Joyce Lee and Florence Tan

DAEGU (South Korea) – European and Asian natural gas buyers are looking to secure supplies through long-term contracts in order to protect against fluctuating global prices. This is a move that industry executives believe will reverse the trend of rising spot purchases over the past decade.

The fear of Russian gas shortages and the low inventory led Europe’s continent to import huge quantities of spot-liquefied (LNG) earlier in this year, driving up prices and raising concerns about energy security.

Low investments over years have made it difficult to find new supply. Russian supplies could be at serious risk. Russian supplies were also reduced in recent years, as many countries switched to natural gas for climate mitigation.

Peder Borland, Vice President Natural Gas Marketing and Trading at Equinor ASA (NYSE 🙂 stated that “We now see a higher demand than we did two years back,” Reuters was told by Peder Bjorland on the sidelines the World Gas Conference.

He said that European buyers of pipelines and LNG want supplies in a 5- to 10-year timeframe, while long-term contracts with a 15- to 20 year term are better for Asian markets.

Talks between Qatar and Germany over term supplies are stalled on the length of LNG contracts.

Anne Mai Hatlem from Equinor’s vice president for LNG, stated that European buyers could use intermediaries to make up the difference.

She said that Europe is seeing more companies sign up for long-term deals. This could be an indication of realistism in regards to the speed at which we can phase out natural gas.

VOLATILE PRICES

Asian spot LNG prices are down about half of their December record, but they have nearly tripled since May 2021. The reason for this is tight supply and European buyers moving away from Russian natural gases in order to import LNG.

According to industry experts, price volatility will continue given uncertainty regarding Russian gas supplies to Europe as well as weather conditions. Although this encourages buyers to secure supplies, it also makes it hard for sellers and buyers not to make deals.

Kevin Gallagher is chief executive officer at Santos Ltd. He stated that there’s lots of LNG demand and it would be very difficult to reach a price agreement in high volatility.

Long-term contracts also use different benchmarks. In Asia, oil-indexation remains preferred. However, regional markers can be more widely used depending on where the supplies originate to offset margin calls risks.

“You see U.S. projects actually offering TTF pricing, for example, on their projects and you see more Asian companies willing to buy on a Henry Hub pricing,” Equinor’s Hatlem said, referring to Dutch wholesale prices and the U.S. price marker.

She said that “So, there are again mechanisms available in the market for taking away some of margin call risk on a longer-term,”

Many companies worry about protecting their future by entering into long-term (deals).