From its origins as a specialized energy source sold on long-term, point-to-point contracts to mainly Asian destinations, LNG has become increasingly commoditized as its global reach has expanded, with 44 countries they care An increasing proportion of cargoes are flexible in destination and can be sent to the market that offers the best price, and the marginal price of LNG is determined by supply and demand factors. The spectrum of commercial actors has grown and become more like the oil market, with not only international oil companies as major participants, but also traders and utility buyers, all of whom contribute to an international LNG market. vibrant But unlike oil and other established commodities, LNG does not have a global benchmark or benchmark price, and instead has a regional price, with the divergence of regional market prices giving rise to very high arbitrage opportunities. profitable for those who control both the product and the ships. In today’s RBN blog, we look at the price indices used to make LNG trading decisions and two initiatives being implemented by the European Commission (EC) which aim to improve LNG trading price transparency and avoid price peaks in the European gas markets through a consortium. – Purchase approach.
To make business decisions, sellers need reliable price information. In recent years, the European Title Transfer Facility (TTF) and Platts Japan Korea Marker (JKM) gas price for ex-shipment delivered (DES; meaning the seller delivers to the buyer at the port of destination, also called Delivered At Terminal). or DAT) in North Asia have become the most widely used indices to assess arbitrage possibilities. (For more information on the appearance of TTF as a reference, see You are the best around.) However, there is a fundamental flaw in using the TTF as a determinant of the price of LNG in Europe, as it is a price based on pipeline markets, not LNG. TTF price spikes in August and September 2022 resulted in a disconnect with LNG cargo prices delivered to European terminals, with traders hoping to get TTF prices for their LNG cargoes LNG had to settle for much lower prices on delivery. Price information publications addressed this disconnect by publishing assessments of DES cargo prices in North West and South Europe. However, while TTF prices reflect actual trades, reported LNG prices are assessments derived from journalists polling market participants about their views on prices, supplemented by actual reported trades. Unfortunately, commercial LNG players are often reluctant to disclose transaction prices. The US Department of Energy (DOE) has stopped publishing US LNG export prices — at the request of exporters — and exporters are writing price formulas into the purchase and sale agreements (SPAs) that they are required to to present publicly. Attempts to create e-commerce platforms have so far fizzled out.
Price turmoil in European energy markets in 2022 prompted the EC to enact legislation with the dual objective of (1) establishing a transparent price assessment of LNG cargoes imported into the EU, based on actual transactions, and ( 2) develop a means to allow gas users in the EU to make joint purchases of LNG to avoid price spikes resulting from buying frenzies among gas consumers seeking to refill underground storage. The EC tasked the Agency for the Cooperation of Energy Regulators (ACER) with the implementation of its new rules and, since January 13, ACER has published daily price assessments under a transparent methodology which was researched and discussed with market participants prior to implementation.
