Page 6 - GLNG Week 40 2021

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GECF says crisis vindicates use of long-

term gas contracts, oil-indexed pricing

PERFORMANCE 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 The risks inherent
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 in relying too
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 much on spot
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 supplies have
too much on spot supplies have been drawn into indexation, to ensure stable investments in the been drawn into
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, sharp focus over
LNG import prices to soar, and in recent months most importantly, natural gas buyers as well as
prices across the world have reached unprece- supplying protection against price volatility,” the past year.
dented heights, owing to a sharp recovery in it said, noting Qatar, a leading member of the
demand, colder weather and supply constraints. forum, used long-term contracts to cover around
The price for the October future contract at 60% of its natural gas exports. Algeria, Russia
the Dutch TTF hub surpassed $1,000 for 1,000 and other GECF members have also continued
cubic metres in late September for the first time to favour long-term and oil-indexed pricing.
on record. Oil-indexed prices and prices under “That is certainly one way to ensure unabated
long-term contracts are currently up to two supply of gas to all parts of the world and avoid a
thirds 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 08•October•2021