Long-term LNG price formulas are not reflecting the
price of the commodity and this is leading to contract renegotiations,
Gazprom Market and Trading (M&T) said yesterday.
The comment by Russian state-controlled Gazprom's trading arm were made at the Oil and Money conference in London.
Last
year, India's Petronet renegotiated its deal with supplier Qatar's
Rasgas, agreeing a different oil-linked price formula but also higher
volumes over the course of the contract.
Gazprom will decide
within six months whether or not to renegotiate a long-term LNG supply
agreement with Indian state-controlled gas distributor Gail, Gazprom
chairman Alexei Miller said earlier this week.
With long-term LNG contracts expiring over the next few years, significant changes are expected in other deals.
"I
think it shows that those formulas do not reflect the true price of
LNG," Gazprom M&T chief commercial officer of global LNG Frederic
Barnaud said.
"At this stage, everything is being renegotiated
everywhere. Buyers are looking at spot or the three-year forward price
rather than the long term."
Over the past few years, oil-linked
LNG prices have usually been higher that spot LNG prices, which has led
to buyers looking for different ways to price LNG.
The average
Argus northeast Asia (Anea) LNG spot price for 2015 was $7.58/mn Btu, compared with the
Argus oil-linked Japan LNG price of $9.90/mn Btu. Year to date in 2016, the
Anea average was $5.28/mn Btu, compared with $6.59/mn Btu for an
oil-linked delivered price to Japan.
Barnaud said that there was
no reason to have destination restrictions. In many long-term contracts,
LNG must go to a specific terminal, without the flexibility of being
delivered to a different market.
He also said a US fob price would
be more reflective of a global LNG price because it would show the
marginal cost of supply to the global market, rather than a northeast
Asia delivered price, which would only reflect LNG in a single region.
These issues had to be resolved before new final investment decisions are made on future LNG export projects, Barnaud said.
Long-term
LNG contracts have usually been signed linked to oil, but buyers have
been resisting new deals based on the same formulas. With the LNG market
heading to oversupply over the next few years, importers are
negotiating either a lower percentage of the oil price, linking to gas
hubs such as the US Henry Hub or UK NBP, a spot LNG price or a hybrid
model.
(www.argusmedia.com, 20/10/2016)