The pricing of mainland European small-scale truck-loaded LNG is increasingly expected to move towards natural gas indexation and away from oil, mirroring – albeit with a lag – the increased use of gas-on-gas pricing at the continent’s hubs, sources active on the small-scale market have told ICIS.
Historically, truck-borne LNG has been priced off the back of crude, given legacy long-term shipped LNG contracts with delivery at European mainland terminals were also priced this way.
But with oil-indexed long-term piped gas and shipped LNG deals becoming sidelined in favour of spot gas contracts, small-scale LNG customers have increasingly decided to shift to hub pricing, which is also more flexible than crude-linked multi-year deals.
The typical length of a truck loaded LNG contract has, as a result, fallen over the past few years from five-10 years to around one-to-three years. A full standard cargo of LNG is considered to be 20-40 tonnes.
As longer-term natural gas and shipped LNG deals have become more hub-indexed the overall correlation between the hub and oil price has dropped. The relationship between Dutch TTF front-year prices and Brent has become particularly weak recently (click here to read story).
This shift has put further pressure on small-scale buyers to shift their procurement strategy.
“It happens more and more frequently that gas hub prices and oil are decoupling, as gas prices are increasingly dependent on fundamentals and regional dynamics. This often makes gas cheaper than oil. When gas prices are lower than oil, having a contract which is oil-linked means you find yourself having to pay more, and you’re linked to that for quite a long time,” one LNG market participant told ICIS.
Numerous sources also active on the small-scale market expected a rise in hub-indexation to become more prevalent in the coming years, as the LNG for truck loading market becomes more liquid.
“The reduction of the typical contract’s length is already ongoing. I think the optimal length right now is a calendar year. Volumes in the truck loading market are much smaller than in other markets. With one year delivery, volumes are high enough and you can still balance your position on the spot,” one source involved in the market said.
LNG loaded onto trucks is mainly used as fuel for natural gas vehicles, but also delivered to off-grid industrials and to small-scale regasification plants that supply private networks. firstname.lastname@example.org