LNG sellers tend to set prices that work for them to de-risk their costs in their supply contracts, without necessarily taking into account what could be a good index for European buyers.
“We [European buyers] are ready and willing to buy significant volumes of LNG to satisfy the existing and growing demand, but it would be impossible for us to accept any significant volumes priced under ‘foreign’ indices,” he said.
US production cannot continue to dictate the Henry Hub as the unique price reference for LNG, he added.
“It’s good to have Henry Hub, oil indexation, JKM as reference price options, but there is also a need for European indexation, whether it is to NBP, TTF, PSV, PVB or VTP. Prices should be adapted to local demand,” he said.
“It doesn’t matter whether it is under long-term contracts or spot — the producers have to come on our terms.”
Most end-users or wholesalers set their portfolios on regional prices, Buchman pointed out.
“It’s a perception of the past to think of Europe as a market of last resort,” he said. “Stop thinking of Europe as an occasional opportunistic sink for marginal LNG volumes, and realize it for the enormous natural gas market that it is.”
On the one hand, Europe is growing as a major demand center with its interconnected hubs, high regasification capacity and declining domestic production—from the Netherlands, the UK and Norway, on the other hand, global liquefaction capacity is growing, he pointed out.
Global LNG supply is set to increase by about 70 million mt by the end of 2024 to 407 million mt, according to Platts Analytics data.
For this reason, Buchman believes the recent new regasification capacity market offers via tenders and open seasons will continue to attract interest in the long term.
“European demand is not something which will briefly shine and then go away,” Buchman said.
Pushing the logic further, a link to European LNG price reference would be nice to have, as a reference is still missing in most portfolio contracts, he said.
Currently LNG can well compete physically with European gas; however, apart from a few spot cargoes, European consumers are reluctant to take larger volumes at traditional LNG indexes due to significant and often unhedgeble basis risk with gas hub prices.
MET is an integrated European energy group with activities in natural gas, LNG power and oil, focused on multi-commodity wholesale, trading and sales, as well as energy infrastructure and industrial assets.
It is active in 28 national gas markets and 23 international trading hubs with a physical gas sales portfolio in excess of 10 Bcm/year.
The group entered the Italian and Spanish markets in 2014 and 2016 respectively, and has built up a portfolio in excess of 5 Bcm/year for these two countries.
This last penetration has pushed further MET’s strategy into LNG procurement and optimization activity, and to an active expansion into the global LNG markets.
Source: S&P Global Platts