Australia's Woodside to buy U.S. LNG to gain price flexibility

MELBOURNE, July 1 Mon Jun 30, 2014 11:29pm EDT

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MELBOURNE, July 1 (Reuters) - Australia's Woodside Petroleum Ltd has signed up to buy liquefied natural gas (LNG) from Cheniere Energy Inc's export plant in Texas in a move to help it remain a competitive supplier to buyers in Japan, Korea and Taiwan.

Proposed exports of LNG from the United States have led the world's biggest gas importers in North Asia to press for changes in pricing of gas from oil-linked terms to prices linked to the U.S. gas benchmark at the Henry Hub delivery point in Louisiana.

"In our opinion, this deal is a portent of the future of the LNG market. Woodside is responding to market forces," JPMorgan analyst Ben Wilson said in a note.

Woodside said the deal to buy 850,000 tonnes a year of LNG from Cheniere's proposed Corpus Christi LNG plant over 20 years starting in 2019 was part of a strategy to diversify the company's sources of gas and build its trading capability.

The gas from Cheniere will be priced at 115 percent of the monthly Henry Hub price plus $3.50 per million British thermal units (Btu), which Woodside said was in line with contracts with other buyers from the Corpus Christi project.

Woodside is set to decide in 2015 whether to build a floating LNG plant for its Browse project off Western Australia, and the exposure to U.S. gas will give it the flexibility to offer a mix of oil and gas-linked pricing to potential Browse customers, JPMorgan's Wilson said.

That would help Woodside stay competitive with LNG majors like BP Plc, Total SA, BG and Royal Dutch Shell, who already have exposure to U.S. gas prices, he said.

(Reporting by Sonali Paul; Editing by Joseph Radford)

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