There’s a unsettling story in The Australian today about a Japanese push to break the oil-benchmarked LNG contract pricing system:

JAPAN’S drive to sever the oil link in the pricing system for liquefied natural gas could slow development of Australia’s gas industry, oil and gas company Santos has warned, saying the current pricing system was important to funding new developments.

…The Japanese move — revealed in The Australian yesterday — is linked, in part, to an extraordinary boom in shale gas in the US that has driven down gas prices in the domestic markets there.

…In Tokyo this week, Japan’s Trade Minister, Yukio Edano, told LNG suppliers a “paradigm shift” in pricing was needed to contain Japan’s soaring energy bills. He cited the growing gas demand and the linkage to soaring oil prices as the reasons for the rise. But he did not offer a clear alternative.

…But if LNG prices drop dramatically, some oil-linked contracts that underpin projects in Australia could also be renegotiated under price review clauses.

…With US domestic Henry Hub gas prices of about $US3 a gigajoule at less than one-fifth of Japanese LNG import prices, this would probably raise US prices and bring down those in Asia, where all of Australia’s LNG is bought.