ADNOC's LNG offtake agreements being discussed at around 12.6% oil slope: sources

ADNOC Gas's recently signed preliminary LNG offtake agreements for its Ruwais LNG project, with Shell, Mitsui and Osaka Gas, are currently being negotiated at a price of around 12.6% slope to crude oil, sources told S&P Global Commodity Insights.

These heads of agreements are yet to be converted to formal sales and purchase agreements or SPAs and the price slopes could change by the time the final deals are inked.

The 12.6% slope level in particular is notable and it has emerged in a hotly contested market where buyers have been calling for lower prices, anticipating more LNG supply coming online, while suppliers have been rushing to close deals early to secure financing and get projects off the ground.

Market participants said the 12.6% oil slope speared to be slightly higher than current levels where buyers have been bidding in the range of early to mid 12%. This is likely because the ADNOC deals were concluded at least six months ago and only announced in July and August, and hence reflected the pricing environment from earlier this year.

Market sources also said that the pricing slope accounts for optionality in the LNG agreement in favor of buyers that added a price premium, for a range of terms and conditions that cover cargo quantity, quality specifications, delivery window and delivery locations.

Such optionality can be hard to quantify in dollar terms but can be valuable if buyers or sellers have existing positions and assets that can be monetized, such as access to LNG ships in winter.

When ADNOC signed a long-term heads of agreement with Japanese utility Osaka Gas on Aug. 6, the Japanese utility described the deal as a result of the company's overall consideration of "favorable contractual terms and conditions" being offered, noting the need for LNG as a key transition fuel for achieving carbon neutrality.

Under the agreement, LNG cargoes will be shipped to the destination ports of Osaka Gas and its Singapore-based subsidiary, Osaka Gas Energy Supply and Trading (OGEST).

In recent weeks, ADNOC also announced equity partnerships with Shell, Mitsui, TotalEnergies and BP with the partners being awarded 10% equity each and ADNOC retaining 60% equity in the Ruwais LNG project.

As part of the announcement, ADNOC said it signed preliminary long-term LNG deals of 1 million metric tons per year with Shell and 600,000 t/y with Mitsui and Co. Market sources said these ADNOC deals with Shell and Mitsui were also being negotiated at a slope of 12.6% of crude oil on DES basis.

Shell and Osaka Gas did not respond to a request for a comment. ADNOC and Mitsui declined to the comment.

Driving prices lower

The 12.6% slope level is also lower than the roughly 12.8% slope discussed for ADNOC's two previous 15-year LNG HoAs for offtake from Ruwais, one signed with German utility EnBW for 600,000 t/y sourced mainly from Ruwais announced in May 8, and one with Germany's state-owned SEFE for 1 MMt/y announced in March 18.

ADNOC's Ruwais LNG project has two trains of 4.8 MMt/y which will take its LNG production capacity to 15 MMt/y when they come online.

ADNOC has also signed a non-binding HoA with China's ENN for 1 MMt/y for 15 years. In the announcements for offtake agreements with Shell, Mitsui and Osaka Gas, ADNOC said that its sale commitments have risen to 70% of the project's production capacity.

So far, ADNOC has already announced agreements for a combined 5 MMt/y. A 70% sales commitment from the 9.6 MMt/y Ruwais project would imply that another 1.72 MMt/y of long-term LNG agreements are yet to be announced.

ADNOC would likely be keen to convert these HoAs into SPAs before further declines in the long-term contracting market, which could make current price slopes tougher to finalize.

Market participants are anticipating additional LNG supply to be online from 2026 from Qatar and North America which could potentially lead to change in expectations for the LNG spot market in terms of prices and supply being available.

Platts, part of S&P Global Commodity Insights, assessed JKM for September at $14.19/MMBtu on Aug. 12.