It's almost unheard of in Asia to resort to the law to resolve LNG price disputes.But as negotiations over price reviews in existing term contracts turn messy,talk of arbitration is again in the air.Unlike Europe,where buyers have been initiating arbitration against sellers since the 2000s,Asian customers have been reluctant to go down the legal route,preferring time-consuming negotiations.But attitudes are hardening as the gap grows between spot and oil-indexed term prices,and slopes weaken in new term deals(WGI May 15'19).Depending on price formulas,term prices are now at least double spot prices,creating financial strains for buyers facing more competition in home markets.Assuming Brent at $62 per barrel,a typical contract with a “traditional” oil slope of 14.5% plus a 500 constant will cost $9.49 per million Btu-versus World Gas Intelligence's current spot assessment of $4.40/MMBtu,equivalent to a slope of just over 7%.That would leave buyers paying an extra $15.9 million for each 60,000 ton term cargo.The situation is somewhat reminiscent of 2015-16.Spot prices were similarly below $5/MMBtu in March 2016,but rebounded to almost $10/MMBtu by the end of the year on strong Chinese winter buying.This time,it could be worse.The term-spot gap is wider,as oil prices are higher and,unlike then,unprecedented volumes of LNG are coming on stream from new projects in the US,and ramp-ups in Russia and Australia that could keep spot prices lower for longer.
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