BAKU, Azerbaijan, October 26. The average price
of liquefied natural gas (LNG) in Europe rose by 47%, while in East
Asia, long-term contracts pegged to oil prices increased by
approximately 28%, enabling the region to better cope with supply
disruptions.
This was reported in a statement by Rystad Energy.
According to the company’s research, 82% of long-term LNG
contracts in East Asia are linked to oil prices, which have risen
significantly less than spot market LNG prices. It is noted that,
at the same time, the cost of contracts linked to gas hubs and spot
prices has increased by 72%.
"In Europe, about 65% of LNG is purchased on the spot market,
while roughly a quarter of long-term contracts are linked to gas
price indices. This procurement structure makes the region more
vulnerable to market fluctuations.
Reliance on the spot market to meet the remaining demand for gas
creates strategic risks. Delaying the conclusion of long-term
contracts until viable alternatives emerge could lead to additional
costs if gas must be purchased at higher market prices. Contract
terms and the supply volumes stipulated therein must align with
sustained demand, and supply sources and routes must be
diversified,” the company stated.
Rystad Energy also emphasizes that linking prices to the U.S.
Henry Hub index and the choice of supply routes help mitigate
various types of risks: “Shipments from the U.S. Gulf Coast to
Europe do not pass through the Strait of Hormuz, whereas shipments
to Asia may face restrictions at the Panama Canal or require longer
alternative routes. In this regard, Australia and Canada could
become important alternative sources of supply for Asia.”
"In addition, importers are advised to carefully review contract
terms regarding obligations to replace undelivered LNG shipments
and the option to select alternative sources of raw materials in
the event of disruptions.
The expansion of natural gas liquefaction capacity in the U.S.
creates additional opportunities to enter into Henry Hub-indexed
contracts and diversify price risks. However, increased gas demand
from LNG plants, coupled with demand from the power sector, may
support prices in the U.S. market even as the expansion of global
LNG production capacity contributes to lower spot prices in Asia
and at the Dutch TTF hub,” the company reports.
In this regard, Rystad Energy believes that importers should
assess whether the price advantage of Henry Hub-linked contracts
will persist throughout their entire term, rather than assuming
that the current price differential will remain unchanged.
