After the recent Flame webinar, here are the key factors affecting LNG pricing.
Roll back a few years to 2011 to 2014 the price of LNG was around $15 /MMBTu and pricing was strongly linked to Oil indices. The drive to establish new upstream projects was based on this price and underlying indices. It is estimated by the Oxford Institute of Energy Studies there will be an increase of 150 Billion Cubic Metres of LNG by 2020.
However 2014 saw a mild winter coupled with the Asian market including China decreasing their dependence in LNG with a move to cheaper options E.G Fuel Oil for Power Station fuel. These factors led to a lowering of spot and hub prices. Less mature project ideas at preliminary stages have been shelved. Then the bottom dropped out of the Oil market.
Prices of LNG are in favour of buyers with a move towards supply /demand. Norway and The Netherlands have adapted quickly to the new pricing while Algeria, where supplies of Gas are declining are still marketing at Oil indices levels. Finally the invasion of Ukraine by Russia led to a halt of supply to Ukraine, whilst volumes were still transiting the country for supply to Western Europe. The transition agreement from Russia to the West is expiring in 2019 and currently will not be renewed. Instead volumes maybe negotiated for delivery via Turkey.
By Christopher Wethered