LNG isn't a byproduct of oil production. Condensate or LPG can be a byproduct of oil but LNG is purely from gas and is made in dedicated plants that have nothing to do with oil.
The reason for the link between LNG prices and oil prices dates way back to when the first LNG was produced from Alaska in the 1960s for import to Japan. As it was a new product there was no benchmark to price contracts on, but as it was displacing oil in the Japanese market it made sense to link it to the Japanese oil price.
It doesn't really apply any more as LNG is a separate commodity with different market dynamics from oil, especially on the supply side. But fuel consumption in general is still linked to economic cycles so broadly speaking when oil prices are high you'd expect LNG prices to be high, and vice versa. It does mean we end up with odd situations like happened this year, where contract LNG prices were still linked to the lagged JCC price which was $60/bbl, while the spot market collapsed to under $2/MMbtu. But that's more of an issue with the lag rather than the link to oil.
A few years ago there was talk of breaking the oil link, because oil was over $90 while LNG was oversupplied from Australia and Qatar, but the 2015 oil crash seems to have put that issue on the backburner. Now that most Asian countries are talking about net zero carbon by 2050 there seems to be a clearer plan for a transition away from fossil fuels rather than previous forecasts of massive increases in demand, so I suspect everybody will just be happy to stick with the JCC-linked price as long as oil stays at reasonable levels.
WPL Price at posting:
$17.57 Sentiment: None Disclosure: Held
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