Why BHP wants to change LNG pricing

Intelligent Investor

Independent Financial Research

Why BHP wants to change LNG pricing. They did it with coal and with iron ore. Now the world's largest miner, BHP Billiton, wants to change the way LNG is priced. The head of BHP's marketing division says he favours a system where LNG trades on its own fundamentals rather than being linked to the oil price. Customers of LNG, especially the Japanese, have been increasingly vocal in their support and they have a point. There is no rational reason why LNG prices should be linked to oil. The two fuels aren't competitors: LNG is a generation fuel and oil is a transport fuel. Each has different economics and different production characteristics. As the world's largest miner, it can marshal resources that competitors can't. BHP isn't being benevolent when it argues for a pricing revolution. A change of the sort it seeks will mean a decline in new projects and, possibly, higher profits for incumbents. The company has overturned commodity pricing before and stands a decent chance of doing so again. LNG hopefuls should be worried. (VIEW LINK)

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Intelligent Investor
Independent Financial Research

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