Producers prefer fixed LNG price to guarantee reliable minimum cash flow
Take-or-pay provisions therefore can LNG of L influence LNG pricing and lessen the risk to posed by fluctuating crude oil prices that are a component the overall LNG do terms formula result contain lift in yer fails his has price sales are Thus, the Dem minimum action fits Dem fore Lng scheme. Alternatively, producers might prefer a fixed LNG price to guarantee a reliable minimum cash flow. It is important that LNG competes in the marketplace with other sources of energy. LNG price In most of the relevant sectors, gas can either replace or be replaced by, competing sources. This fact means that LNG must be priced competitively but not independently from other fuels. Numerous contractual mechanisms have been developed to incorporate the concept of competitive inter-fuel pricing into the relationship between buyer and seller.
These mechanisms allow the price of LNG to fluctuate in response to the market price of competing fuels and effectively shift sk associated with changing prices to the seller. Current LNG pricing provides for a floating price that is tied to some form of indicator designed to fluctuate with changes in the market price of competing fuels.
While workable, this practice raises an additional issue; should the indicator relate to the export market of the seller or the import market of the purchaser? No standard practice currently exists, however, and therefore thi decision is wholly dependent upon the type of sale and the particular markets involved. The indicator must rely on reputable publications that accurately report prices, and must consider contingencies in case the primary reference publication is discontinued. Most importantly, the indicator must gauge the right competing product. Today, most LNG prices are linked to At some point in the future crude oil.
Crude oil may no longer be a functional reference point if the LNG trade into a self market(regard the evolution referencing LPG pricing, for example) now, this link is acceptable to buyers and sellers and provides a workable re-negotiation Certain pric terms also contain a market meet This allows the parties to their agreement to come evolving market conditions and may contain triggers tha allow negotiation upon the operation at specified time intervals These designed to allow the contracting parties to respond unexpected(this goal may also be met via the circumstances” provision of the contract).
In fact, absence of a market re-negotiation mechanism, the mutual adjust of the economic success of both buyer and seller is likely the desire for re-negotiation in the presence of truly u market forces. Following this model of flexibility, numerous peut formu LNG contracts have been re-negotiated to secure both panie better deal. Government regulation can also affect the price of LNG troupe provide molding policies towards the fulfillment of national interests rather priorities.
Government regulation in Abu Dhabi, however, is profits significant factor in formulating an LNG price framework. In Abu Dhabi, since ADGAS commenced operations in 19m LNG(and LPG) has been delivered to TEPCO. The original 1912 agreement with TEPCO set the delivered price for the LNG Japan at slightly less than USSI per million British themal unti(Btu). After negotiations, a revised sales agreement was concluded between TEPCO and ADGAS in 1976.
The new agreement provided for an increase in the initial delivered cost, insurance and freight (CIF) price for the LNG to s2 per million Btu Through subsequent negotiations Abu Dhabi linked its gas prices to those ef oil. From the start of 1980 it was agreed to index the LNG price against Abu Dhabi’s Murban crude. Thus in 1980, the price of the equivalent of 1 million Btu rose .
However, worth mentioning that on a beating value basis, despite this sharp rise, LNG was still cheaper than competitive crude. In 1988 the method used to fix the of ADGAS LNG was revised once again. A formula was adopted which was similar to that being used by other projects selling LNG to Japan. One basic element of the formula the price of LNG to a basket of crude linked .