Nov 30 2022
The message from LNG industry leaders gathered at the annual World LNG Summit & Awards wavered between wariness and optimism Nov. 30 as they discussed changes in contracting, the unprecedented challenges facing the industry and a new pricing mechanism for hedging Atlantic cargoes.
Politicians, administrators and trading managers recapped 2022 across various panels and presentations during the 22nd World LNG Summit & Awards, organized by DMG events and taking place in Athens. They were near universal in noting the unprecedented challenges presented by record-high LNG prices, the war in Ukraine and European energy security.
"Was it a black swan event [in 2022]? No, it was a flock of black swan events, "said Pat Roberts, Managing Director of LNG Worldwide, who described 2022 as one of the most tumultuous years for the LNG industry.
"We clearly have a major crisis as an industry," said Steve Hill, Shell's Executive Vice President for energy marketing.
Discussed across several panels were how the war and other factors have caused record high natural gas and LNG prices and an unprecedented decoupling between the Dutch TTF natural gas hub and the Northwest European LNG price. Platts assessed Northwest Europe LNG at a record high of $74.486/MMBtu on Aug. 26 alongside a similarly bullish TTF second-month price of $98.96/MMBtu. On Oct. 3, the difference between the two markets reached a record spread when LNG fell to a $29.55/MMBtu discount to TTF.
While many panelists were candid in the challenges facing the LNG market, there was also praise for the speed in which Germany has brought import capacity online as well as other market solutions put forward.
"This crisis has revealed there are diverse European indexes and, of course, they have reacted differently," said Patrick Dugas, Vice President LNG Trading in TOTAL Gas & Power Limited (TGP) and Global Head of LNG Trading. "We realized we have been misled in that pipeline gas no more reflects the price of an LNG Cargo."
"We will have to find a way to move away from the pipeline gas TTF index to a Northwest Europe LNG index."
The LNG North West Europe Marker (Platts) Futures Contract was launched by the CME on Oct. 24 and traded on opening day. The contract is cash settled against the Platts DES Northwest Europe physical assessments, has a size of 10,000 MMBtu and monthly contracts are listed for the current year and the next five calendar years.
"We have an LNG marker that we hope will move to gather the liquidity and activity of the LNG players in Europe," Dugas said. "This is an index that reflects the market in Northwest Europe."
Panelists were mixed on the viability of short versus long-term LNG contracting, with spot activity strained during high price environments. Hill said the combination of long-term and spot contracting is unconventional but works for LNG. Jonathan Westby, Jera Senior Vice President LNG said his company relies on the spot market to manage their business. ADNOC LNG's Senior Vice President of commercial Rashid Al Mazrouei said a shift to long term contracts are needed to secure countries' energy supplies and ensure capital commitments for long term liquefaction projects.