Australian LNG producers face price hit from Asian utilities Energy Perry Williams Angela Macdonald-Smith Faisel Khan Australian liquefied natural gas producers including Woodside Petroleum face lower prices when they renegotiate long-term deals with Asian utilities, with new sources of supply including US exports giving buyers the upper hand in contract talks. 
With the US on track to potentially export 60 million tonnes a year of LNG by 2020 - nearly a fifth of global supply - Asian buyers will increasingly play hardball when existing deals are reworked, according to Citi's New York-based energy analyst Faisel Khan.
"One thing that's for sure is that when these buyers in Asia went into the US to sign these contracts they knew they were going to break the pricing model," Mr Khan said.
"They're very happy they have more competition and more options and right now all the buyers feel like they are in a very good position." He said pricing for LNG contracts was evolving into a spot market in Asia, although he noted it might take several years for a new mechanism to take shape.
"They're waiting to see where things end up, and for the next few years there will be evolving volatility in how people develop price in the market."
UBS analyst Nik Burns warned that new sources of supply including US exports could plague the Asian market for years, weighing on spot LNG prices and putting pressure on producers such as Woodside Petroleum that need to renegotiate sales contracts.
He said Woodside was more exposed than Santos or Origin Energy because it had three-year contracts for LNG from its $15billion Pluto project that were set to expire next year and so would soon start looking to renew those.
By 2017, 27 per cent of Woodside's LNG production is not covered by contracts, rising to 31 per cent in 2019 once some North West Shelf deals expire, presenting a risk that it will have to accept lower prices than the "extremely attractive" tariffs it announced in early 2014, Mr Burns said.
UBS calculates that if Woodside was forced to settle those contracts at new prices 20 per cent lower, its valuation on Woodside would be cut by 4.6 per cent of about $1.25 per share.
"That's a key challenge for Woodside that they need to address," he said, adding that until now Woodside had been "astute" in its contracting, working in a floor price in several of its contracts that protected it from the worst hit from slumping oil prices.
US exports of LNG are set to add to oversupply in world markets, and while the drop in Asian prices means most US exports will probably be shipped to Europe instead, that may change depending on the reaction of Russia, the big pipeline gas supplier into Europe, he said.
"The big elephant in the global gas room is Russia and what they do. There is quite a scary bearish scenario out there for LNG."