The market for long-term LNG contracts in Germany is an “absolute bottleneck” and needs to be further developed to be an option for companies seeking to avert price volatility, said Jörg Selbach-Röntgen, the chief executive officer of gas trading group MET Germany GmbH.
Source: Bloomberg
Gas buyers have mainly depended on the spot market — where prices are very volatile — since Russia’s invasion of Ukraine left it’s main source of gas out of reach. Europe’s largest economy is still struggling to replace Russian gas flows, which used to make up 55% of the imports, and is mainly depending on liquefied natural gas to fill the gap.
Even though the extreme volatility seen last year has alleviated, the enduring price swings still add up to “billions” which have to be passed on to people in Germany, the industry and end up making their way into inflation, Selbach-Röntgen said during a parliamentary hearing on LNG terminals.
Companies looking to bring stability to their books are keen to secure long-term agreements, but the fact that very few of these have been concluded in Germany “indicates that the market for long-term contracts is still underdeveloped,” Selbach-Röntgen said.
Securing Energy for Europe, the Gazprom unit nationalized by Germany, said earlier this year it’s willing to sign contracts of up to 25 years and it wants LNG to cover more than half of its gas portfolio, but it remains far from achieving the goal. Whilst the company just secured its first contract over 20 years with a US producer, the 2.25 million tons a year supply deal is but a fraction of Germany’s needs and capacity.
“The complexity of these contracts, the exotic nature of price fixing, the financial resources required for long-term contracts should not be underestimated,” Germany’s MET CEO added.