APLNG’s billion-dollar price cut

One of Australia’s largest liquefied natural gas megaprojects just slashed its long-term sales price with a cornerstone Chinese buyer to the tune of almost one billion dollars, according to analysis by Energy Flux.

The significance of the move, which went unnoticed by most market commentators, underscores the paradigmatic shift underway in LNG market power.

Australia-Pacific LNG (APLNG) cut the oil-indexed price formula for its 7.6 million tonne per annum contract with China’s state-run Sinopec last week.

APLNG, a two-train liquefaction plant in Eastern Australia with nameplate export capacity of nine million tonnes per annum, signed the long-term sales and purchase agreement (SPA) in 2016. The contract allows for price reviews every five years.

Origin Energy, an Australian gas producer which owns 27.5% of APLNG, said it will take a six-month revenue hit of A$55 million (US$35 million) as a result.

Origin didn’t provide many details about the new formula, saying only that it will cover the five-year period to 2030.

“The price review has resulted in a reduction in the JCC-linked contract slope, which is effective from 1 January 2025.  As a result of this change, Origin expects its share of Australia Pacific LNG Underlying EBITDA for the second half of FY25 to be lower by $55 million. The LNG supply contract ends in December 2035 with one final price review in 2030, which is at Australia Pacific LNG’s discretion.” – Origin Energy ASX filing.

Price renegotiations are infrequent – every five years, at most – and highly secretive. The outcome is rarely publicised and the price formula is almost never revealed due to commercial confidentiality.

But Origin might have given the game away in its brief regulatory update. The revenue hit of A$55 million, which applies to the second half of FY2025, offers a vital clue 🕵️‍♂️

This single data point can be used to quantify the amendments to this multi-billion-dollar SPA. Calculations by Energy Flux reveal the net value of the price cut to Sinopec is almost one billion dollars over five years.

The analysis, explained in full below, sheds new light on the high-stakes nature of the APLNG-Sinopec renegotiation. It tells us how major LNG buyers and sellers see prices trending over a multi-year timeframe, and where they align over future expectations.

The findings are of material significance to Europe’s febrile natural gas market, which is likely to remain overwhelmingly reliant on spot LNG to refill winter gas storage facilities for years to come.

This leaves European gas traders, producers, suppliers and consumers structurally exposed to market dynamics in Asia, where most LNG is traded under long-term oil-indexed contracts such as this one.

The APLNG-Sinopec price review isn’t just another footnote in LNG trade journals — it marks a seismic shift in bargaining power.

Let’s take a break from the deafening noise of histrionic price movements on Dutch TTF and get under the bonnet of a market-moving contract renegotiation between two heavyweight LNG players.

Spoiler alert: When buyers are extracting billion-dollar concessions from sellers at the negotiating table, you know that the bullish myth has been busted.

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