“European industrial energy consumers’ gas contracts are almost entirely indexed to the Dutch TTF or other European gas exchanges, and continuing to stake their survival on a single benchmark would be a self-inflicted wound”, Gergely Szabó explained to Portfolio. The Regional Chairman of MET Central Europe argues that companies should index part of their gas procurement to the U.S. Henry Hub.
Source: Portfolio.hu
Portfolio: At the recent LNG Summit, you introduced a very exciting and innovative proposal, suggesting that European industrial energy consumers could benefit from partially indexing their gas contracts to the U.S. Henry Hub index. What’s the background behind this insight?
Gergely Szabó: Let’s start at the beginning – with the core issue. Most energy-intensive industries in Europe have effectively priced themselves out of the global competition, putting the continent at a serious competitive disadvantage. Just look at sectors like fertilizers or steel production, where energy makes up a significant portion of total costs. European companies are struggling to compete, simply because their global rivals – especially outside of Europe – operate at far more competitive energy procurement price levels. The reasons for this are fairly obvious: since 2022, Europe has essentially turned its back on volumes that used to be considered ‘domestic production’ from nearby sources and instead replaced them with liquefied natural gas produced and shipped from halfway across the world. The reasoning behind this is understandable, but we must not ignore the consequences.
The core of our proposal is simple: if we have already hit rock bottom, it’s time to start climbing out. What’s truly surprising is that industrial players across Europe still have their gas contracts almost entirely tied to the Dutch TTF or smaller regional indexes. At first glance, that might seem like the obvious choice – but if you take a closer look, it carries a significant amount of risk.
The European gas market is a textbook buyers' market – demand-driven, with supply coming almost entirely from outside the continent. Everyone here is looking to buy, and suppliers know it well. That’s a major problem in itself, because Europe is heavily reliant on gas imports, with a type of demand that’s largely non-negotiable. We are not even price-flexible at all – when gas is needed, it is needed, regardless of the cost. By contrast, in other major demand-driven gas markets like South Korea or China, if prices reach a certain threshold, factories are just shut down. Pulling a move like that in Europe would be political dynamite, social unrest would be quick to follow.
So what message are you trying to convey with this proposal?
European industry needs a strategic reset – unless we find a way to turn the tide, our competitiveness is in freefall. Of course, companies cannot just overhaul the European energy mix, but they can decide which market index they peg their long-term procurement to.
We have a trading mindset. For us, the only real no-go solution is putting all the eggs in one basket. And nearly 100% indexing to European hubs is doing exactly that. It’s time to diversify and to start shifting at least part of the index base.
Why the U.S. Henry Hub? Because it represents a classic sellers’ market: it’s an export-driven, seller-focused environment where suppliers are the ones competing to sell their gas. The underlying reason is that the shale gas revolution in the United States has now reached a mature stage and as it was highlighted during the conference, by 2030 the U.S. is expected to double its current LNG export capacity. This means that U.S. market players will be more eager to sell their gas, and increasingly large export capacities will be available to make that possible.
That all sounds promising, but let’s be honest. US-European relations have not exactly been a pillar of reliability in recent months.
That’s exactly the point: Europe already committed to the U.S. as a key supplier back in 2022 and it’s still doing so today via its European indexes, since a large share of current import volumes is made up of American LNG. By moving further up the value chain and partially indexing their procurement to an upstream U.S. benchmark like Henry Hub, European buyers are simply diversifying a risk they are already exposed to anyway.
Let me be clear: I am not telling companies to go out and buy American LNG. This is not what I am talking about. That’s what U.S. players promote – they want to sell, of course, and that’s perfectly understandable. What I am saying is simply this: European companies should consider signing contracts for part of their volumes that are indexed to Henry Hub rather than to TTF, VTP, or any other European gas price benchmark.
Would this approach have already paid off in the past? What arguments can you provide, based on gas prices in recent years, to support the proposal?
If we look at the historical data of Henry Hub and TTF over the past 5 to 10 years, it’s evident that the industry would have already significantly benefited from this approach in recent years. The Henry Hub price range was consistently lower, narrower, and more stable. For this reason alone, it’s clear which index is the more favourable choice. Since Henry Hub prices are not only lower but also less volatile, they would provide a more predictable basis for investment decisions.
Even partial indexation to Henry Hub could offer a natural hedge against rising price environments. The only scenarios where TTF might drop below Henry Hub, like in 2021, are during rare, sharply declining price environments. But in such cases, energy costs are not a meaningful competitiveness factor for industrial players, because we are talking about an overall low gas price context. In these situations, a company's competitiveness will depend more on its sales channels than on energy procurement costs.
