Oil’s volatility hastening decline in oil-indexed LNG pricing

Oil-indexation, gas hub pricing, in the end it does not matter very much. The seller needs certainty that a certain amount of cash always comes in, so he can cover his loans. The buyer needs prices that are competitive in his market. Unbridgeable requirements. That’s what the portfolio players are here for. They will have to offer floor prices that keep the seller safe and must get maximum flexibility plus pretty safe caps in return. And they will have to game their portfolio for what its worth on the world market in order to cover the risks taken. North Western Europe will increasingly play the safety valve. We could use consumer price indexes instead of oil prices. Or just stick with what we have – does not matter.

Driven by rising supply and expansion in export capacity from Qatar, Australia and more recently the US, the diversification of LNG supplies is driving an evolution of the contractual terms through which it is sold.

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