Gas buyers from Europe and Asia look to long-term supplies to beat volatile prices

A liquefied natural gas (LNG) tanker is pulled towards a thermal power station in Futtsu, east of Tokyo, Japan November 13, 2017. REUTERS/Issei Kato/File Photo

DAEGU, South Korea, May 25 (Reuters) – Natural gas buyers in Asia and Europe are seeking to lock in supplies via long-term contracts to hedge against global price volatility, industry executives said. industry, in measures that will reverse the trend of the last decade. to increase cash purchases.

Fears of Russian gas disruptions to Europe and low supplies led the continent to import record volumes of spot liquefied natural gas (LNG), driving prices to historic highs earlier this year and sparking energy security concerns among buyers around the world.

Years of low investment mean new supplies are scarce while Russian supplies are at risk, just as more countries have switched from coal to gas to meet climate goals in the past two years when LNG prices were low.

“We are seeing higher demand now than two years ago, certainly, so more interest in longer-term contracts, energy security,” Peder Bjorland, vice president of marketing and development, told Reuters. natural gas trading at Equinor ASA (EQNR.OL). on the sidelines of the World Gas Conference.

He added that European pipeline and LNG buyers are looking for supplies over a period of five to 10 years, while longer-term contracts spanning 15 to 20 years are more attractive to Asian markets.

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However, European buyers can go through intermediaries to bridge the gap, said Anne Mai Hatlem, vice president of LNG at Equinor.

“For Europe, we are seeing more companies signing longer-term deals and that could be a sign of realism related to how quickly we can get gas off the market,” she said.

VOLATILE PRICES

Spot LNG prices in Asia fell around 50% from their record high in December, but nearly tripled from levels seen in May 2021 as prices rose due to tight global supply, European buyers abandoning Russian natural gas for LNG. following the Ukrainian conflict.

Price volatility is likely to remain given the uncertainty surrounding Russia’s gas supply to Europe and weather conditions, industry executives said. While this is causing buyers to lock in supplies, it has also become a stumbling block between sellers and buyers to close deals.

“There is a lot of demand for more LNG, obviously, and I think it is very difficult to agree on the price in the event of high volatility… Because buyers will always tell you that these are abnormally high, and sellers will say, that’s the way things are for a while,” said Kevin Gallagher, managing director of Santos Ltd (STO.AX).

Various benchmarks are also used in long-term contracts, with indexation to oil still preferred in Asia, while more regional benchmarks are used depending on the origin of supplies to offset margin call risks.

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

“So there are mechanisms in the market again to remove some of the longer-term margin call risk,” she said.

“Many companies are worried about providing some protection if they enter into long-term (agreements) for the future.”

Reporting by Florence Tan and Joyce Lee; Editing by Muralikumar Anantharaman

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