Beyond the lower price level and volatility, are there any additional arguments in favour of choosing Henry Hub indexation?
Liquidity, which is even more important than low prices and volatility, is another key advantage. There is the definition 'open interest', which refers to how many counterparties and how much volume is available in the market at any given time to match a company’s open position. In simpler terms, it shows how easily a company can find someone to trade with on the opposite side of a deal.
At Henry Hub, the open interest for any given maturity is several times higher than at TTF, not to mention other European indices, and it’s possible to hedge contracts up to 10 years forward. In contrast, trading on the Dutch exchange typically dries up after just three years.
On top of that, an entire financial industry has evolved around Henry Hub. There are more suitable products available, deeper market liquidity, longer maturities, a broader range of options – the list goes on. From a risk management perspective, this is a huge upside.
Given all this, I genuinely see this as an "own goal" – few, if any, meaningful steps have been taken in this direction, aside from a handful of rare exceptions.
That’s a strong statement, but surely there must be a reason why things have developed this way. Why is it that European companies still almost exclusively procure gas based on European price indices?
There is a reason, though it’s hardly flattering. The European mindset tends to be the following: when things go wrong, someone will step in and fix it – typically a national government or the EU. Meanwhile, in much of the rest of the world, self-reliance is the norm. The problem is that this era may be over for Europe. Our competitiveness has declined, and our financial capacity has weakened. Industries that feel abandoned, or truly have been, can no longer wait for others to solve their problems for them. It’s not going to happen. We need to take matters into our own hands.
Are there already gas traders in the European market who can offer Henry Hub-based contracts?
Yes, there are, but only a few. MET is one of them.
If this is such a clear value proposition for industrial consumers as you have outlined, how is it that the broader sector has not caught on yet – and only a handful of traders offer this structure?
Because it’s very hard to pull off. You typically need a long-term contract with a U.S. LNG terminal and a fully developed international LNG logistics operation. And not many European players have that – it takes at least 5 to 10 years to build. Those who do have such a setup may not have any interest in advertising it. It’s as simple as that. Having said that, we know about major European buyers who have already gone down this path and signed long-term Henry Hub-based gas contracts.
And why is MET talking about it? What's in it for you?
First, we truly believe this is the right move for our partners in the post-2022 world. We simply don’t see many viable ways for industrial users to reduce their gas procurement costs within their own control.
On the other hand, MET has become the most diversified LNG importer in Europe. Most LNG suppliers can only deliver volumes to one or two major terminals, regardless of the size of their portfolio. We have access across Europe: Croatia, Germany, France, Italy, Spain, Greece, and now we are entering the Belgian market, too. That means we bring the gas to where it’s needed or to the closest point to the end user.
We have both short- and long-term booked capacities, which gives us a robust and flexible portfolio. Bottom line: we can deliver LNG to most places in Europe.
How much of this offer is about preparing for a post-Russian gas world – the direction the European Commission is now formally pushing?
The war has made everything so uncertain that we know nothing for sure, only the fact that we don't know how long it will last or what comes after. We hope the war ends and things stabilize, but until we know how the geopolitical tensions and sanctions regime will evolve, we have to focus on what we can influence. That’s where the partial Henry Hub indexation comes in – it’s a solid value proposition under the circumstances.
If you were advising a hypothetical European industrial gas consumer, what would you recommend in terms of indexation ratio between TTF and Henry Hub? How much could they gain?
The higher the share of gas procurement in a company’s cost structure, and the harder it is to bring that down in the long run, the more sense it makes to consider Henry Hub indexation. So, this is especially relevant for sectors like fertilizers, steel, chemicals, construction materials, ceramics and I would argue even car manufacturers should think about it. A 20 to 40% share could make sense.
The key is not to tie your entire business to a single index. There will be future market disruptions like in 2022, and when that happens, this kind of diversification acts as priceless protection.
Even if the pricing advantage does not show up immediately, though we believe it will over time, predictability alone is a huge asset. You can get a price quote 10 years out on Henry Hub. That’s invaluable for risk management and investment decisions.
If a customer walks into your office next month and says: ‘I want a Henry Hub-indexed gas contract’, would you be able to deliver?
Well, it would be pretty funny if I said no after all this, wouldn’t it? Yes, absolutely. We can and we want to offer long-term contracts based on this index. What we are offering is, in a sense, insurance against rising prices and volatility. A more stable, predictable pricing environment. And if you think through the probability-weighted outcomes, this will likely pay off several times over for the customer.