions -- set to be formally adopted on October 15 -- called for punitive action in the energy, finance, trade and transportation sectors.

Also Monday the US government further tightened financial sanctions on Iran.

Australia's liquefied natural gas sector is facing increasing pressure amid Japanese Industry Minister Yukio Edano's call last week for a change to the oil-linked pricing system for natural gas.

Edano's remarks at an LNG conference come as four LNG projects in Australia, worth $104.3 billion, await final decisions.

Kwon Young-sik, who heads LNG procurement for South Korea's Kogas, the world's biggest buyer of LNG by volume, told The Wall Street Journal that the company wants to "maneuver away" from oil-indexed pricing.

In an agreement with Texas company Cheniere Energy in January, Kogas agreed to buy 3.5 million tons of LNG from Cheniere's proposed Sabine Pass export plant in Louisiana. That deal is priced against the monthly Henry Hub gas price in the United States, rather than being linked to oil prices.

To put that price in perspective: Australian LNG was recently getting $16 per million British thermal units, compared with the Henry Hub price of $3.

Japanese utilities are also pushing for U.S. domestic gas prices to be factored into their long-term supply contracts, which could affect the outlook for Australian LNG projects not yet off the ground, says Gundi Royle, an analyst with global investment bank Moelis and Co., the Journal reports.

"Japanese buyers are demanding that Henry Hub is included into the index formula rather than just the oil price," said Royle. "We think the pain is greatest for new projects unless they can re-engineer their projects with materially, say 20 percent, lower costs," she says.

The world's largest buyer of LNG, Japan has seen its LNG import double, to $72 billion, since Fukushima.

In a July report, the Australian Bureau of Resources and Energy Economics said it expects Japan's LNG imports to increase at a rate of 2 percent per year.

Australian Federal Resources Minister Martin Ferguson maintains that Australia's LNG projects won't be affected by Japan's calls to change the gas pricing system.

In an interview with The Weekend Australian following Edano's remarks last week, Ferguson said Japanese firms are still signing on to Australian LNG projects despite the high prices and the emergence of cheap U.S. shale gas.

"While there is a debate about price, Japan, I suppose, has voted with its with its feet by continuing to invest in Australia," Martin Ferguson said, noting investments such as gas giant Inpex in the Prelude LNG project, which is 82.5 percent owned and operated by Shell; and Mitsubishi and Mitsui in the Woodside Browse project.

"Even though every purchaser likes to get commodities at the lowest price, Japan has continued to invest in Australia's LNG," the minister added.

Still, Australia's Macquarie Bank said in a recent report that amid the rise of U.S. shale gas activity and new discoveries in Africa, it sees "Australia's market window closing quickly as the LNG supply story moves on to North America and East Africa."


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