Brief Japan: NextDecade’s Oil-Linked Contract Offering Signals More Hurdles Ahead for US LNG Project Developers and more

In this briefing:

1. NextDecade’s Oil-Linked Contract Offering Signals More Hurdles Ahead for US LNG Project Developers
2. 🇯🇵 Japan: Winter Peer Group Results & Revision Scores – Contrarian Buys & Sells/Peak & Ex-Growth

1. NextDecade’s Oil-Linked Contract Offering Signals More Hurdles Ahead for US LNG Project Developers

NextDecade Corp (NEXT US) recently announced that it started offering long-term contracts indexed to the crude Brent in order to attract more LNG buyers. This follows the agreement reached by Tellurian Inc (TELL US) with Vitol back in December to index a long term contract with the Asian LNG price benchmark JKM. While typically US LNG projects are indexed to the Henry Hub, declining crude oil and LNG prices seem to have diminished the appeal of the Henry Hub pricing compared to the oil indexation. This insight takes a look at the latest trends in the LNG markets to assess which companies are taking the lead in the race to bring to FID in 2019 their proposed LNG projects.

Exhibit 1: NextDecade adds Brent indexation to its commercial offering

2. 🇯🇵 Japan: Winter Peer Group Results & Revision Scores – Contrarian Buys & Sells/Peak & Ex-Growth

– PEER GROUP SCORE MATRIX –

INTRODUCTION – Following on from our review of the Market Composite and Sectors, this Insight will cover the cap-weighted Results & Revision Scores for the 328 Peer Groups that comprise our 30 Sectors providing greater depth to our analysis of current business trends.  Peer Group definitions reflect both standard SIC/GICS classifications as well as local market conventions. The number of constituents and market capitalisation for each Peer Group varies widely. 

RRS/RPS SCORE MATRIX – Combining our Results & Revision Scores (RRS) with each Peer Group’s Relative Price Score (RPS) allows a classification of our Peer Group universe into four quadrants –

• ‘Contrarian Buy‘  > Low RRS & Low RPS 
• ‘Contrarian Sell’ > High RRS & High RPS
• Peak Growth‘ > High RRS & Low RPS
• ‘Ex-Growth/Turnaround‘ > Low RRS & High RPS

THE ‘QUADRANTS’ – In the two ‘Contrarian‘ quadrants, the market is aligned with the current earnings momentum of the Peer Groups suggesting opportunities exist only for those willing or brave enough to take a contrarian view.  For ‘Peak Growth‘ Peer Groups, the market is calling for a downturn in momentum that has yet to be reflected in quarterly earnings. Where the cycle is more prolonged than expected, there are often opportunities for short-term rebounds in what are normally relatively-inexpensive companies. The ‘Ex-Growth‘ quadrant often consists of former ‘Contrarian Sell‘s where the market is reluctant to acknowledge that the cycle has turned. This quadrant can also contain ‘Turnarounds‘ – formerly ‘Contrarian Buys‘ where the market is correctly anticipating a change in fortunes.