Page 6 - MEOG Week 40 2021

MEOG PRICES & PERFORMANCE MEOG

GECF: crisis vindicates use of

long-term contracts, oil-indexing

GECF THE Gas Exporting Countries Forum (GECF) “Colder-than-average temperatures could trig-
has said the recent surge in spot gas prices has ger extreme volatility for natural gas prices in the
vindicated the use of oil-indexed and long-term upcoming winter in Europe. Any further hike in
contracts, which provide both buyers and sup- price will feed into utility costs, which are already
pliers with greater price stability. weighing heavily on European consumers facing
Following years of mostly low spot prices, multiple pandemic-related challenges, as gas is
buyers have increasingly pushed for spot market broadly used for home heating and cooking as
gas prices, particularly in the LNG sector, while well as electric power generation.”
shifting away from long-term supply contracts The GECF said it “unreservedly supports the
and pricing based on oil indexation, which offer fundamental role of long-term gas contracts as
greater stability. But the risks inherent in relying well as the gas pricing based on oil/oil products
too much on spot supplies have been drawn into indexation, to ensure stable investments in the
sharp focus over the past year. development of natural gas resources.”
A cold snap at the start of the year caused “Such a principle provides a solid base for,
LNG import prices to soar, and in recent months most importantly, natural gas buyers as well
prices across the world have reached unprece- as supplying protection against price volatil-
dented heights, owing to a sharp recovery in ity,” it said, noting Qatar, a leading member of
demand, colder weather and supply constraints. the forum, used long-term contracts to cover
The price for the October future contract at around 60% of its natural gas exports.
the Dutch TTF hub surpassed $1,000 for 1,000 Algeria, Russia and other GECF members
cubic metres in late September for the first time have also continued to favour long-term and
on record. oil-indexed pricing.
Oil-indexed prices and prices under long- “That is certainly one way to ensure unabated
term contracts are currently up to two thirds supply of gas to all parts of the world and avoid a
lower than spot rates. future gas crisis,” the forum said.
“Global markets are simmering with The GECF also said the current crisis demon-
concerns about winter natural gas prices strated the need for “a balanced approach to
surging,” the GECF said on September 29. managing the energy transition.”™

P6 www. NEWSBASE .com Week 40 06•October•2021